THEFOREST INVESTMENTFORUM INVESTMENTOPPORTUNITIESANDCONSTRAINTS Report of the FOREST INVESTMENT FORUM Washington, D.C. 22­23 October 2003 The World Bank Washington, D.C. Material in this book can be copied and quoted freely provided acknowledgement is given to the authors. Publication prepared by: PROFOR at the World Bank 1818 H Street NW Washington DC, 20433 United States E-mail: profor@worldbank.org website: http://www.profor.info Published July 2004. PROFOR book number 3. Printed on 80% post consumer fiber paper. Cover photo credits, from top to bottom: (1) WWF-Canon/Edward Park; (2) WWF-Cannon/WWF Switzerland; (3) World Bank/Curt Carnemark; and (4) World Bank Curt Carnemark. Overcoming Constraints to Private Sector Investment in Socially, Environmentally, and Economically Sustainable Forest Management: Perspectives of Leading Forest Industrial Companies, Conservation Agencies, and Financial Institutions 17 Constraints to Responsible Private Sector Investment 18 Insecurity of Raw Material Supply and Political Instability 19 Illegal Logging and Forest-Related Corruption 20 Lack of Environmental Assessment Procedures and Safeguard Policies 21 Lack of Consensus on Independent Certification 22 iv Differing Strategies for Protecting HCVFs 23 Ongoing Debate on the Impacts of Plantation-Based Forestry 23 Underdevelopment of Markets for Forest Environmental Services 25 Constraints to Investment in Small-Scale Enterprises 25 Emerging Investment Opportunities: Proposals for Follow-Up Action 27 Investment Forum Reference Materials and Information Sources 29 Certification 29 Environmental Assessment Procedures and Safeguard Policies 29 Illegal Logging and Corruption 30 Markets for Forest Environmental Services 30 Plantations 31 Protecting High-Conservation-Value Forests 31 Security of Raw Material Supply 32 Small- and Medium-Size Forest Enterprises 32 Annex 1:Agenda 33 Annex 2: List of Participants 37 Forest Companies and Industrial Associations 37 Financing and Development Agencies 41 Nongovernmental Organizations and Policy Research Institutions 45 REPORT OF THE FOREST INVESTMENT FORUM Contents iii Abbreviations and Acronyms v Forest Investment Forum Outcome Statement from Host Partners 1 Forest Investment Forum Summary Report 3 Opening Remarks 3 Keynote Addresses 4 Global Forest Trends 4 Timberland Investment 4 Best-Practice Guidelines for Forest and Forest Industry Investment Policies 4 Panel Discussions 5 Industry Perspectives 5 Conservation Community Perspectives 6 Financial Community Perspectives 8 Business­Community Partnerships 9 Financing Environmental Services 11 Discussion on Panel Outcomes 11 Emerging Investment Opportunities: Opportunities for Collaborative Follow-Up Action 13 Global Forest Vision 2050 15 Closing Remarks 16 Acronyms and Abbreviations v ADB Asian Development Bank GFW Global Forest Watch AFLEG Africa Forest Law Enforcement and HCVF high-conservation-value forest Governance IBRD International Bank for Reconstruction BCF Biocarbon Fund (World Bank) and Development CEO chief executive officer IDB International Development Bank CEPF Critical Ecosystems Partnership Fund IFC International Finance Corporation CIFOR Center for International Forest IIED International Institute for Environment Research and Development COO chief operating officer ILO International Labour Organisation CPF Collaborative Partnership on Forests IMF International Monetary Fund CSA Canadian Standards Association ISO International Standards Organisation CSR corporate social responsibility ITTO International Tropical Timber EBRD European Bank for Reconstruction and Organization Development MDB multilateral development bank ECA export credit agency NFP national forest program ESSD Environmentally and Socially NGO nongovernmental organization Sustainable Development ODA official development assistance FAO Food and Agriculture Organisation of OECD Organisation for Economic the United Nations Cooperation and Development FDI foreign direct investment PCF Prototype Carbon Fund (World Bank) FIN Forest Integrity Network PEFC Pan-European Forest Certification FLEG Forest Law Enforcement and PROFOR Program on Forests Governance SFI Sustainable Forestry Initiative FSC Forest Stewardship Council SFM sustainable forest management GEF Global Environment Fund SMEs small and medium-size enterprises TFD The Forests Dialogue WRI World Resources Institute TI Transparency International WWF World Wide Fund for Nature TNC The Nature Conservancy UNFF United Nations Forum on Forests WBCSD World Business Council for Sustainable Development vi REPORT OF THE FOREST INVESTMENT FORUM CHAPTER ONE Forest Investment Forum Outcome Statement from Host Partners 1 T he Forest Investment Forum brought Strong recognition was expressed on the pri- together nearly 150 senior executives of mary importance of sustainable management of domestic and multi-national forest product forests in order to realize their potential to con- companies, private and public sector financial insti- tribute to poverty alleviation, sustainable devel- tutions, and leading conservation agencies around opment, protection of environmental services of the world. The objectives of the Forum were to: both local and global importance, and products that improve the quality of life. There was also explore opportunities for private sector compa- strong agreement that containing illegal logging nies, the World Bank, the IFC and other finan- operations and forest corruption are essential cial institutions to invest in environmentally, prerequisites to achieving sustainability. It was socially and economically sustainable forest further recognized that sustainability would enterprises in developing and economic transi- depend heavily on establishing effectively man- tion countries; aged protected area networks, and on environ- explore actions that the World Bank Group and mentally and socially responsible management Forum participants could take to create an and development of both natural forests and enabling environment for responsible private plantation resources. There was agreement that sector investment; and achieving genuine sustainability in forests would explore the willingness of forum participants to require considerable investment in policy support a process that beyond the Forum, would reform and institutional development, as well as encourage companies, financial institutions, and addressing cross-cutting issues at a landscape the conservation community to develop clearly level. defined and mutually compatible social, eco- There was agreement that expansion of demand nomic and environmental investment guide- for forest products, especially in developing lines. countries, indicates that there is considerable likelihood of expanded investment in the forests The host partners of the Forum--The World sector in many developing regions of the world; Bank, World Business Council for Sustainable major prospects among these are Russia, China, Development, WWF, Forest Trends, IFC, and Brazil, and India. PROFOR--view the Forum outcomes very posi- There is a growing convergence of interest tively. Specifically: between leading forest enterprises, financial institutions--including commercial banks, There was strong support for a multi-stakehold- investment funds, export credit agencies and the er process involving major groups as the most multilateral development banks--and conserva- effective way to continue building consensus in tion organizations, that investment in the sector the above areas. Initiatives already launched by must occur under a credible framework of safe- the World Bank/WWF Alliance, The Forests guards and environmental assessment proce- Dialogue (TFD), and the Forest Trends dures, that can act as an incentive to responsible Katoomba Group could provide appropriate investment and a deterrent to unsustainable and platforms for advancing these processes. destructive activities. Strong interest was also Specifically: expressed in developing mechanisms for analysis · to assist in the establishment of investment and underwriting of political, social and envi- guidelines and safeguards, the World Bank, ronmental risks. The forum organizers welcome WWF, WBCSD and Forest Trends will 2 recent developments and progress in these areas. explore means to expand support to acceler- There is a need to address issues such as the ate development of multi-stakeholder con- identification and protection of forests that are a sensus and action on key sustainable forest high priority for biodiversity conservation; pro- management issues of high conservation tection of the rights and resource interests of forests, intensive forestry, illegal logging and forest-dependent people; certification and other forest crime, and certification; systems of independent verification of forest · to support cost-effective and credible third- management performance; and the establish- party verification of performance, over the ment and management of forest and agricultur- next 12 months the World Bank, WWF and al tree-crop plantations. WBCSD will catalyze creation of a core It is clear that a great deal of work remains to alliance of stakeholders to foster interaction be done in achieving consensus on the above and conflict resolution between certification issues, harmonizing the various safeguard initia- systems. tives presently under implementation or devel- · to explore opportunities that would provide opment, and also on the extension of the appli- funding at small scales and mechanisms that cation of these to a broader range of investing would strengthen the supply chain for small- groups. and medium-sized enterprises. There was strong recognition that forest invest- This Forum has focused on opportunities and ment will involve large and small scale invest- challenges to private sector investments and on ments, and that considerable potential exists for how the Forum sponsors can help to support these investments to deliver significant benefits responsible investments. However, it is clearly to farmers, small forest owners, local communi- recognized that as this collaborative dialogue ties, and indigenous peoples. Nevertheless the moves to the country level, it will be crucial to financing of smaller scale forestry and wood involve both local communities and processing requires further strengthening. Governments to ensure that the initiatives being The importance of forest environmental services discussed contribute to National Forest was recognized, and there was considerable dis- Development Plans. There will clearly be a role cussion of problems and options for developing for other organizations and intergovernmental markets for these services and some recent groups such as FAO, UNFF, ITTO. examples of success and failures in this area. REPORT OF THE FOREST INVESTMENT FORUM CHAPTER TWO Forest Investment Forum Summary Report 3 by Laura Ivers, PROFOR Communications Officer P rivate foreign direct investment (FDI) in the Finance Corporation (IFC), and the Program on forest sector considerably exceeds public offi- Forests (PROFOR), the forum set out to: cial development assistance (ODA). Forest financing in recent years has been characterized by identify opportunities for investments in envi- an increase in FDI into developing countries to ronmentally and socially sustainable forestry in approximately US$8­10 billion a year, and a decline developing and economic transition countries; in ODA to about US$1.75 billion a year. Current consider actions that the World Bank Group and levels of investment in the forest sector, both forum participants could take to create an domestic and foreign, fall far short of the level nec- enabling environment for responsible private essary to realize the potential of well-managed for- sector investment; and est resources to contribute to poverty alleviation, explore the willingness of forum participants to the protection of vital environmental services, and support a process to develop clearly defined and sustainable economic growth in developing and mutually compatible social, economic, and envi- transition countries. ronmental investment guidelines specific to the To address the issue of investment in the sector, forest sector. the Forest Investment Forum brought together 150 senior executives of domestic and multinational OPENING REMARKS forest product companies, private and public sector financial institutions, and leading conservation agencies from around the world. Organized jointly James Wolfensohn, President, World Bank Group, with the World Business Council for Sustainable welcomed forum participants, stating that "the Development (WBCSD), the World Wide Fund for future of forestry as a sustainable and environmen- Nature (WWF), Forest Trends, the International tally sound area is key for both life and for advance- ment of the fight against poverty and the mainte- nance of biodiversity." He emphasized the impor- Note: This summary is intended as an objective report of the tance of the private sector in creating a sound forest Forest Investment Forum proceedings based on presenta- sector and thus the need to continue building part- tions delivered and discussions held at the forum. Many nerships between the private sector and the Bank. thanks to John Spears, Advisor, World Bank Forests Team, Odd Gullberg, Chief Operating Officer (COO), and Samira Leakey, World Bank/WWF Alliance, for their contributions to this summary. WBCSD, highlighted WBCSD's commitment to bringing businesses, government, and civil society greater competitiveness and to environmental rea- closer together on key environmental and social sons. Developing countries such as Argentina, issues, and said actions of the key stakeholders in Brazil, Chile, China, Indonesia, and South Africa the forum would "shape how the world's forests are can be expected to become increasingly important managed for current and future generations." world producers. Claude Martin, Director General, WWF Häggblom suggested that the World Bank sup- International, discussed the successful and unique port growth by (a) mitigating risk; (b) committing partnership of the World Bank/WWF Alliance and resources to get projects off the ground; (c) provid- highlighted its work in concession reform, illegal ing a clear vision on environmental and social logging, and timber tracking. He said governance objectives; (d) communicating a broad global agen- and illegal logging are issues central to improving da on issues such as carbon sequestration; and (e) forest management in many parts of the world, and building cooperation among industry, government, 4 advocated that all investment projects that impact and local interests. forests--whether carried out by development banks, aid agencies, commercial banks, export cred- Timberland Investment it agencies, or others--apply safeguard policies to ensure that they do not threaten the world's forests. Clark Binkley, CEO, Hancock Natural Resources Group, summarized why institutions are attractive owners of timberland, why timberland is attractive KEYNOTE ADDRESSES to institutions, and what the World Bank can do to attract institutional investment. Kevin Cleaver, Director of the Agriculture and Binkley identified private investment funds as Rural Development Department, World Bank, attractive because they require long-term assets, are chaired this session that explored different perspec- focused on total economic returns, hold trillions of tives on the increasing demand for wood products, dollars of capital for investment, and typically rep- on the appeal of timber investments, and on the resent the broad public. In turn, timberlands are environmental and social safeguards that should be attractive to institutional investors because they adopted by industry. have strong cash yields, are of low to moderate risk, provide portfolio diversity, and preserve capital. The average annualized return for US timberland Global Forest Trends during the period 1960­2002 was 12 percent. Non- Rainer Häggblom, Chief Executive Officer (CEO), US investments with a high-risk profile generally Jaakko Pöyry Consulting, presented an overview of require a higher return. In this context, the World trends in global forest product consumption and Bank should help to reduce the risk of timberland fiber supply. investment in client countries by (a) improving The demand for wood fiber is increasing, with policies, institutions, and legal frameworks; (b) industry alone expected to need 1.9 billion cubic supporting technical assistance; (c) helping to pri- meters per year by 2015. Demand for paper making vatize; and (d) working to create markets for envi- fiber is projected to increase by 126 million tons, ronmental services. with recovered paper expected to meet approxi- mately 70 percent of that demand. Hardwood pro- Best-Practice Guidelines for Forest and duction, primarily of fast-growing varieties, is tend- Forest Industry Investment Policies ing to move to the southern hemisphere, but northern hemisphere natural coniferous forests, Duncan Pollard, Head of the European Forest particularly in Russia, continue to be competitive Program, WWF International, overviewed the suppliers of softwood. Recovered paper supply is WWF's work with industry over the last decade and tight, raising the demand for hardwood. its emerging work with the financial sector. In the southern hemisphere and in China, fast- Pollard identified export credit agencies (ECAs) growing plantations are the key trend for the future as the largest source of public international finance, of fiber procurement. This shift of focus from nat- providing US$500 billion/year. He highlighted the ural forests to plantations is due both to their nongovernmental organization (NGO) communi- REPORT OF THE FOREST INVESTMENT FORUM FIGURE 1 Growth in Institutional Ownership of US Timberland Market value (US$ billions) Number of firms 14 16 12 14 12 10 10 8 5 8 6 6 4 4 2 2 0 0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003e Source: Hancock Timber Resource Group. ty's call for reform of ECAs with the May 2000 perspective of financial institutions; experience Jakarta Declaration, which was signed by 347 NGOs from business­community partnerships; and expe- from 45 countries. He also drew attention to the riences with financing forest environmental servic- 2003 Collevecchio Declaration, which calls on es. These discussions are summarized below. financial institutions to commit to the six principles of sustainability, "do no harm," responsibility, Industry Perspectives accountability, transparency, sustainable markets and good governance. WWF is developing guide- Scott Wallinger, Senior Vice President, lines for investment in operations that impact MeadWestvaco Corporation (United States), and forests. These guidelines address the issues of: (a) panel chair, said industry makes decisions based on respect for national laws and international conven- individual strategy in the context of market tions; (b) forest management, conservation, con- demand, competitiveness, risk, the cost of capital, version, and community-based operations; (c) and the ability to make a profit. He noted that environmental management; (d) respect for the approximately 75 percent of harvesting in the rights of local communities and indigenous peo- Amazon and Indonesia is illegal, posing significant ples; and (e) labor codes and standards. competition for legal operators. He also suggested that there is a need to find ways to conserve biodi- versity and high-conservation-value forests PANEL DISCUSSIONS (HCVFs) within managed forests. David Bailey, Vice President, International During the forum, panel discussions were held on Paper (Eastern Europe Division), spoke about the the following themes: the perspectives of industry; need to promote the development of local process- the perspective of conservation organizations; the ing to create jobs and add value to exports. He said FOREST INVESTMENT FORUM SUMMARY REPORT International Paper's operations in Russia are management. He also illustrated how the adoption International Standards Organisation (ISO)-certi- by UPM Kymmene of corporate social responsibil- fied and set an example for good practices. He said ity (CSR) principles is helping to raise awareness of illegal operators with short time horizons distort issues relating to labor rights, health care, and other market prices for timber, making it difficult for needs. responsible companies operating legally to be com- Thierry de Mont Marin, Deputy CEO, Africa petitive and discouraging investment in sustainable Development Division, Bollore Group, emphasized forest management (SFM). He stressed the need for that poor regulation and law enforcement are an an enabling environment that encourages good obstacle and disincentive to legal operators, whose decision-making on investments. observance of the law incurs for them higher oper- Zachary Smushkin, Chairman, ILIM Pulp ating costs than those of the illegal operators with Enterprise (Russia), said demand for pulp and which they must compete. 6 paper products is increasing in Russia as well as in Elizabeth Bjorklund, President of Wood Supply China, to which Russia is the primary exporter. He for Europe, Store Enso, said there are many ways of noted also the shift of pulp and paper production to investing in sustainable forestry and therefore of less developed countries with lower labor costs and supporting sustainable development. She strongly abundant resources. He identified trends in Russian supported the need to achieve consensus agreement production as including a greater focus on process- on certification, and emphasized the need to verify ing; changes in the forest code; an evolving role in the legality of industrial log supply. She also con- the forest sector for government, either as regulator tributed a Stora Enso perspective on the need to or regulator and participant; and growth in the strengthen private woodland owner associations, number of Russian NGOs. He noted also that many especially in the Eastern European region. forest sector workers have lost their jobs, and sug- Several industry panelists expressed their support gested that either operations should be expanded or for The Forests Dialogue (TFD), a multistakeholder that these workers be assisted in their search for forum for working toward consensus on strategies alternative work. for addressing difficult policy issues (see Box 1). Daniel Spitzer, CEO, Plantation Timber Products (China), overviewed the situation in China, noting Conservation Community Perspectives the massive size of the emerging markets for pulp, paper, and other forest products. While there is no Nigel Sizer, Director for the Asia Pacific Program, shortage of financial capital in China, there is a lack The Nature Conservancy (TNC), chaired this panel. of technical and management expertise. China has He noted that TFD had met in October 2003 in the largest plantation program in the world and Brazil to discuss issues related to forestry and biodi- China's goal is to become self-sufficient in wood versity. He confirmed that from a TNC perspective, supply. Spitzer noted also that there is a growing the three key themes of the forum--the contain- awareness in the country of the importance of con- ment of illegal logging, forest governance, and serving biodiversity and mitigating climate change. investment safeguard policies--fit well with what Kevin Lyden, President, UPM Kymmene, said TNC is attempting to address through its projects establishing a modern pulp mill can cost the better in Indonesia and elsewhere. part of US$1 billion, and commented that invest- Richard Donovan, Director, the Rainforest ment on this scale can come only from global cor- Alliance, discussed how to "hardwire" social and porations or from joint ventures involving local environmental values, and suggested that certifica- partners and development banks willing to cover tion is one tool that achieves this goal. Positive out- the risk. He described a joint log tracking scheme comes from certification operations undertaken by between UPM Kymmene and Axel Springer, a the Rainforest Alliance in Brazil and other countries German publishing company. The tracking system include the adoption by forest companies of enables Axel Springer to guarantee to its customers reduced-impact logging; promotion of the High- that the paper products they purchase were derived Conservation-Value Forest (HCVF) concept; and from legal sources and from forests that have been social benefits such as the provision of worker independently certified as being under sustainable housing and safety equipment. REPORT OF THE FOREST INVESTMENT FORUM BOX 1 The Forests Dialogue In 1999 separate initiatives by the WBCSD, the the potential contribution of forests to World Bank, and the World Resources Institute poverty alleviation. merged to form The Forests Dialogue as a forum at which the private sector and civil soci- TFD is supported by a secretariat at Yale ety might discuss of issues related to SFM. TFD University and guided by a steering committee focuses on the following priority issues for its that includes representatives of private land- multistakeholder dialogues: owners, the forest products industry, environ- mental NGOs, retailers, development agencies, 7 forest certification; and academia. forest and biodiversity conservation; illegal logging and forest governance; Source: TFD website: intensive forest management (a vision for http://www.theforestsdialogue.org world forests); and Masya Spek of the Center for International tance of data and information for decision-making, Forest Research (CIFOR) summarized the findings policy implementation, and monitoring. He of a CIFOR review of pulp and paper mill financing. described the WRI's Global Forest Watch (GFW) She said that existing safeguards to promote the network, which is designed to promote the sharing responsible financing of pulp mills (notably the of information among organizations and institu- Equator Principles; see Box 2) do not capture the tions. For example, GFW studies in several West high proportion of pulp mill financing that is nego- African countries are providing a picture of the tiated in the international bond markets. She also extent and impact of logging operations, enabling noted that even should a financial institution wish the identification of areas where such operations to apply the Equator Principles as a screen, the are encroaching on protected areas or are spreading information necessary to do so is not disclosed. She into forest areas that fall outside government- recommended that the pulp industry disclose more authorized timber concessions. information to investors, and urged all financial Jon Son, International Policy Analyst, Friends of institutions to withhold funding from pulp mills the Earth, focused on the need to reform ECAs, as unless they are certain adequate fiber supplies are recommended by the 1999 Jakarta Declaration, and available from sustainable and independently certi- on the need for ECAs to adopt environmental and fied sources. social standards. He drew attention to the weakness Kenneth Rosenbaum of the Forest Integrity of institutional mechanisms for monitoring the Network (FIN) explained that FIN, a Transparency impact of safeguard policies. Efforts such as the International (TI) initiative, is working to audit recent adoption by many commercial banks of the companies and to identify corruption. FIN is in the Equator Principles will make little impact unless the process of testing the potential applicability of TI banks develop the capacity, internal or outsourced, anticorruption tools, such as Integrity Pacts and the to monitor the compliance of client companies with publishing of Corruption Indices, to the forest sec- these safeguards. Son commented that indigenous tor. Through its newsletters FIN also is tracking leaders and communities were absent from this other promising anticorruption initiatives (see forum and should be included in any future forum http://www.transparency.org/fin/newsletter.htm). discussions. Stephen Cox, Executive Director, World Duncan Pollard, WWF, said illegal logging in Resources Institute (WRI), emphasized the impor- some places occurs because governments do not FOREST INVESTMENT FORUM SUMMARY REPORT provide adequate funds for forest management. He Financial Community Perspectives noted that many companies, including those that Gavin Murray, Director, Environment and Social buy wood that is not certified as legally sourced, see Development Department, International Finance illegal logging as a problem caused by others. Corporation (IFC), chaired this Panel. In his intro- Regarding certification, Pollard said mutual recog- ductory overview he briefly summarized the IFC nition is an outdated concept, and suggested as a experience of developing and applying safeguard way forward that standards be put in place for cer- policies that most recently have triggered the adop- tification systems. tion by 16 commercial banks of the Equator 8 BOX 2 The Equator Principles The Equator Principles arose out of an October the protection of human health, cultural 2002 IFC-sponsored meeting on environmental properties, and biodiversity, including en- and social issues in project finance, at which dangered species and sensitive ecosystems; participating banks decided to develop an the use of dangerous substances; industry framework for addressing environ- major hazards; mental and social risks in project financing. The occupational health and safety; Equator Principles were subsequently devel- fire prevention and life safety; oped based on the policies and guidelines of the socioeconomic impacts; IFC and the World Bank. land acquisition and land use; In June 2003, the first 10 banks adopted the involuntary resettlement; Equator Principles. These were ABN AMRO potential impact on indigenous peoples and Bank, N.V.; Barclays PLC; Citigroup, Inc.; communities; Credit Lyonnais; Credit Suisse Group; HVB the cumulative impacts of existing projects, Group; Rabobank; Royal Bank of Scotland; the proposed project, and anticipated future WestLB AG; and Westpac Banking Corpora- projects; tion. Together, these banks underwrote approx- the participation of affected parties in the imately US$14.5 billion of project loans in 2002, design, review, and implementation of the representing approximately 30 percent of the project; global project loan syndication market. consideration of environmentally and so- The banks will apply the Equator Principles cially preferable alternatives; to all loans for projects that have a capital cost the efficient production, delivery, and use of of US$50 million or more. Loans will be provid- energy; and ed only to those projects that comply with the pollution prevention and waste minimiza- comprehensive processes that are enshrined in tion, pollution controls (liquid effluents and the Equator Principles and that aim to ensure air emissions), and solid and chemical waste that projects are developed in a socially respon- management. sible manner and according to sound environ- mental management practices. In applying the Subsequently, and after appropriate consulta- Equator Principles, banks will categorize proj- tion with affected local stakeholders, Environ- ects as A, B, or C (high, medium, or low envi- mental Management Plans will be prepared to ronmental or social risk). For A and B projects, address mitigation and the monitoring of envi- the borrower must complete an Environmental ronmental and social risks. Assessment that addresses such issues as: Source: http://www.ifc.org/equatorprinciples. sustainable development and the use of renewable natural resources; REPORT OF THE FOREST INVESTMENT FORUM Principles. IFC has a long history of involvement in itoring of projects. Negotiations underway at the supporting forest-based industries, and many of the Organisation for Economic Cooperation and lessons learned from IFC experience with environ- Development (OECD) to establish a common ECA mentally sensitive problems in other sectors and approach on the environment include provisions from its application of safeguard policies are likely for the application of World Bank environmental to be of relevance to the forest sector. guidelines and safeguard policies. Mahoney identi- Christopher Wells, Socially Responsible fied transparency and stakeholder involvement in Investment Manager, ABN AMRO, said that in decision-making processes as key issues facing 2001 ABN AMRO developed and published a set of ECAs. risk polices specifically targeted to the forest sector Charles di Leva, World Bank, raised the question and covering a range of environmental safeguards, of whether the environmental and social safeguard including pollution control in pulp mills, accept- policies of the multilateral development banks 9 able forest management practices, and guidelines might be harmonized. In general, the social policies for plantation establishment. ABN AMRO policies of these banks are less harmonized than are their prohibit the financing of operations that involve log environmental policies. All projects go through an extraction from primary forest or from an HCVF. environmental review; however, differences arise ABN AMRO has signed an agreement with the due to variations in the definitions used for forests Forest Stewardship Council (FSC), and all opera- and due to the various procurement policies that tions in Brazil must be certified or otherwise show the banks apply. While no single approach is likely credible evidence that they are in the process of to be applicable for all of the regional banks, there becoming certified. are opportunities for increasing the harmonization Robert Brokaw, Managing Partner, GMO of safeguard policies. Renewable Resources, highlighted work that is John Earhart, Chairman, Global Environment being undertaken together with Yale University and Fund, highlighted the fund's investment in medi- the United Nations Development Programme um-sized, proactive environmental enterprises in (UNDP) on the development of public­private emerging markets. Earhart said the largest con- partnerships. He described a proposed Brazil Forest straint to investment is high transaction costs. He Fund that would provide capital for the establish- stressed the need for innovative financing and tech- ment of sustainable harvesting and forest manage- nical assistance mechanisms capable of meeting the ment in the Amazon region, where the Brazilian needs of smaller-scale forest product enterprises Government is about to implement a major pro- whose investment requirements fall below the gram for national forest development and protect- threshold limits for investment set by many finan- ed area conservation. GMO is a major investor in cial institutions. He challenged the World Bank and the Brazilian Gethal enterprise and had the plant others to create more flexible financing mecha- FSC certified. The company also is assessing possi- nisms to mitigate some of the risks. bilities for introducing producer­worker equity programs that would give Gethal employees a direct Business­Community Partnerships ownership stake in that enterprise. Peter Mertz, CEO of Global Forest Partnerships Claes Hall, former Vice President, Aracruz Celulose LP, a timberland management firm with invest- (Brazil), chaired this panel, which investigated suc- ment in some 560,000 hectares of forests in both cessful examples of business­community partner- temperate and southern hemisphere countries, ships that have had a positive impact on poverty strongly stressed the need for the World Bank and alleviation. The panel also discussed mistakes to be others to create effective risk reduction mechanisms avoided in the future. Hall highlighted Aracruz's in emerging markets. forest farmer program in Brazil, which engages James Mahoney, Vice President, Engineering 2,600 farmers in the provision of 15 percent of and Environment, Export­Import Bank of the Aracruz's raw material needs. United States, said most ECAs have adopted envi- David Lawrence, Business Development Officer, ronmental policies with procedures for the screen- IFC Small and Medium-Size Enterprises (SME) ing, classification, environmental review, and mon- Programs, overviewed the IFC's 10 SME facilities. FOREST INVESTMENT FORUM SUMMARY REPORT These facilities, in numerous countries around the (South Africa), described the company's projects to world, provide technical assistance to service empower local communities. A collective of 3,820 providers and product input suppliers, with the growers in Khulanathi, each of whom works objective of helping them take advantage of the approximately 2 hectares of land, supplies Mondi. opportunities created by larger investments in pro- In turn, Mondi intends to help these producers cessing infrastructure. become certified. SiyaQhubeka, a joint-venture James Mayers, Director, Forest and Land Use company involving Mondi, the local community, Programme, International Institute for Environ- and the government, additionally is operating a ment and Development (IIED), discussed IIED's program to build skills in the local community and recent publication "Company­Community Forestry to capitalize on the business opportunities present- Partnerships: From Raw Deals to Mutual Gains?" ed by SiyaQhubeka. (Mayers and Vermeulen 2000), which looks at 57 Raj Chaurasia, CEO, BILT Tree Tech Ltd 10 business­community partnerships in 23 countries. (India), said 80 percent of the fiber sourced by the In general, such partnerships were found to make a company is supplied by individual farmers. significant contribution to community livelihoods, Chaurasia highlighted BILT's work with these but not enough to pull people out of poverty. While farmers to develop plantations on degraded forest land rights, infrastructure, and job opportunities land, with the objectives of helping meet the grow- have improved, community bargaining power and ing demand for paper products in India, of generat- the ability to secure livelihoods and to realize other ing rural employment, reducing the dependence on major benefits remains underdeveloped. imports, increasing the supply of fodder and fuel, Sofie Beckham, Forestry Manager, Ikea Trading and of improving water harvesting and soil conser- Americas, said Ikea's goal is to create a long-term vation. wood supply from well-managed sources. The com- Jorge Vrsalovic, CEO, Jolyka (Bolivia), empha- pany is working with partners such as the WWF to sized the need for an integrated solution to catalyze help communities move up the Ikea "staircase" the forest product production chain in Bolivia. model for sustainable sourced wood. With the Vrsalovic called for investment in all stages of the WWF, Ikea has produced global toolkits for stan- chain, from the provision of raw materials by dards-setting on multistakeholder participation, indigenous communities to the construction of producer groups, and HCVFs. processing plants and the development of con- Kevin Cazalet, General Manager, Mondi Ltd sumer markets. BOX 3 The Katoomba Group The Katoomba Group, formed in 2000, is an To date, the Katoomba Group has held six international working group dedicated to advanc- international multistakeholder workshops on ing the markets for ecosystem services provided payments for environmental services. These by forests, such as watershed protection, biodiver- events have served to raise awareness of the sity habitat, and carbon storage. Leaders from for- potential for private sector investment in such est and energy industries, finance companies, services and to foster an understanding of the environmental policy and research organizations, conditions under which market-based instru- government agencies, and NGOs are engaged in ments for environmental services can work. the group. This diversity of participants supports the creation of the strategic partnerships that are Source: Katoomba Group website: necessary for the successful launch of green forest http://www.katoombagroup.org/ products in the marketplace. REPORT OF THE FOREST INVESTMENT FORUM Financing Environmental Services is tremendous, with a potential value in the trillions Michael Jenkins, President, Forest Trends, chaired of dollars. the panel on experiences with private sector invest- Cassie Phillips, Weyerhaeuser, expressed skepti- ment in environmental services and opportunities cism over the premise that users would be willing to for the wider replication of successful programs. He pay for environmental services that currently cost emphasized the recent progress that has been made nothing, such as the improvement of water quality. toward valuation of forest-related environmental She noted that in industrial countries forest man- services, and asked panelists to focus on the magni- agement measures for the protection of water qual- tude of markets and their possible significance. ity are built into regulatory structures, but that in Kenneth Newcombe, Manager, World Bank developing countries investment in such services Biocarbon Fund (BCF), projected that by 2012 the probably would need to be provided by govern- carbon market will be worth approximately US$3­4 ment. With reference to the market for environ- 11 billion in trades under the Kyoto Protocol Clean mental services, she described a joint venture with Development Mechanism (projects in developing First Nations in British Columbia, where forests are countries) and US$15­30 billion for all other car- being managed in such a manner as to attract fund- bon. He highlighted the pioneering role that the ing for biodiversity values, to compensate for the Bank's Prototype Carbon Fund (PCF) has played in reduced timber value. She said that the real oppor- providing real examples of how carbon finance can tunity is in mitigation banking, and urged the work, and suggested that the BCF will play a similar World Bank to help reduce the transaction costs roll in interpreting rules that, established through that, due to uncertainty and delays in these markets, an intergovernmental process, currently lack clarity currently are high. and certainty. Clark Binkley, CEO, Hancock Timber Resource Newcombe cited the Brazilian Plantar Project as Group, spoke about the Hancock Natural Resource an example of the PCF's ability to leverage carbon Group's Forest Program, which focuses on carbon finance. By establishing 23,100 hectares of eucalyp- sequestration and salinity planting (for transpira- tus plantations for the production of charcoal, the tion credits) in Australia. He said that traditional project will help negate the need for imported coal markets for environmental services (such as as a coking fuel in pig iron production and will help conservation, conservation easements, and recre- reduce the pressure on natural forests in Minas ation services) are already affecting forestry, and Gerais state as a source of charcoal. Through secur- that new markets for environmental services have ing a market for carbon sequestered, the rate of the potential to move the focus from timber func- return on the project was increased from 5 percent tions to other services, such as carbon sequestra- to 12 percent. Revenues from carbon additionally tion. To tilt the production set of forestry toward were escrowed to cover the debt service for the new markets, institutional, technical, and market finance cost for the plantation, resulting in a low infrastructure will be required. For example, interest rate of 6 percent and lengthened tenure. Australia has a standard system for measuring car- Kanta Kumari, Senior Environmental Specialist, bon sequestration, an institutional arrangement GEF, described the GEF's partnership with the IFC, that separates carbon titles from land titles, and (in the aims of which were to help SMEs cover the New South Wales) a market for greenhouse abate- incremental risks for the private sector and to pro- ment certificates. vide institutional and technical assistance. She also overviewed a new project under development with DISCUSSION ON PANEL OUTCOMES the World Bank in Venezuela that would initiate payments for the hydrological services that a pro- tected area provides to a power company. The GEF Jim Douglas, World Bank Forests Team, chaired a initially will pay indigenous and local communities session wherein the chairs from the earlier panels in the protected area for the service, with the power on industry, conservation, and finance perspectives company eventually taking over these payments. highlighted some points that emerged during the Kumari said the market for environmental services panel discussions. FOREST INVESTMENT FORUM SUMMARY REPORT Scott Wallinger, chair of the industry panel, Progress toward the adoption of environmental noted the following points: and social standards has been considerable. Performance verification, validation, monitor- There are clear opportunities for investment in ing, and supervision are needed. Russia, Brazil, and China. A risk-sharing facility could help to address Illegal logging is a major constraint and growing some scale and transaction cost issues. concern for industry. Use by several commercial financial institutions Certification is a useful device. A multilateral of the Equator Principles has helped them approach to evaluation of the multiple certifica- advance the mitigation of the environmental tion systems also could be useful. and social risks inherent in project financing. There are opportunities to improve cooperation There is a need to look at what is driving certifi- with the conservation community. cation, the reward attached to it, and the value it 12 The expansion of wood supply by private and signifies. community forest owners should be encouraged. Use of the OECD process is helping advance the The World Bank and others could help with pol- development of safeguards for ECAs. There icy reform to improve the investment environ- remains a need for convergence on the defini- ment. tions used for these safeguards, but a one-size- fits-all solution is most likely not achievable. Nigel Sizer, chair of the conservation perspec- Multilateral development banks (MDBs) have a tives panel, made the point that while illegal logging role to play in the development of principles and and corruption are related they are distinct issues. agreed approaches, but the key to this process He emphasized the capability of business to assume lies in the strengthening of national investment a leadership role regarding these issues, for example climates. through integrity pacts, through developing inde- pendent verification of the legality of wood sources, In the discussion of these points, one participant and through engagement in processes such as the stressed the importance of fostering a truly inde- Ministerial Forest Law Enforcement and Gover- pendent monitoring and verification industry. nance processes in Asia and Africa. He noted that Another participant noted that discussions on safe- the TFD was tentatively scheduled to convene a guards had focused on the need for a comprehen- spring 2004 session, in China, on illegal logging. sive landscape approach, including the conserva- Additionally, he suggested that: tion of HCVFs, and on social safeguards. On illegal logging, the importance was stressed of the need to The IKEA staircase model, or something like it, get the legal, fiscal, and institutional systems in could be considered for certification. place that can encourage legal logging. The need to There are opportunities for the World Bank to educate markets and to develop among consumers promote safeguards for ECAs. an interest in the products they buy also was More data and information are needed. emphasized. On illegal logging, the need was Fewer mainstream actors (NGOs and private emphasized for partnership between the private sector) should be engaged in discussions on sector and government. The innovative alliance important issues. between SGS (Société Général de Surveillance--a Further investigation should be made of the pos- Swiss inspection, verification, testing and certifica- sibility of applying insurance risk management tion company) and the Government of Ecuador, to smaller-scale projects. which produced the Vigilance Verde surveillance The World Bank could help to strengthen the team, was cited as an example. policy and regulatory frameworks for responsi- The forum participants also expressed a range of ble investments. views on the topic of certification. Some drew attention to the obstacles to certification, such as Gavin Murray, chair of the finance panel, noted fragmented forest ownership in Eastern Europe and the following: requirements that contradict national legislation. REPORT OF THE FOREST INVESTMENT FORUM Others expressed concern over the small area of for- tunities. He invited representatives of some of the est that is certified in developing countries. One par- main forum stakeholder groups to comment briefly ticipant said that certification effectively amounts to on their perceptions of the opportunity for collabo- risk mitigation for clients and projects, and that rative follow-up action. Such action would be there is an opportunity for investors to demand cer- aimed at creating an enabling environment for pri- tification to protect themselves and their projects. vate sector investment, with special reference to Some suggested there should be a single standard; some of the emerging investment opportunities others supported multiple schemes. It was noted identified by forum participants. that a common standard for chain-of-custody cer- It has been suggested that follow-up activities tification may be feasible in the foreseeable future. should focus in particular (but not exclusively) on Jim Douglas stressed that the World Bank does not the major forest-rich countries, such as Brazil, endorse any particular forest certification scheme, China, the Democratic Republic of Congo, 13 and noted the need for further dialogue and open Indonesia, and Russia, that together account for discussion on the topic in other venues. almost one-half of the world's forest resources (see Figure 2). The forests, open woodlands, farm forest resources, and small-scale forest product enterpris- EMERGING INVESTMENT es of low-income, forest-poor countries such as OPPORTUNITIES: OPPORTUNITIES FOR India and countries of Sub-Saharan Africa also have COLLABORATIVE FOLLOW-UP ACTION the potential to play a significant role in poverty alleviation and in improving household income, John Spears, World Bank Forests Team, chaired a food security, and agricultural productivity. concluding panel on emerging investment oppor- FIGURE 2 Countries with the Largest Percentage of the World's Forests Russian Federation 22% Other 33% Brazil 14% Peru 2% Canada Angola 2% United 6% States Indonesia 3% China 6% 4% Democratic Australia Republic of 4% the Congo 4% Source: FAO, GFRA 2000. FOREST INVESTMENT FORUM SUMMARY REPORT Michael Jenkins, President, Forest Trends, US$65­75 million per year. Financing in the forest described the opportunities for investment in sector continues to increase, he said, with approxi- China. He also underscored the need to encourage mately US$600 million in the pipeline. The IFC has wood product producers in China to consider the substantial commitments in China and Russia. source of the wood they use, as much of it comes Sand said that environmental and social engineers from areas with poor forest governance, including are engaged in project development, and empha- Papua New Guinea, Gabon and the eastern regions sized the need for investors to go beyond compli- of the Russian Federation. He identified water sup- ance and to select projects that have good values in ply as an issue of growing significance for China, terms of sustainability. He referred also to the use- and one that could represent an opportunity for fulness of collaboration between the IFC and the ecosystem service markets. With reference to Brazil, World Bank in forest-supported economic sector he also suggested that experiences from successful work and forest investments. 14 community­company partnerships in southern David Cassells, World Bank Forests Team, said parts of the country could be transferred to north- the Bank's new forest policy focuses on proactive ern Brazil to help address illegal logging. action to ensure better protection of critical forest Bruce Cabarle, Director, Global Forest areas. He said the broader challenge is to encourage Programs, WWF­US, referred to the potential of a comprehensive land-use planning approach, with the WWF to support responsible private sector the objectives of encouraging sustainable land-use investment. He noted that there is a need for dia- patterns and addressing cross-sectoral impacts. logue with capital markets to find a common While the Bank has some influence on macro poli- approach to achievement of conservation and cy and can bring investment opportunities to gov- poverty alleviation goals. With regard to safeguards, ernments, partnerships are needed to achieve he said that investments should go beyond simply results. In the follow-up to the forum, Cassells sug- "doing no harm," and should look at ways in which gested that the dialogue continue in areas where they might generate value for both shareholders there are opportunities to build appropriate policy and stakeholders. In closing, he underscored the environments and the institutional capacity to need to scale up success stories at a much more attract responsible investment. He reiterated that aggressive rate. the key goals are poverty alleviation, the integration Hosny El Lakany, Assistant Director General, of forests into economic development, and the pro- United Nations Food and Agriculture Organisation tection of local and global environmental values. (FAO) Forest Department, said the role of interna- James Griffiths, Director, Sustainable Forest tional organizations such as the FAO has become Products Industry and Biodiversity, WBCSD, said one of providing information, providing a neutral the WBCSD is focused on collaboration and part- forum for discussion, and establishing norms, nership with NGOs, international organizations, codes, and definitions. He suggested that the FAO and the broader industry in the effort to find solu- could act as a focal point for interaction with tions for sustainable development. He highlighted national governments, and highlighted the FAO's the WBCSD's efforts to connect with the broader longstanding collaboration with the World Bank to industry community through the International help developing countries prepare investment proj- Forest Industry Roundtable, the International ects. He encouraged participants to engage in the Council of Forest and Paper Associations, and the ongoing intergovernmental discussions at the CEO Forum. He also noted the WBCSD's recom- United Nations Forum on Forests (UNFF), and mitment to TFD, and highlighted TFD's plans to highlighted the work of the Collaborative hold discussions on the contentious and sometimes Partnership on Forests (CPF). divisive issues of certification, HCVFs, intensive Ole Sand, IFC Principal Investment Officer, said forestry, and illegal logging. With reference to the IFC has been doing business in the forest sector potential opportunities in Brazil, he drew attention since the late 1960s, over which period it has pro- to Veracel, a joint venture between Aracruz and vided US$1.5 billion to finance projects worth more Stora Enso in Bahia that is helping to build social than US$5 billion. Over the last 10 years, the IFC's infrastructure and local wealth, and that is seeking forest sector investments have been on average also to help recover the rainforest. REPORT OF THE FOREST INVESTMENT FORUM GLOBAL FOREST VISION 2050 increasing volumes of hardwood fiber will come from private-sector-financed plantations in coun- In conclusion, John Spears referred briefly to an tries of the southern hemisphere and in China. This analysis by the World Bank/WWF Alliance and would create increasing opportunities for small- based on earlier work by the FAO, that had devel- holders and local communities to play a significant oped a Vision of Global Forests for the Year 2050 role in world pulpwood supply. There is growing (see Figure 3). recognition that there are real possibilities for the That vision predicts that by the middle of this production of industrial wood to be combined with century 40 percent of global forests will be managed the protection of biodiversity, forest carbon, and primarily for the protection of biodiversity and water resources--a belief that is underscored in the other forest environmental services. Community Bank's 2002 Forests Strategy. and privately owned woodland, which has more This vision of global forests suggests that, 15 than doubled in area in the last decade, might be notwithstanding the inevitability of the further expected to double again. In 2050, 50 percent of transfer of forest land to agriculture, by 2050 the industrial roundwood demand will be for pulp and global forest area will be approximately the same as paper. While much of the softwood needed for pulp it is today. and timber will come from Canada and Russia, FIGURE 3 A Possible Global Forest Situation for the Year 2050 Global closed forest area: 3,000 million ha Global industrial roundwood demand: 2,500 million m3 Protected areas that are Multiple end use: inaccesible for logging Community-owned forests (IUCN categories I­VI): 1,200 million ha (40%) 1,200 million ha (40%) Plantation forests managed primarily State forests and privately for fibre and timber owned woodlands managed production: primarily for timber production: 100 million ha (3%) 500 million ha (17%) Note: Preservation of biodiversity and other environmental benefits is integrated into objectives of management of all four categories of forest land use depicted in this chart. Source: WWF/ World Bank Alliance 2001. FOREST INVESTMENT FORUM SUMMARY REPORT CLOSING REMARKS emphasis given by this forum to creating an enabling environment for private sector investment. In his closing remarks, Kevin Cleaver noted that in Cleaver noted that there is broad agreement on wealthier countries forest health is improving, but in the emergence of investment opportunities in developing countries the demand for forest prod- Brazil, China, India, Russia, and a number of other ucts and for environmental services from forests is countries. He remarked that there are increasing increasing, in parallel with increasing demand for opportunities for collaboration between the Bank agricultural land. He emphasized that there is a need and the various stakeholder groups that con- to find ways of investing that address the need for tributed time and input to the forum, and wel- conservation and that support social measures, comed such collaboration in the future. while at the same time addressing the expanding demand for wood products. He also endorsed the 16 REPORT OF THE FOREST INVESTMENT FORUM CHAPTER THREE Overcoming Constraints to Private Sector Investment in Socially, 17 Environmentally, and Economically Sustainable Forest Management: Perspectives of Leading Forest Industrial Companies, Conservation Agencies, and Financial Institutions by John Spears Advisor,World Bank Forest Team T he decision to hold the Forest Investment that the world's forests are managed in socially, Forum was based on recognition by the environmentally, and economically sustainable forum sponsors of the converging interest ways. and similarity of actions being taken by the more Individual members of these different con- responsible forest industry companies, the World stituencies have made much progress toward the Business Council for Sustainable Development goal of responsible forest management. The inter- (WBCSD), the World Wide Fund for Nature change of information during this forum focused (WWF), and other leading conservation agencies. particularly on identifying ways in which industry, Additionally, many public and private sector finan- conservationists, and financial institutions might cial institutions increasingly are seeking to ensure collaborate in their efforts to address the major constraints to sustainable forest management (SFM). Resolving the constraints discussed in this Note: The views expressed and information presented in this piece are based on background material and suggestions con- report are central concerns not only of the World tributed by the many industry, conservation agency, finan- Bank, the WBCSD, the WWF, and other forum cial, and policy research institution representatives who were sponsors, but also of the many other investment consulted during the run-up to the forum. They also reflect and technical assistance agencies that participated the perspectives on constraints to investment and the possi- bilities for collaborative action to overcome these constraints in the forum, including, for example, the Food and that emerged during the panel discussions. Agriculture Organisation of the United Nations (FAO) and the International Tropical Timber sibility of minimizing the political risks through the Organization (ITTO). application of mechanisms such as the World As follow-up action moves to the regional and Bank's Partial Risk Guarantee Facility was of partic- country levels, it is essential that local communities ular interest. and government policy leaders become involved. It also is essential that any actions that are proposed Illegal logging and forest-related corruption. fit within the framework of national forest pro- Illegal activities in many countries are a deterrent to grams (NFPs). responsible private sector investment. Numerous From the perspectives of the World Bank and initiatives have been launched to address these the International Finance Corporation (IFC) this issues, and some governments have displayed a was a helpful and timely gathering. The World Bank willingness to put the issues of forest-related cor- Forest Strategy approved by the Bank's board in ruption and improved forest governance high on 18 November 2002 gives special emphasis to the role in their agendas. this area of the private sector in investing in sus- tainable forest activities. Since approval of the strat- Lack of environmental assessment procedures egy there has been a surge of interest from leading and safeguard policies. This can both deter social- forest companies and financial institutions seeking ly and environmentally responsible companies and to collaborate with the World Bank Group. encourage investment by irresponsible operators. The 2002 strategy also emphasizes the need for Weak institutional mechanisms for the monitoring Bank support for improved forest governance. of environmental procedures and safeguard policies During the 1990s nonsustainable, socially disrup- furthermore can impede the implementation of tive, and ecologically damaging logging operations such procedures and policies. Capacity building at expanded at a rate faster than ever in previous his- the national level, to develop multistakeholder tory. Many Bank client countries that are wrestling institutional mechanisms for monitoring forest with difficult problems, such as illegal logging and harvesting and management should be a priority pressure from politically powerful vested interests where such mechanisms are weak. seeking to gain access to state-owned forest resources for corrupt timber deals, are seeking Bank Lack of consensus on independent certification. assistance to address these problems. There is much confusion in the marketplace over the merits of the different certification schemes. Attempts to achieve mutual recognition so far have CONSTRAINTS TO RESPONSIBLE PRIVATE been unsuccessful, and the emphasis has shifted to SECTOR INVESTMENT development of minimum standards or legitimacy thresholds, and to the definition of processes for The following constraints were identified at the measuring step-by-step progress toward SFM. forum as the major obstacles to private sector investment: Inconsistent strategies for the protection of high- conservation-value forests (HCVFs). The different Insecurity of raw material supply and political strategies employed by industry and conservation instability. These represent risks for investors and groups to protect HCVFs and to integrate biodiver- threaten the continuity of manufacturing opera- sity protection into forest management practices tions. Special emphasis was given to the need for the must be brought into accord. Examples of success- reform of timber concessions, with the aims specif- ful collaboration were identified during the forum, ically of: introducing greater transparency into tim- and these and ways of encouraging their wider ber allocation processes; involving local communi- replication are discussed below. ties in the dialogue; achieving equitable revenue sharing; encouraging value-added processing; and Debate on the impacts of plantation-based guaranteeing to responsible timber companies the forestry. Given the worldwide trend toward greater long-term security of raw material supply. The pos- reliance on plantation forests, there is a need for REPORT OF THE FOREST INVESTMENT FORUM agreement between the conservation community value-added processing, and guarantee the long- and industry on where and how plantation forests term security of raw material supply to responsible can be developed such that any potentially negative timber companies. The early resolution of these social and environmental impacts can be avoided. issues is of particular urgency in major forested Small-scale farm and community-owned planta- countries, such as Brazil, Indonesia, Russia, and tions can play a key role in contributing to income countries of the Congo basin region, that are seek- generation and to economic growth. ing to attract foreign direct investment (FDI). The introduction of concession policy reform in Markets for forest environmental services are Cameroon and Peru provides useful lessons, with underdeveloped. An enabling environment must the potential for wider replication. Difficulties be developed to help accelerate private sector experienced by the World Bank in introducing such investment in environmental services such as car- reforms in Indonesia and Papua New Guinea and 19 bon sequestration, biodiversity protection, and the lessons learned have been well documented. water services must be encouraged through devel- Transparency International's Forest Integrity oping an enabling environment for such invest- Network also has developed a proposal to test the ment. Encouraging progress has been made in application of integrity pacts to timber concession recent years, and some 280 deals have been con- allocation processes in Russia. cluded. However, uncertainties about these markets Forest sector reform processes are underway or and their potential financial benefits remain a con- being considered in Russia and several transition straint to the replication of such deals. economy countries. Institutional Changes in Forest Management: Experiences of Countries with The financial mechanisms and technical assis- Transition Economies (PROFOR 2003) provides a tance support for small- and medium-size forest useful analysis of the efforts of a number of transi- enterprises are inadequate. The forum discussed tion economies to tackle forest sector reform. ILIM opportunities for partnerships between larger forest Pulp, Volga OAO, International Paper and other industrial companies and small-scale, low-income companies present at the forum identified early res- producers. A number of partnerships are making a olution of reform issues as a matter of critical con- significant contribution to community livelihoods cern in relation to investments they are contemplat- and to resolving problems such as the clarification of ing in large-scale value-added manufacturing land rights. However, community bargaining power capacity and forest harvesting and management and the ability to mobilize capital remain weak. equipment. Given the history of repeated failure by national governments to tackle politically difficult problems, Insecurity of Raw Material Supply and the forum explored whether attempts today to Political Instability reform timber concession policies would have any From the perspective of many companies and tim- better chance of success. Three factors were put for- berland investment firms participating in the ward to suggest that they would: forum, by far the greatest deterrents to private sec- tor investment are the risks posed to investors by the determination recently demonstrated by the combination of political instability, uncertainties national government leaders in Southeast Asia, about the continuity of raw material supply, dis- West Africa, and Russia to address the issue of agreement over appropriate taxation regimes, and forest-related corruption; the ineffectiveness of government regulatory policies. the pressure from financial institutions, in the The forum participants strongly endorsed the form of preconditions for investment, that gov- need to introduce timber concession reforms and ernments adopt more stringent environmental contracting procedures that require greater trans- assessment procedures and safeguard policies; parency in timber allocation processes, involve local and communities in the dialogue, achieve equitable tax- the identification by responsible companies and ation and revenue sharing, provide incentives for national governments of independent certifica- OVERCOMING CONSTRAINTS TO PRIVATE SECTOR INVESTMENT IN FOREST MANAGEMENT tion processes as a mechanism for assuring governance is weak, and argued that there is an stakeholders that their forest operations are urgent need for a level playing field. For example, in socially and environmentally sustainable. 1994 Weyerhaeuser pulled out of a planned invest- ment in Russia due to the high risk of corruption The World Bank, IFC, and International and unclear legal frameworks. In Cambodia from Monetary Fund (IMF) have the potential to play a 1977 to 1998 the payment of bribes added US$50 key role in promoting the adoption of such policy per cubic meter to the costs of some logging opera- reforms. They can achieve this though judicial use tions. Other more responsible companies deferred of conditionality applied through policy-based investment in the country. project and structural adjustment lending. A joint Strategies identified at the forum for tackling Bank/IMF paper on this topic as it relates to future illegal actions include: Bank involvement in the Congo Basin countries is 20 in preparation. In Russia, discussions also are the reform of concessions, policies, and regula- focusing on how the IFC could use a World Bank tions, and the termination of concessions for Coal and Forestry Sector Guarantee Facility to help noncompliance with regulations; structure lower-cost, lower-risk financing packages ending the construction of roads and other for potential IFC clients. The guarantee would be infrastructure in the vicinity of protected areas; especially useful in forestry sector projects, as the the use of independent observers, and log audit- security of forest lease contracts frequently can be a ing; make-or-break issue. the adoption of technology that enables timber To summarize, closer collaboration between to be tracked from harvest through milling, thus responsible industrial companies, conservation ensuring that illegal wood does not enter the agencies, local communities, and financial institu- legal supply; tions would be highly desirable in development the visible demarcation of boundaries between strategies for the practical application and testing of concessions, protected areas, and indigenous initiatives such as those summarized above. territories; establishment of certification processes that track the chain of custody and that give import- Illegal Logging and Forest-Related ing countries the capability to reject illegally har- Corruption vested timber; Illegal activities associated with commercial-scale increased investment in SFM (in addition to its logging include logging in protected areas and out- environmental and other benefits, this also side concession boundaries; the use of bribes to would motivate investors to prevent illegal forest obtain concessions; logging of protected species; the management practices, as these distort market extraction of timber at levels higher than author- prices); ized; the undervaluing and under measuring of har- development of common standards for measur- vested timber; and the transport, export, and ing and reporting forest crime; and import of illegally harvested timber without paying the boycotting of timber harvested in conflict taxes and without compliance with government zones, particularly from areas outside the con- reporting requirements. trol of recognized governments, and the ending Revenues lost to illegal logging in developing of collaboration with companies that trade tim- countries are estimated at close to US$15 billion a ber for arms. year, nearly matching official development assis- tance (ODA). Ghana alone is estimated to be losing The pressure to stop illegal logging originates US$37 million a year. In 2001, Indonesia was losing not only with environmental nongovernmental an estimated US$600 million a year in foregone organizations (NGOs) and environmentally aware payments on stolen timber--four times the com- consumers, but also with governments (both of bined local and central government investment in producer and consumer countries), intergovern- the forest sector. mental organizations, and some actors in the pri- Many companies participating in the forum vate sector. At the 1998 summit of the Group of revealed an unwillingness to invest in places where Eight (G8), the responsibility of importing coun- REPORT OF THE FOREST INVESTMENT FORUM tries was recognized and members were formally In summary, there is great potential for wider requested to control the trade of illegal timber. In replication of initiatives such as those listed above. 2001, ministers of East Asian countries gathered at The forum sponsors could play a key role to that the East Asian Ministerial Conference on Forest end. Law Enforcement and Governance (FLEG) and signed a declaration committing their countries Lack of Environmental Assessment to combating illegal logging. In October 2003, the Procedures and Safeguard Policies Africa Forest Law Enforcement and Governance (AFLEG) ministerial summit in Yaoundé, The report "Export Credit Agencies and Sustainable Cameroon revealed the strong determination of Development" by the Royal Institute of several African governments to tackle corruption. International Affairs (Saunders 2003) suggests that The Government of the Russian Federation addi- the role of financial institutions, and notably of 21 tionally has announced plans to host a meeting in those that are privately owned, has so far been given early 2005 on forest law enforcement and gover- inadequate attention by policymakers. The forum nance. discussed the need for financial institutions to In Bolivia, policy reforms adopted in 1996 have adopt clear environmental assessment procedures empowered private citizens to inspect forest opera- and safeguard policies. Safeguard policies can act tions and denounce illegal acts. Legally recognized both as an incentive to investment by responsible local community associations are now more direct- companies and as a deterrent to companies that ly involved in decision-making, and participation engage in nonsustainable, socially and ecologically by forest-dependent communities is helping to damaging logging operations. increase accountability and transparency in conces- All of the multilateral development banks that sion allocation procedures. This has eliminated the participated in the forum (the International Bank discretion that forest officials previously had to uni- for Reconstruction and Development (IBRD), the laterally determine concession fees. IFC, the International Development Bank (IDB), Several NGOs have ongoing initiatives on forest the Asian Development Bank (ADB), and the law enforcement and governance. Notable among European Bank for Reconstruction and Develop- these are the Environmental Investigation Agency, ment (EBRD)) have developed their own approach- the Forest Integrity Network and Global Witness. es to environmental assessment and safeguard poli- The Nature Conservancy and the WWF also are cies. Commercial banks participating in the forum supporting a major initiative to contain illegal log- (such as ABN AMRO) also reported on their ging in Indonesia, and several major Japanese respective guidelines and on the decision by 16 of importing companies have signaled a willingness to their number (which in 2002 accounted for 70 per- commit themselves to purchasing timber only cent of all global project finance) to adopt the IFC from legally certified sources. The Global Forest safeguard policies and Equator Principles as guide- Watch of the World Resources Institute uses satel- lines for their investment decisions. lite imagery to monitor legal concession areas and Transparency and stakeholder involvement in to pinpoint where illegal logging operations are tak- decision-making processes are becoming major ing place. issues for export credit agencies (ECAs). Most ECAs Promising industry initiated activities noted dur- employ environmental policies that incorporate ing the forum include a log tracking system intro- procedures for the screening, classification, envi- duced in Russia by UPM Kymmene, in partnership ronmental review, and monitoring of projects. with Axel Springer of Germany. Other examples Negotiations at the Organisation for Economic included Ecuador's recent creation of "Vigilance Cooperation and Development (OECD) to estab- Verde," a Green Surveillance team comprised of lish a common ECA approach on environment public and private institutions working together to issues additionally are considering the application monitor illegal timber operations. The project is of World Bank environmental guidelines and safe- funded by the proceeds from auctions of seized ille- guard policies. gal timber. In its first year, the project recovered Despite these promising developments, some five times the amount of illegal timber that was forum participants expressed concerns about seized in the year before it began operations. inconsistencies in the safeguard policies being OVERCOMING CONSTRAINTS TO PRIVATE SECTOR INVESTMENT IN FOREST MANAGEMENT applied by different financial institutions. It was Lack of Consensus on Independent acknowledged that realization of a single, standard- Certification ized set of policies will be difficult given the diversi- Independent certification has accelerated dramati- ty of national government legislative and regulatory cally since the creation of the Forest Stewardship frameworks. Nonetheless, the harmonization of Council (FSC) in 1993. Other regional schemes, such policies and their consistent application such as the Pan-European Forest Certification should be achievable. Questions also were raised (PEFC), the Sustainable Forestry Initiative (SFI), about the applicability of the Equator Principles to and the Canadian Standards Association (CSA), the forest sector. Banks have adopted a minimum also have advanced rapidly. All such schemes threshold of US$50 million for their application, together encompass 130 million hectares of certi- but many forest harvesting and management oper- fied forest worldwide; with additional certification ations fall in the US$5­10 million range. schemes being developed in Indonesia, Malaysia, 22 The weakness of state forest administrations and and Russia, it would appear that certification is here other institutional mechanisms in the monitoring to stay. of environmental procedures and safeguard policies Certification is most widespread in the devel- also was identified by many forum participants to oped and temperate countries of Europe and North be a major problem. For example, a Center for America, which account for more than 90 percent International Forest Research (CIFOR) study on of certified forest area. The tropical forests and "Corporate Debt and the Indonesian Forestry other developing country areas account for less Sector" (Barr and others 2003) illustrated how in than 5 percent of the total certified global forest Indonesia the failure to apply environmental assess- area, and much of this certification is of timber ment procedures and safeguards has contributed to plantations rather than natural forests. decisions that have allowed the pulp industry to Evidence presented to the forum by the source raw material from biologically diverse rain- Rainforest Alliance and earlier studies by the forests. The WWF has highlighted the same prob- International Institute for Environment and lem as it relates to the extensive clearing of Development (IIED) suggested that in some devel- Indonesian forests by agribusiness companies that oping countries certification is helping to promote are investing in large-scale oil palm plantations. the adoption of new forest management standards. The WWF position paper "WWF Guidelines for Certification, it is argued, provides a vehicle for Investment in Operations that Impact the Forest national dialogue on issues of forest tenure, worker Industry" (WWF 2003) provides guidelines cover- equity, citizen participation in the allocation and ing the legality of forest operations, policies for for- management of public resources, community value est conversion, forest management and conserva- systems, and sustainability. . tion practices, community-based forest operations, Several of the multinational forest product com- environmental management, the protection of the panies at the forum confirmed that despite the lack rights of indigenous peoples, and labor codes and of a price premium for certified products, certifica- standards. tion has provided benefits. These benefits include Several companies participating in the forum company prestige, better definition of SFM, greater shared their experiences of adopting corporate engagement of stakeholders, greater access to inter- social responsibility (CSR) principles. A recent national markets, and improved planning and World Bank publication, "Race to the Top: management practices, include conservation meas- Attracting and Enabling Global Sustainable ures. Some companies shared their experiences Business" (Berman and Webb 2003), based on a with certification schemes tailored to national gov- survey of 107 multinational enterprises that apply ernment, regional, and /or customer preferences. CSR practices in the extractive, agribusiness, and Some participants, particularly the timberland manufacturing sectors, confirms their positive investment firms, additionally asserted that inde- impact on company performance in areas such as pendent certification is a useful tool for reassuring environmental management, labor rights, corrup- their shareholders that the forests in which they are tion, human rights, community health, and land investing are managed in a socially and environ- rights. mentally responsible way. REPORT OF THE FOREST INVESTMENT FORUM Nonetheless, there remain significant con- Many of the companies participating in the straints to certification and consequently to invest- forum expressed concern that these environmental ment. Primary among these, as identified by forum pressures and the time spent in confrontational participants, are the following: failure to achieve debate can act as major constraints to responsible mutual recognition across different certification investment. The discussion accordingly veered to schemes; confusion in the marketplace about the ways of improving the accord between industry and relative merits of alternative schemes; the fact that a conservation groups, and specifically to the creation substantial proportion of developing country forest of appropriate strategies for the protection of output is consumed in local, nonenvironmentally HCVFs. Promising examples of collaboration discriminating markets; and the fact that price pre- brought to the notice of the forum included the miums have only emerged for a fraction of the agreement reached between Rougier (a French- global output of certified forest products. owned, West African timber company) and conser- 23 Recent efforts to achieve greater accord between vation interests in Gabon, where a mutually accept- stakeholders objectives for certification and among able revision of forest concession boundaries different certification schemes have included a pro- avoided logging certain areas. posal by The Forests Dialogue (TFD) to use the The Forests Dialogue additionally reported to Legitimacy Thresholds Model (LTM) concept to the forum on a recent multistakeholder consulta- assessing and evaluating different forest certification tion in Brazil that has developed guidelines for systems. The World Bank/ WWF Alliance has devel- improved industry­conservation community col- oped a Questionnaire for Assessing the Compre- laboration for the protection of biodiversity. The hensiveness Of Certification (QACC) Systems. The Critical Ecosystems Partnership Fund (CEPF), a QACC is intended to help Alliance managers assess joint initiative of the CI, the GEF, the Macarthur progress toward its target of 200 million hectares of Foundation, the World Bank, and the Government certified forest worldwide by 2005. of Japan, is providing support to such initiatives in To summarize, many forum participants 20 different countries. endorsed the desirability of an end to the debate In the Archangelsk region of Russia, the WWF, and confusion in the marketplace about the merits in collaboration with leading Russian forest indus- of different certification schemes. There is wide- trial companies such as ILIM Pulp, similarly is pio- spread acknowledgement that past attempts to neering a process for identifying and demarcating achieve mutual recognition have been unsuccessful, HVCFs. Model forests have been used to demon- but there is also acceptance that differences between strate best management practices and ways of main- regional approaches will persist. The emphasis of streaming biodiversity protection measures into the debate has as a consequence been shifting to the production forest management. The World Bank development of minimum standards for certifica- and the WWF could explore possibilities for repli- tion and to the definition of processes for measur- cating the initiatives underway in the Archangelsk ing step-by-step progress toward SFM. region in other areas. Differing Strategies for Protecting HCVFs Ongoing Debate on the Impacts of Plantation-Based Forestry Throughout the last decade, pressure increasingly has been brought to bear on forest industrial com- In his keynote address, Rainer Häggblom of Jaakko panies to persuade them to end logging in old- Pöyry Consulting stated that plantations will in the growth forests, to set aside high-conservation-value coming decades become one of the most significant forests (HCVFs), and to protect endangered wildlife forms of industrial forestry development. This is species and upland watersheds. These environmen- true especially in the tropics and subtropics. As a tal pressures have played a significant and positive proportion of total world roundwood consumed, role in raising awareness of conservation issues and the supply from plantations has increased from 5 in creating opportunities for civil society to become percent in the early 1990s to 35 percent today. It is more actively engaged in the debate about how forecast to exceed 50 percent by 2040. Fast-grown forests should be managed and for whose benefit. plantation fiber is a technically superior and cheap- OVERCOMING CONSTRAINTS TO PRIVATE SECTOR INVESTMENT IN FOREST MANAGEMENT er sustainable source of pulp fiber than mixed hard- been the case where the plantation has deprived woods from tropical rainforests, and planted wood people of the land on which their livelihoods were increasingly is being used for the manufacture of based. engineered wood products. Given these facts, it is On the environmental front, the CIFOR study not surprising that a large portion of private sector concluded that there have been cases where planta- investment in forestry now finances plantation esta- tions have replaced habitats rich in biodiversity, but blishment as a source of future pulpwood supply. on balance the study suggested that such claims Environmental groups concerns over plantation may also be exaggerated. The efficacy of including forestry and a lack of consensus on technology such biological corridors in plantation design, to reduce as that related to tree breeding, fertilization, and the impact on biodiversity, is being researched; and weed control are factors slowing the development in situations wherein the plantation is established of new plantations. In the past, NGO resistance to on derelict or abandoned agricultural land, the 24 plantation forestry largely has been founded in con- change in land use may even enrich the biodiversi- cerns about the impact on local communities and ty. In contrast, the claim that industrial plantations on the environment of large-scale, industrial-cor- take pressure off natural forests and thus help to poration-financed commercial plantations. In prac- redress biodiversity losses in natural forests is con- tice, however, in developing countries an increasing troversial. For a few countries (New Zealand and Sri proportion of future plantation forests will likely Lanka are examples) this may be true, but it is take the form of small-scale farm or community- unlikely to be the case in forest-rich countries owned woodlots that could benefit local communi- where there is pressure from the rural poor for the ties. In light of this, opposition to plantations may conversion of forest lands to agriculture and where in some cases be to the detriment of poorer seg- the transfer of additional forest land to farming is ments of society. almost certain to occur. At the forum, Mondi Corporation (South The CIFOR study observed that the role that Africa), BILT Corporation (India), and Aracrucz trees play in hydrological cycles is complex and Corporation (Brazil) presented examples of com- often misunderstood or misinterpreted. For exam- munity-owned plantations making significant con- ple, forests (and plantations) cannot prevent major tributions to household incomes. Companies such floods, and, with rare exceptions, they do not help as MeadWestvaco and Aracruz have been pursuing to create and attract rainfall. Plantations in fact may a collaborative dialogue with local communities, reduce annual water yields, especially where they scientific research institutions, and local municipal- replace grasslands and farmland, and large planta- ities, with the aim of reaching a consensus on where tions often reduce stream flow during the dry plantations make sense and where they do not. season. Such collaborative approaches could be more wide- Plantations are generally much less degrading to ly applied. the soil than are many agricultural crops, and in The forum discussion of this controversial issue some situations they can have a beneficial influence. benefited from an exhaustive study by CIFOR of the However, plantation soils are highly susceptible to social, environmental, and economic advantages erosion during harvesting and planting. In terms of and disadvantages of plantation forests. CIFOR nutrient cycling, plantations remove relatively small assembled the study in collaboration with scientists, quantities of nutrients when compared with most conservationists, and representatives of multina- agricultural crops, and therefore require relatively tional forest industrial companies. modest doses of fertilizer. Leaving branches, twigs, Industrial companies have sometimes exaggerat- leaves, and other plant litter in place after each har- ed the employment potential of plantations, an vest also can help to retain some nutrients. observation that is supported by CIFOR's social In conclusion, the CIFOR study found a land- audit. In certain circumstances plantations can scape approach to plantation development to be bring jobs, schools, roads, and other benefits. essential. The establishment of and investment in a However, it is also true that in some parts of the plantation should only be considered when the fol- developing world plantations have sparked off seri- lowing conditions are met: there is no risk to hydro- ous conflicts with local people. This particularly has logical cycles or reduced water quality; local com- REPORT OF THE FOREST INVESTMENT FORUM munities will retain access to firewood, grazing ices have been slow to materialize, with the results land, and other goods and services on which they that timber remains the principal source of revenue depend; and biologically unique forest ecosystems from forests, and forests continue to be more eco- will not be lost. nomically valuable cut down than standing. The The conclusions of the forum were that, when major cause of deforestation continues to be the poorly planned and executed, plantations can cause more profitable use of the land for agriculture or grave problems, but when well planned and execut- development. It is vital for the future of forests that ed, they can deliver not just large quantities of this trend be arrested. wood, but also a range of environment and social With the launch of the Katoomba Group in benefits. The safeguard polices developed by multi- 1998, Forest Trends spearheaded a new effort to lateral development banks and taken up by some of commercialize ecosystem services from forests. the commercial banks that participated in the forum Interest and support for this initiative from many 25 uphold these criteria. The challenge is how to ensure private companies and financial institutions has that these safeguards are applied in practice. been encouraging. With the backing of the IFC, Forest Trends recently has added a Business Development Facility to promote sustainable Underdevelopment of Markets for Forest forestry projects through the development of mar- Environmental Services kets for ecosystem services and by facilitating certi- There has been encouraging progress made toward fication. The facility will support the development recognition of the opportunities for private sector of a pipeline of potential sustainable forest project investment in environmental services such as car- deals for IFC investment, and will help forest own- bon sequestration, the protection of biodiversity, ers inventory and market nontimber environmental and water services. A recent review by the IIED of services. It also will conduct due diligence on emerging markets for environmental services iden- potential partners, assist the assessment of the tified 280 cases of actual or proposed payments. The potential value of services, identify potential buyers, cases included 75 deals for carbon sequestration, 72 and market the services. Companies that have for biodiversity conservation, 61 for watershed pro- already expressed interest in pursuing such deals tection, 51 for the preservation of landscape beauty, include Global Forest Products in South Africa and and 28 for "bundled" environmental services. Precious Woods in Amazonas, Brazil. Several factors are seriously hampering faster In sum, many forum participants endorsed the progress. Carbon market development is hindered need for policymakers, advocates, and market par- by the reluctance of the United States to ratify the ticipants collectively to play a more proactive role in Kyoto Protocol and the lack of suitable infrastruc- the foundation of a new forest economy. The new ture for such a market, including an institutional economy should be capable of delivering multiple registration system for carbon titles and the techni- revenue streams from the same forest, capturing cal capacity to verify the amounts of carbon value from timber as well as from carbon sequestra- sequestered. For biodiversity conservation, the tion, water flow regulation, water quality manage- potential financial returns from investment are ment, conservation, and nontimber forest products. uncertain. With regard to water services, there is a lack of appreciation of the potential for financial Constraints to Investment in Small-Scale transfers from downstream users and municipali- Enterprises ties to act as an incentive to upland communities to protect forest resources and to practice sustainable Small to medium-size forest products processing land use. Finally, the lack of technical skills and of and trade was one of the three largest categories of the institutional capacity for monitoring and certi- nonfarm rural activity in several studies undertaken fying the delivery of environmental services are by the FAO in the late 1990s. Worldwide, small-scale overriding constraints to greater private sector sawmilling, joinery, furniture manufacture, and investment in such services. other small wood-based enterprises employ some 33 The policies and institutions needed to acceler- million people. Community forest ownership addi- ate the development of markets for ecosystem serv- tionally has more than doubled in the last decade, OVERCOMING CONSTRAINTS TO PRIVATE SECTOR INVESTMENT IN FOREST MANAGEMENT from 350 million hectares to more than 700 million In India, the BILT Corporation perceives restric- hectares, a trend that is projected to continue. tions on access by industrial companies to state- At the forum, a number of promising examples owned forest lands as a constraint to the expansion of partnerships between large industrial companies, of community-based tree farming. It has been sug- forest outgrowers, and/or small-scale enterprises gested that India allow companies leasehold access were identified. These included the following: to some areas of state forest lands, within which community and smallholder outgrower arrange- Brazil. Since 1990, the Aracruz pulp and paper ments would be pursued. Governments have some- company has developed a partnership program times been reluctant to support leaseholder with some 2,500 farmers and 113 municipalities. arrangements of this nature because of their poten- These small suppliers currently meet about 15­20 tially negative impact on those local communities percent of pulp mill needs, and plans are in place to that rely on state-owned forests for fuelwood, fod- 26 quickly increase this to 30 percent. Land disputes der, and many other needs. The forum discussed presented an early obstacle to the arrangement, but the possibility of putting safeguard policies in place the scheme is now well established and operates to protect local community interests and at the under state environmental permits that restrict its same time to enable the orderly expansion of pulp, implementation to unused agricultural and nonna- paper, and other forest industries. tive forest lands. The IIED report Company--Community Forestry Partnerships: From Raw Deals to Mutual China. Plantation Timber Holdings has successful- Gains? (Mayers and Vermeulen 2002), which ly developed a joint program with several hundred reviewed 57 business­community partnerships, thousand farming families and village municipali- identified the key issues for successful partnership ties. development. These included particularly the need to support community thinking and to develop the India. BILT Corporation, India's leading pulp capacity of the community to work within business manufacturer, has a strongly developed farm forest and organizational forms, and the need to develop program in six states. The corporation sources 85 company thinking as regards livelihoods and com- percent of its raw materials from some 9,000 farm- munity rights-based approaches. The report also ing families, and plans over the long term to suggested that there are clear needs to develop sys- increase this to 60,000 farmers. tems for tracking and improving the output, process, quality, and impact of partnerships. Russia. IKEA, the world's largest furniture retailing Insecurity of land tenure is a clear constraint to company, has developed contracts with numerous community participation in such arrangements. small-scale furniture manufacturing companies in The Global Environment Fund prepared a note Russia and in a more than 50 other countries for the forum highlighting the difficulties facing worldwide. Through a joint program with the small enterprises. These include the problems WWF, IKEA has been assisting small manufacturers inherent in scale, high due diligence costs, the lack to obtain independent certification of the forests of market education and lack of business expertise, from which they draw their raw material supplies. and the fact that small, fragmented industries are not attractive to capital markets. Proposals for South Africa. Mondi Corporation, through a overcoming these constraints included considera- Kulanathi woodlot scheme in Kwa Zulu Natal, has tion of a special equity fund that would focus on contracted with 3,820 growers to supply 120,000 forest deals of less than US$20 million, the possible tons of roundwood to the market. The growers each establishment of a due diligence funding facility work a plot of an average 2 hectares. Through this that would allow qualified fund managers access to arrangement in excess of US$3 million will be funding under terms that would mitigate develop- transferred to the local community. A second com- ment risks, and the establishment of a business munity-based scheme in Siyaghubeka is based on development instrument that could be used to train land leased by Mondi from the government, but local entrepreneurs. ownership of which will be transferred to the local SMEs frequently operate in business environ- community. ments that are littered with obstacles to small-scale REPORT OF THE FOREST INVESTMENT FORUM investments, such as lengthy and expensive registra- rative follow-up action between industry, conserva- tion procedures, distorted and often changing poli- tion, and financial institutions. The objectives of cies and regulations, and inefficient commercial this action would be primarily to test the possibili- legal systems. They typically also face many prob- ties for the practical application of some of the lems in competing at the national and internation- more promising initiatives that were presented by al levels, in part due to limited information and forum participants. access to markets but also due to inadequate infra- A suggestion was made that forum follow-up structure and poor communications. The IFC Small activities should give special emphasis to major, and Medium-Size Enterprises (SME) unit provides forest-rich countries such as Brazil, China, technical assistance and direct investment to help Indonesia, the Democratic Republic of Congo, and tackle some of the issues faced by SMEs. Russia, which between them account for one-half of For example, in a project in Bolivia, specific tar- the world's remaining forest area. All five of these 27 gets suggested for IFC support over the next two countries are seeking foreign private sector invest- years include improvements in quality control for ment and will need strong external aid support to SME sawmillers; coaching in selling for SME overcome the formidable constraints to investment sawmillers; assistance to forest community groups identified by this forum. in forming SMEs; the earning of carbon credits for At the same time, however, it is important that forest activity; saw rectification for forest sawmills, follow-up activities should also target low-income, research into kiln drying and joint ownership of forest-poor countries such as India and countries of kiln projects; the development of a timber exchange Sub-Saharan Africa. Forests, open woodlands, and to maximize the use of timber species; and the small-scale forest product enterprises can in these development of a business plan preparation countries make a significant contribution to pover- scheme. ty alleviation, household income, food security, and agricultural productivity. EMERGING INVESTMENT OPPORTUNITIES: PROPOSALS FOR FOLLOW-UP ACTION In a concluding discussion of emerging investment opportunities, the forum agreed to explore with national governments the possibilities for collabo- OVERCOMING CONSTRAINTS TO PRIVATE SECTOR INVESTMENT IN FOREST MANAGEMENT Investment Forum Reference Materials and Information Sources 29 T he following materials are good resources of Forest Certification Schemes," 3­4 April for more information on issues discussed in 2002, Kuala Lumpur. Yokohama: ITTO. at the forum. The reference materials are organized according to topics. However, some Meridian Institute. 2001. "A Comparative Analysis materials may cover more than one of these issue of the Forest Stewardship Council and Sustain- areas. This is not a comprehensive list of materials able Forestry Initiative Certification Pro- tabled or presented at the forum. Forum participant grams." Washington D.C.: Meridian Institute. websites also provide a wealth of information and should be visited for more recent information on Molnar, Augusta. 2003. "Forest Certification and these issues. Communities: Looking Forward to the Next Decade." Washington, D.C.: Forest Trends. Certification TFD (The Forests Dialogue). 2002. "Dialogue on Bass, Stephen, Kristi Thornber, Matthew Certification: Maximizing Potential from Markopoulos, Sarah Roberts, and Maryanne Lessons Learned. Co-Chairmen's Summary." Grieg-Grah. 2001. Certification's Impacts on Published online at: Forests, Stakeholders, and Supply Chains. http://research.yale.edu/gisf/assets/pdf/tfd/ London: International Institute for Environ- Cert_Dialogue_Summary.pdf ment and Development. Environmental Assessment Procedures and Forest Trends. 2002. "Independent Forest Certifica- Safeguard Policies tion: Opportunities and Issues." Technical briefing note. Washington, D.C.: Forest ABN-AMRO. 2001. "ABN-AMRO Risk Policies: Trends. Available online at: Forestry and Tree Plantations." ABN-AMRO. http://www.forest-trends.org/keytrends/ pdf/tech_briefs/4forest_certification.pdf Barr, Christopher, David Brown, Anne Casson, and David Kaimowitz. 2003. "Corporate Debt and ITTO (International Tropical Timber Organiza- the Indonesian Forestry Sector: Which Way tion). 2002. "Proceedings of the International Forward?" In Carol J. Pierce Colfer and Ida Aju Workshop on Comparability and Equivalence Pradnja Resosudarmo, eds., People, Forests, and Policymaking in Indonesia. Washington, Van Gelder, Jan Willem, Wolfgang Richert, and D.C.: Resources for the Future Press. Eric Wakker. 2003. "Sources of Investment for Forestry: Preventing Flows of Finance to Illegal IFC (International Finance Corporation), Office of Activities." Discussion paper on behalf of the the Compliance Advisor Ombudsman. 2003. Sustainable Development Program of the "A Review of IFC's Safeguard Policies." Wash- Royal Institute of International Affairs (RIIA). ington, D.C.: IFC. London: RIIA. Saunders, Jade. 2003. "Export Credit Agencies and World Bank. 2001. "Technologies for Wood Track- Sustainable Development." Proceedings from ing: Verifying and Monitoring the Chain of the Expert Workshop on Export Credits and Custody and Legal Compliance in the Timber Sustainable Development, 3­4 September Industry." Washington, D.C.: World Bank. 30 2003, London. London: Royal Institute of International Affairs. Markets for Forest Environmental Services World Bank. 2003. "Race to the Top: Attracting and Jenkins, Michael. 2000. "A New Role for Forests in Enabling Global Sustainable Business." Corpo- the Green Economy." Presentation delivered at rate Social Responsibility Business Survey the Kick-Off Meeting of the New Role for Report. Washington, D.C.: World Bank. Forests in the Green Economy International Working Group, held 10 April 2000 in Sydney, ------. 2004. Sustaining Forests: A Development Australia. Washington D.C.: Forest Trends. Strategy. The World Bank 2002 Forest Strategy. Washington DC: World Bank. Sherr, Sara. 2000. "Markets for Environmental Ser- vices from Forests: Local Perspectives". Pre- sentation delivered at the Kick-off Meeting of Illegal Logging and Corruption the New Role for Forests in the Green Econo- Environmental Investigation Agency (EIA): my International Working Group. Sydney, http://www.eia-international.org. Australia, April 2000. This website publishes numerous EIA studies on illegal logging. Sherr, Sara, Andy White, and David Kaimowitz. 2003. "Making Markets Work for Forest Com- Forest Trends. 2002. "Strategies to Combat Illegal munities." Washington, D.C.: Forest Trends. Logging and Forest Crime." Technical briefing note. Washington, D.C.: Forest Trends. Avail- Landell-Mills, Natasha, and Ina Porras. 2001. Silver able online at: Bullet or Fools Gold: A Global Review of Markets http://www.forest-trends.org/keytrends/ for Forest Environmental Services and Their pdf/tech_briefs/9illegal_logging.pdf Impacts on the Poor. London: International Institute for Environment and Development. Global Forest Watch: http://www.globalforestwatch.org/ Pagiola, Stefano, Joshua Bishop, and Natasha Lan- This website publishes reports on the status of dell-Mills. 2002. Selling Forest Environmental forest resources and illegal logging in 10 target Services: Market-Based Mechanisms for Con- countries. servation and Development. London: Earth- scan. UPM Kymmene: Shanley, Patricia, Alan R. Pierce, Sarah A. Laird, http://www.upm-kymmene.com/tracingimports and Abraham Guillen. 2002. Tapping the Green This website publishes "Tracking Russia Wood Market: Certification and Management of Non- Imports," a regularly updated report that aims Timber Products. London: Earthscan. to increase transparency in the paper chain in general and of Russian wood imports in partic- ular. REPORT OF THE FOREST INVESTMENT FORUM Smith, Joyotee, and Grahame Applegate. 2003. Protecting High-Conservation-Value "Trading Forest Carbon to Promote Adoption Forests of Reduced-Impact Logging." Bogor, Indone- Shen, Susan, M. Jansen, and M.A. Sanjayan. 1997. sia: Center for International Forest Research. "Experience with Integrated Conservation Development Projects in Asia." World Bank Smith, Joyotee, and Sara Scherr. 2002. "Forest Car- Technical Paper No. 388. Washington, D.C.: bon and Local Livelihoods: Assessment of World Bank. Opportunities and Policy Recommendations." Center for International Forest Research TFD (The Forests Dialogue). 2004. "Forest and Bio- (CIFOR) Occasional Paper No. 37. Bogor, diversity Conservation: Summary of a Multi- Indonesia: CIFOR. stakeholder Dialogue Exploring Opportunities for Collaboration among Environmental 31 Groups and the Forest Industry." Dialogue Plantations Summary No. 1. Dialogue on Forestry and Brown, Christopher. 2000. "The Global Outlook Biodiversity Conservation convened 9­11 for Future Wood Supply from Forest Planta- October 2003, in Cabrália, Brazil. New Haven, tions." Outlook Study Working Paper Connecticut: TFD. GFPOS/WP/03. Rome: Food and Agriculture Organisation. World Bank. 2000. "Supporting the Web of Life: The World Bank and Biodiversity. A Portfolio Carrere, Ricardo, and Larry Lohmann. 1996. Pulp- Update (1988­1999)." Environment Depart- ing the South: Industrial Tree Plantations and ment. Washington, D.C.: World Bank the World Paper Economy. London: Zed Books. ------. 2001. Making Sustainable Commitments: An Environment Strategy for the World Bank. Cossalter, Christian, and Charlie Pye-Smith. 2003. Washington, D.C.: World Bank. "Fast-Wood Forestry: Myths and Realities." Bogor, Indonesia: Center for International ------. 2003. Biodiversity Conservation in Forest Forest Research. Ecosystems: World Bank Assistance 1992­2002. Washington, D.C.: World Bank. Desmond, Helen, and Digby Race. 2000. "Global Survey and Analytical Framework for Forestry WWF (World Wide Fund for Nature). 2002. Outgrower Arrangements." Rome: Food and "High-Conservation-Value Forests in Prac- Agriculture Organisation. tice." WWF Position Paper. Available online at http://www.panda.org/downloads/forests/po1 Evans, Julian. 1992. Plantation Forestry in the 0hcvf.pdf Tropics: Tree Planting for Industrial, Social, Environmental, and Agroforestry Purposes. ------.2003. "Northern Lights: An Example in Oxford: Oxford University Press. Practice of Progress towards Responsible For- est Rearrangement in Archangelsk Region, Keipi, Kari. "Financing Forest Plantations in Latin Russia." WWF European Forest Programme. America: Government Incentives." Unaslyva Available online at : 48(188):50­56. Rome: Food and Agriculture http://www.panda.org/downloads/forests/ Organization. inpracticeresponsibleforestmanagementinarkh angelskregionrussia.pdf INVESTMENT FORUM REFERENCE MATERIALS AND INFORMATION SOURCES Security of Raw Material Supply Berman, Jonathon, and Tobias Webb. 2003. Race to Gray, John A. 2002. "Forest Concession Policies the Top: Attracting and Enabling Global Sus- and Revenue Systems: Country Experiences tainable Business. Washington, D.C.: World and Policy Changes for Sustainable Tropical Bank Group. Forestry." World Bank Technical Paper No. 522. Washington, D.C.: World Bank. Clay, Jason. 2003. "Producers and Worker Equity Programmes in Brazil: Myths, Realities and Karsenty, Alian. 2000. Economic Instruments for Overall Interest." Informal paper prepared for Tropical Forests: The Congo Basin Case. Lon- the Forest Investment Forum, Centre for Con- don: International Institute for Environment servation Innovation at the World Wide Fund and Development. for Nature (WWF). Washington, D.C.: WWF. 32 Pearce, D., F. Putz, and J.K. Vanclay. 1999. "A Sus- GEF (Global Environment Fund). 2003. Annual tainable Forest Future." Working Paper of the Report 2002­2003. Washington, D.C.: GEF. Center for Social and Economic Research on the Global Environment. 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Working draft. Final publication Operations Evaluation Department. Washing- forthcoming in 2004. Washington, D.C.: For- ton, D.C.: World Bank. est Trends. WWF (World Wide Fund for Nature). 2003. Small- and Medium-Size Forest Enterprises "WWF Guidelines for Investment in Opera- Barr, Christopher, David Brown, Anne Casson, and tions That Impact the Forest Industry." Pub- David Kaimowitz. 2003. "Corporate Debt and lished online at: the Indonesian Forestry Sector: Which Way http://www.panda.org/downloads/forests/ Forward?" In Carol J. Pierce Colfer and Ida Aju wwfinvestmentpol7oct03final.pdf Pradnja Resosudarmo, eds., People, Forests, and Policymaking in Indonesia. Washington, D.C.: Resources for the Future Press. REPORT OF THE FOREST INVESTMENT FORUM ANNEX ONE Agenda 33 WORLD BANK / IFC / WWF / WBCSD / FOREST TRENDS / PROFOR FOREST INVESTMENT FORUM 22­23 October 2003 Wednesday, 22 October 10.15­11.15 WELCOMING REMARKS Ian Johnson Vice President, Environmentally and Socially Sustainable Development, World Bank James Wolfensohn President, World Bank and International Finance Corporation Odd Gullberg Chief Operating Officer, World Business Council for Sustainable Development Claude Martin Director General, WWF International 11.15­11.30 Break KEYNOTE ADDRESSES 11.30­12.00 GLOBAL FOREST TRENDS How Are These Likely to Influence Investment in Forest Operations in Developing and Economic Transition Countries? Rainer Haggblom (Chairman, Jaakko Poyry Consulting) 12.00­12.30 TIMBER LAND INVESTMENT Opportunities and Constraints for Financial Institutions Clark Binkley (Managing Director, Hancock Timber Group) 12.30­13.00 BEST-PRACTICE GUIDELINES FOR FOREST AND FOREST INDUSTRY INVESTMENT POLICIES Conservation Community Perspectives Duncan Pollard (Head of European Programmes, WWF) 13.00­14.15 Lunch (MC 12 ­ 700 Gallery) PANEL DISCUSSIONS, PART 1 INDUSTRY, CONSERVATION COMMUNITY,AND FINANCIAL INSTITUTION PERSPECTIVES 14.15­15.15 INDUSTRY PERSPECTIVES Panel Chair: Scott Wallinger (Vice President, MeadWestvaco Corporation, UNITED 34 STATES) How do companies see the need, opportunities, and constraints to forest investment in developing and economic transition countries? What actions could the World Bank and other agencies participating in the forum take to create an enabling environment for responsible private sector investment? 15.15­15.30 Break 15.30­16.30 CONSERVATION COMMUNITY PERSPECTIVES Panel Chair: Nigel Sizer (Director, Asia Pacific Programmes, The Nature Conservancy) How does the conservation community see the need, opportunities, and constraints to forest investment in developing and economic transition countries? What conservation community perspectives on environmental and social policies are needed to achieve responsible private sector investment in sustainable forest management? 16.30­17.30 FINANCIAL COMMUNITY PERSPECTIVES Panel Chair: Gavin Murray (Director, International Finance Corporation, Environment and Social Development Department) How do financial institutions see the need, opportunities, and constraints to forest investment in developing and economic transition countries? Could an agreed set of principles and best-practice guidelines be used as incentives to encourage responsible investment and to discourage companies that fail to adopt sustainable management? 18.00­20.00 Reception (MC 12 ­ 700 Gallery) Thursday, 23 October PANEL DISCUSSIONS, PART 2 OPPORTUNITIES FOR BUSINESS­COMMUNITY PARTNERSHIPS AND PRIVATE SECTOR FINANCING OF FOREST ENVIRONMENTAL SERVICES 09.00­10.00 BUSINESS­COMMUNITY PARTNERSHIPS Panel Chair: Claes Hall (Former Vice President, Aracruz, Brazil) REPORT OF THE FOREST INVESTMENT FORUM The potential of business­local community partnerships to contribute to poverty alleviation and sustainable livelihoods Lessons learned and directions for the future 10.00­10.15 Break 10.15­11.15 FINANCING FOREST ENVIRONMENTAL SERVICES Panel Chair: Michael Jenkins (President, Forest Trends) What role can private sector companies play in financing forest environmental services? PANEL DISCUSSIONS, PART 3 35 PLENARY DISCUSSIONS: FORUM CONCLUSIONS AND PROPOSED FOLLOW-UP ACTION 11.15­12.45 What are the potential business opportunities for responsible investment in developing and economic transition countries in the near- to mid-term? 12.45­14.00 Lunch (MC 12 ­ 700 Gallery) 14.00­15.45 PLENARY DISCUSSIONS (continued) What actions should be taken by the World Bank and forum partners to address the policy, institutional, and political constraints to responsible private sector investment? How can environmental and social policies and best-practice guidelines be used as a positive incentive to encourage industry, the private and public sector, and financial institutions to invest in forest industries in developing and economic transition countries? PROPOSED FOLLOW-UP ACTION CLOSING REMARKS ANNEX ONE: AGENDA ANNEX TWO List of Participants 37 FOREST COMPANIES AND INDUSTRIAL Mr. James Keylon ASSOCIATIONS Managing Director Barama Co. Ltd Mr. Ibrahim Hasan PO Box 10480 Vice President, Corporate Affairs Georgetown Asia Pacific Resources International Holdings Ltd GUYANA (PT Riau Andalan Pulp and Paper) Tel: +592 225 4555 PO Box 1080 Pekanbaru Email: jimk@suncap.com Riau Sumatra INDONESIA 28000 Mr. Raj Chaurasia Tel: ++62 761 491 841 Chief Executive Officer Email: ibrahim_hasan@april.com.sg BILT Tree Tech Ltd BILT Corp. Mr. Erling Lorentzen 5th Floor, First India Place Vice President Tower C Mr. Claes Hall Mehrauli Gurgaon Road Former Vice President Gurgaon, Haryana, 122 002 Aracruz Celulose SA INDIA Rua Lauro Müller 116/40 Tel: 91 124 280 4242 43 Andar Email: craj@bilt.com Rio de Janeiro, RJ 22299-900 BRAZIL Mr. Etienne Giros Tel: ++55 21 3820 8125 Chief Executive Officer, Africa Development Email: esl@aracruz.com.br Division c.hall@sverige.net Mr. Thierry de Montmarin Deputy CEO, Africa Development Division Mr. Florian Nehm Bollore Group Sustainability Officer 31­32 Quai de Dion Bouton Axel Springer 92800 Puteaux GERMANY FRANCE Tel: ++49 40 347 261 57 Tel: ++33 1 46 96 46 15 or 46 96 41 96 Email: florian.nehm@axelspringer.de Email: e.giros@bollore.net t.demontmarin@bollore.net Mr. Olof Von Gagern North York, Ontario Chief Executive Officer M2K 2X9 Danzer CANADA Storlachstrasse 1 Tel: ++1 416 226 6600 ext. 411 D - 72760 Reutlingen Email: sfbh@memo.ikea.com GERMANY Tel: ++49 7121 3070 Mr. Zakhar Smushkin Email: olof_von_gagern@danzer.de Chairman Mr. Svyatoslav Bychkov Mr. Robert D. Kirmse Managing Director Forest Technology Group Mr. Denis Uchaev 3950 Faber Place Drive Deputy Managing Director 38 North Charleston, SC 29405 Mr. Francis James Graves UNITED STATES Executive Vice President Tel: ++1 843 745 7400 Ilim Pulp Enterprise Email: bob.kirmse@htgrp.com 17 Marata Str. St. Petersburg, 191025 Mr. Andreas Eke RUSSIAN FEDERATION Gerante General Tel: ++7 812 118 6001 Futuro Forestal Email: svetlana.boode@ilimpulp.ru BO Box 6 25 39 svyatoslav.bychkov@ilimpulp.ru El Dorado Ciudad de Panamá denis.uchaev@ilimpulp.ru REP. DE PANAMÁ frank.graves@ilimpulp.ru Tel: +507 727 0078 Email: ae@futuroforestal.com Mr. David Bailey President Mr. Robert Brokaw International Paper, Poland Managing Partner Lim Center Gethal / GMO Renewable Resources R. 19 - 30 Al.JerozolImskie 30 Rowes Wharf 65/79/ 00 - 967 Boston, MA 02110 Warsaw, Poland UNITED STATES Tel: ++1 617 346 7651 Mr. David Struhs Email: michael.clasby@gmo.com Vice President for Environmental Affairs International Paper Dr. Robert Hunink 6400 Poplar Avenue Delegate of CIB's Board of Directors Memphis, TN 38194 CEO of Timber International Group 901-419- 4401 Hinrich Feldmeyer GmbH & Co. KG PO Box 41 Mr. Manoel Sobral Filho Ouesso Executive Director REPUBLIC OF CONGO International Tropical Timber Organization Tel: ++871 763 467 765 International Organizations Center, 5th Floor ++41 61 205 52 52 Pacifico ­ Yokohama Email: r.hunink@tt-timber.ch 1-1-1, Minato-Mirai, Nishi-ku Yokohama 220-0012 Ms. Sofie Beckham JAPAN Forestry Manager Tel: ++81 45 223 1110 IKEA Trading (Americas) Fax: ++81 45 223 1111 15 Provost Drive Email: itto@itto.or.jp REPORT OF THE FOREST INVESTMENT FORUM Mr. Rainer Haggblom Tel: +358 1 0469 5100 Chairman and Chief Executive Officer Email: eero.kytola@metsaliitto.fi Jaakko Poyry Consulting PO Box 4 Mr. James Brumm Jaakonkatu 3 Executive Vice President, General Counsel FIN-01621 Vantaa Mitsubishi Corp. FINLAND 520 Madison Avenue Tel: ++358 9 8947 2610 New York, NY 10022 Email: rainer.haggblom@poyry.fi UNITED STATES Tel: ++1 212 605 2565 Mr. Doug Parsonson Email: james.brumm@mitsubishicorp.com Principal 39 Jaakko Poyry (North America) Mr. Kevin Cazalet 580 White Plains Road General Manager 3rd Floor Mondi Ltd (South Africa) Tarrytown, NY 10591 PO Box 37 UNITED STATES Johannesburg 2000 Tel: ++1 914 332 4497 ext. 343 SOUTH AFRICA Email: doug.parsonson@poyryusa.com Tel: ++27 11 638 4004 Email: kevin_cazalet@mondi.co.za Mr. Jorge Vrsalovic Chief Executive Officer Mr. Hari Prasad Singhi Mr. John Bays Chief Executive Officer Chief Executive Officer / SEAF PanAfrican Paper Mills (Kenya) Jolyka Bolivia SRL Orient Paper & Industries Ltd Avenida Inominada Zona El Paso 9/1 R.N. Mukherjee Road Cochabamba Kolkata 7001 001 BOLIVIA INDIA Tel: ++591 4 4287341 or 4296084 Tel: ++91 33 2220 5006 Email: johnbays@aol.com Email: nks@orientpaperindia.com Mr. Scott Wallinger Mr. Daniel Spitzer Senior Vice President Chairman Mr. Cliff Schneider Plantation Timber Products (China) Vice President for Sustainable Forestry, Forestry Zhaofeng Center 6 F/G Division 369 Jiangsu Road MeadWestvaco Corp. (USA) Shanghai 200050 Forest Science Laboratory CHINA 180 Westvaco Road Tel: ++86 21 5240 1166 PO Box 1950 Email: daniel.spitzer@ptp.com.cn Summerville, SC 29484 UNITED STATES Mr. Alvaro Barreto Tel: ++1 843 851 4715 Chair Email: rsw3@meadwestvaco.com Mr. Joao Soares Forestry Manager Mr. Eero Kytola Soporcel Senior Vice President PO Box 2892 Metsaliitto Group Lisbon PO Box 10 PORTUGAL FIN-02020 Metsa Tel: ++351 21 385 7244 FINLAND Email: isabel.medina.cardoso@portucel.pt ANNEX TWO: LIST OF PARTICIPANTS Ms. Elisabet Salander Bjorklund Westmont, IL 60559-5563 President UNITED STATES Stora Enso Wood Supply (Europe) Tel: ++1 630 850 4979 Klarabergsviadukten 70 Email: kevin.lyden@upm-kymmene.com Entrance C, Floor 4 Stockholm 10724 Mr. Odd Gullberg SWEDEN Chief Operating Officer Tel: ++46 23 78 27 51 Mr. James Griffiths Email: Director, Sustainable Forest Products Industry and elisabeth.salander.bjorklund@storaenso.com Biodiversity World Business Council for Sustainable Ms. Cassie Phillips Development 40 Vice President, Sustainable Forestry 4, Chemin de Conches Weyerhaeuser Corp. CH 1231 Conches-Geneva PO Box 9777 SWITZERLAND Federal Way Tel: ++41 22 839 31 00 Seattle, WA 98063 Email: gullberg@wbcsd.org UNITED STATES griffiths@wbcsd.org Tel: ++1 293 924 4166 Email: sherry.smith@weyerhaeuser.com Mr. Alexander Buyevitch Director Mr. Akira Ichikawa John Park General Manager, Int'l Business Division Sustainability Officer Dr. Noriyuki Kobayashi Volga Paper Principal Researcher Gorky Str.1 Sumitomo Forestry Co. Ltd Balakhna, Nizhny Shinjuku Greentower Building Novgorod Region, 606407 14­1, Nishi-Shinjuku 6-Chome RUSSIAN FEDERATION Shinjuku-Ku Tel: ++7 831 612 2954 Tokyo 160-8360 Email: buyevitch@volga-paper.ru JAPAN johnpark@t-online.de Tel: ++81 3 3349 9521 or 5322 6668 Email: ozaki_itaru@star.sfc.co.jp; kobayashi_nori@star.sfc.co.jp Mr. Bjorn Roberts Operations Manager and Executive Director Tropical Forest Trust IUCN World Headquarters Rue Mauverney 28 1196 Gland SWITZERLAND Tel: ++41 22 999 01 22 Email: b.roberts@tropicalforesttrust.com Mr. Kevin Lyden President UPM­Kymmene Inc. (North America) 999 Oakmont Plaza Drive Suite 200 REPORT OF THE FOREST INVESTMENT FORUM FINANCING AND DEVELOPMENT Mr. S. Peter Headley AGENCIES First Vice President Citigroup Investments 6750 Poplar Avenue Mr. Christopher Wells Suite 109 Socially Responsible Investing Manager Germantown, TN 38138 ABN/AMRO Brazil UNITED STATES Avenida Paulista #1374 Tel: ++1 901 309 3333 Sao Paulo, 01310-916 Email: s.peter.headley@citigroup.com BRAZIL Tel: ++55 11 31 74 7834 Mr. Andrew Gittler Email: christopher.wells@br.abnamro.com Director 41 Credit Risk Management Mr. Marc-Antoine Martin Credit Suisse First Boston Manager of the Environment Unit, AFD Strategy 11 Madison Avenue Agence Française de Développement New York, NY 10010 5, Rue Roland Barthes UNITED STATES 75012 Paris Cedex Tel: ++1 212 325 3866 FRANCE Email: andrew.gittler@cssb.com Tel: ++33 1 53 44 33 74 Email: martinma@afd.fr Mr. John Hudson Mr. Akmal Siddiq Senior Forest Adviser Senior Environmental Advisor Global Local Environment Policy Division Asian Development Bank Department for International Development PO Box 789 1 Palace Street 0980 Manila London, SW1E 5HE PHILIPPINES UNITED KINGDOM Tel: ++63 2 632 6748 Tel: ++44 20 7023 6083 Email: asiddiq@adb.org Email: j-hudson@dfid.gov.uk Mr. Juan Pablo Buchert Mr. Jonas Solehav General Manager Senior Environmental Analyst BHP-Latin America EKN Apartado 41-4006 Box 3064 Belen SE-103 61 Stockholm COSTA RICA SWEDEN Tel: +506 293 8538 Tel: ++46 8 788 0000 Email: bhplatin@costarica.net Email: jonas.solehav@ekn.se jpb007@hotmail.com Mr. Darren Goetze Mr. Kenneth Newcombe Senior Policy Advisor Senior Manager, Biocarbon Fund Environment Canada, International Affairs Prototype Carbon Fund Team 10 Wellington Street The World Bank Gatineau, QC K1A 0H3 1818 H Street NW CANADA Washington, D.C., 20433 Tel: ++1 819 953 1853 UNITED STATES Email: darren.goetze@ec.gc.ca Tel: ++1 202 473 6010 Email: knewcombe@worldbank.org ANNEX TWO: LIST OF PARTICIPANTS Mr. Mikko Venermo Mr. Hosny M. El-Lakany Principal Environmental Specialist Assistant Director General Mr Juhani Numminen, Forest Department Senior Adviser, Pulp, Paper and Forest Industries FAO European Bank for Reconstruction and Viale delle Terme di Caracalla Development 00100 Roma One Exchange Square ITALY London, EC2A 2JN Tel: ++39 6 570 55879 UNITED KINGDOM Email: hosny.ellakany@fao.org Tel: ++44 20 7338 6074 Email: venermom@ebrd.com Dr. Angela Reitmaier GFA Representative 42 Mr. Pedro Ochoa GFA Forestry Advisor 910 17th Street NW European Investment Bank Suite 800 100 Boulevard Konrad Adenauer Washington, D.C., 20006 L-2950 UNITED STATES LUXEMBOURG Tel: ++1 202 413 2798 Tel: +352 4379 8566 Email: areitmaier@aol.com Email: ochoa@eib.org Mr. Leonard Good Mr. Norman G. Kurland Chairman and Chief Executive Officer President and Chief Executive Officer Global Environment Facility (GEF) Equity Expansion International Inc. Kanta Kumari 4318 North 31st Street GEF Secretariat Arlington, VA 22207-4116 1818 H Street NW UNITED STATES Washington, D.C., 20433 Tel: ++1 703 243 5155 UNITED STATES Email: thirdway@cesj.org Tel: ++1 202 473 0508 normanabailey@aol.com Email: lgood@thegef.org Mr. Art FitzGerald Mr. John Earhart Chief Environmental Advisor Chairman Export Development Canada Global Environment Fund 3187 Barwell Road 352 3rd Street, #306 Mississauga Laguna Beach, CA 92651 Ontario, L5L326 UNITED STATES CANADA Tel: ++1 949 497 6049 Tel: ++1 905 569 2236 Email: jearhart@globalenvironmentfund.com Email: afitzgerald@edc.ca Mr. Clark Binkley Mr. James Mahoney Managing Director and Chief Executive Officer Vice President, Engineering and Environment Hancock Timber Resource Group Export­Import Bank of the United States 99 High Street, 26th Floor 811 Vermont Avenue NW Boston, MA 02110-2320 Washington, D.C., 20571 UNITED STATES UNITED STATES Tel: ++1 617 747 1583 Tel: ++1 202 565 3573 Email: cbinkley@hnrg.com Email: james.mahoney@exim.gov REPORT OF THE FOREST INVESTMENT FORUM Mr. Stefan Löebbert Mr. Claude Carette Economist, Deputy, Division Chief Director General Hypo Vereinsbank Policy, Planning and International Affairs 80311 München Canadian Forest Services Am Tucherpark 16 Natural Resources Canada GERMANY 500 Booth Street, 8th Floor Tel: ++49 89 378 29765 Ottawa Email: stefan.loebbert@hvb.de Ontario, K1A 0E4 CANADA Mr. Nick Moss Gillespie Tel: ++1 613 947 9100 Analyst Email: jcarette@gc.ca Innovest Strategic Value Advisors Inc. 43 225, East Beaver Creek Road Mr. Karl Lenauer Suite 300 Senior Manager Richmond Hill Environment, Pulp Paper and Forestry Ontario, L4B 3P4 Oesterreichische Kontrollbank AG CANADA A­1011 Vienna, Strauchg.3 Tel: ++1 905 707 0876 ext. 219 AUSTRIA Email: nmoss@innovestgroup.com Tel: ++43 531 272 828 Email: karl.lenauer@oekb.at Ms. Janine Ferretti Chief, Environment Division Mr. Harvey Himberg Sustainable Development Department Deputy Vice President, Investment Policy, Inter-American Development Bank Director Environmental Affairs 1300 New York Avenue NW Overseas Private Investment Cooperation Washington, D.C., 20577 1100 NY Avenue NW UNITED STATES Washington, D.C, 20527 Tel: ++1 202 623 1795 UNITED STATES Email: janinef@iadb.org Tel: ++1 202 336 8041 Email: hhimb@opic.gov Mr. Gavin Murray Director, Environment and Social Development Mr. Phil Cottle Department Chief Executive Officer International Finance Corp. Forestry Risk Management Services Ltd 2121 Pennsylvania Avenue Sinclare House, 30­33 Minories Washington, D.C., 20433 London, EC3N 1DD UNITED STATES UNITED KINGDOM Tel: ++1 202 473 5671 Tel: ++44 776 989 5048 Email: gmurray@ifc.org Email: phil.cottle@partnerre.com philcottle@aol.com Mr. Shigeru Takagi Director Dr. Jurgen Blaser International Forestry Cooperation Office Head, Forest Environment Team Ministry of Agriculture, Forestry and Fisheries Intercooperation, Swiss Organisation for 1-2-1 Kasumigaseki, Chiyoda-ku Development and Cooperation Tokyo 100 8952 PO Box 6724 JAPAN Maulbeerstrasse 10 Tel: ++81 3 3591 8449 CH-3001 Berne Email: shigeru_takagi@nm.maff.go.jp SWITZERLAND Tel: ++41 31 382 0861 Email: jblaser@intercooperation.ch ANNEX TWO: LIST OF PARTICIPANTS Ms. Jade Saunders Mr. Pekka Patosaari Associate Fellow Coordinator and Head Sustainable Development Programme United Nations Forum on Forests Royal Institute of International Affairs Secretariat Chatham House Room DC2-2286, Two UN Plaza 10 St James's Square New York, NY 10017 London, SW1Y 4LE UNITED STATES UNITED KINGDOM Tel: ++1 212 963 3160/3401 Tel: ++44 781 506 3356 Email: patosaari@un.org Email: jade.saunders@riia.org The Honorable John F. Turner Mr. David Smith Assistant Secretary 44 Forestry Restructuring Adviser Ms. Jan McAlpine Department of Public Enterprises Senior Officer and Negotiator, Suite 401, Infotech Building Forests, Oceans, International Environmental and 1090 Arcadia Street Scientific Affairs Hatfield, Pretoria U.S. Department of State SOUTH AFRICA 2201 C Street NW Tel: ++27 12 431 1103 Room 783 (Turner); Room 4333 (McAlpine) Email: smithconsult@hotmail.com Washington, D.C., 20520 UNITED STATES Mr. Laurent Piermont Tel: ++1 202 647 1554 (Turner) Directeur Général ++1 202 647 4799 (McAlpine) Société Forestière de la CDC Email: turnerjf@state.gov 102, Rue Réaumur mcalpinejl@state.gov 75002 Paris FRANCE Dr. Keith Kozloff Tel: ++33 1 40 39 81 28 Senior Environmental Advisor Email: direction.generale@forestiere-cdc.fr Office of International Development Policy U.S. Treasury Department Mr. Wolfgang Ortloff 1440 New York Avenue NW Vice President Room 3407 Greenhouse Gas Risk Solutions Washington, D.C., 20220 Swiss Reinsurance Co. Tel: ++1 202 622 7719 Mythenquai 50/60 Email: keith.kozloff@do.treas.gov 8022 Zurich SWITZERLAND Ms. Katherine Warner Tel: ++41 43 285 2946 Managing Director Email: wolfgang_ortloff@swissre.com Forestry and Natural Resource Management Winrock International Mr. Peter Mertz 1621 North Kent Street Chief Executive Officer Suite 1200 Global Forest Partners Arlington, VA 22209 Trade Center, 4th Floor UNITED STATES 24 Airport Road Tel: ++1 703 525 9430 West Lebanon, NH 03784 Email: kwarner@winrock.org UNITED STATES Tel: ++1 603 298 4921 Email: karla.brothers@gfplp.co REPORT OF THE FOREST INVESTMENT FORUM Mr. Stephen Hurley NONGOVERNMENTAL ORGANIZATIONS Chairman and Chief Executive Officer, Xylem AND POLICY RESEARCH INSTITUTIONS Rainforest Fund Mr. Peter Massey Mr. Christopher Barr Managing Director, Rainforest Fund Policy Scientist Mr. William H. Anderson Ms. Masya Spek Controller Financial Analyst Mr. William J. Birmingham, Jr Mr. Bambang Setiono Senior Associate Policy and Financial Analyst Mr. Matthew L. Day Center for International Forestry Research Senior Associate (CIFOR) Xylem Investment Incomp. J1. CIFOR 45 40 Broad Street Situ Gede Suite 503 Sindang Barang Boston, MA 02109 Bogor Barat 16680 UNITED STATES INDONESIA Tel: ++1 800 995 3612 Tel: ++62 251 622 622 ++1 417 346 7100 Email: c.barr@cgiar.org Email: mboehling@xii.com m.spek@cgiar.org b.setiono@cgiar.org Mr. Ted Boling Deputy General Counsel Mr. Michael Jenkins White House Council on Environmental Quality President 722 Jackson Place NW Forest Trends Washington, D.C., 20503 1050 Potomac Street NW UNITED STATES Washington, D.C., 20007 Tel: ++1 202 395 3449 UNITED STATES Email: eboling@ceg.edp.gov Tel: ++1 202 298 3000 Email: mjenkins@forest-trends.org Mr. Kenneth Rosenbaum Principal Sylvan Environmental Consultants 1616 P St. NW Suite 200 Washington, D.C., 20036 UNITED STATES Tel: ++1 202 939 3867 Email: kenro@syenco.com Mr. Jon Sohn International Policy Analyst Friends of the Earth 1025 Vermont Avenue NW Third Floor Washington, D.C., 20005-6303 UNITED STATES Tel: ++1 202 783 7400 Email: jsohn@foe.org ANNEX TWO: LIST OF PARTICIPANTS Mr. James Mayers New Haven, CT 06511 Director, Forestry and Land Use Programme UNITED STATES International Institute for Environment and Tel: ++1 203 432 9374 Development (IIED) Email: bradford.gentry@yale.edu 4 Hanover Street Edinburgh, EH2 2EN Mr. Gary W. Dunning UNITED KINGDOM Executive Director Tel: ++44 131 624 7041 The Forests Dialogue Email: james.mayers@iied.org Yale University IIED Head Office 360 Prospect Street 3 Endsleigh Street New Haven, CT 06511 London, WC1H 0DD UNITED STATES 46 UNITED KINGDOM Tel: ++1 203 432 5966 Tel: ++44 207 388 2117 Email: gary.dunning@yale.edu Ms. Stine Andresen Mr. Steve McCormick Senior Adviser President and Chief Executive Officer IUCN Mr. Nigel Sizer Rue Mauverney 28 Director for Asia Pacific CH 1196 Gland Forest Program SWITZERLAND The Nature Conservancy Tel: ++41 22 999 0264 4245 North Fairfax Drive Email: stine.andresen@iucn.org Suite 100 Arlington, VA 22203 Mr. Jan Willem Van Gelder UNITED STATES President Tel: ++1 703 841 5300 Profundo Research Email: smcormick@tnc.org De Bloemen 24 n.sizer@cgiar.org 1902 GV Castricum NETHERLANDS Ms. Mary Melnyk Tel: ++31 251 658 385 Senior Advisor, Natural Resources Management Email: profundo@profundo.nl USAID Asia and Near East Bureau 1300 Pennsylvania Avenue NW Mr. Richard Donovan Washington, D.C., 20523 Director UNITED STATES Rainforest Alliance Tel: ++1 202 712 4906 61 Millet Street Email: mmelnyk@usaid.gov Goodwin Boker Building Richmond, VT 05477 Ms. Melissa Dann UNITED STATES Senior Program Officer Tel: ++1 802 434 5491 Wallace Global Fund Email: rzd@smartwood.org 1990 M Street NW Suite 250 Mr. Brad Gentry Washington, D.C., 20036 Senior Lecturer UNITED STATES The Forests Dialogue Tel: ++1 202 452 1530 ext. 111 Sage Hall Email: mdann@wgf.org 205 Prospect Street REPORT OF THE FOREST INVESTMENT FORUM Mr. Claude Martin Director General Worldwide Fund for Nature Avenue du Mont-Blanc 1196 Gland SWITZERLAND Tel: ++41 22 364 91 11 Email: cmartin@wwfint.org Mr. Stephen Cox Executive Director World Resources Institute 47 10 G Street NE Suite 800 Washington, D.C., 20002 UNITED STATES Tel: ++1 202 729 7719 Email: scox@wri.org Mr. Reinier de Man Consultant for Sustainable Business Development Kloksteeg 33 NL 2311 SK Leiden THE NETHERLANDS Tel: ++31 71 512 8422 Email: reinier.de.man@rde.man.nl ANNEX TWO: LIST OF PARTICIPANTS Private foreign direct investment (FDI) in the forest World Business Council for Sustainable Development sector considerably exceeds public official development (WBCSD), WWF, the Program on Forests (PROFOR), and assistance (ODA). In recent years, forest financing has ForestTrends,theforumsetoutto: been characterized by an increase in FDI into developing countries to approximately US$8-10 billion a year, and a · Identify opportunities for investments in environ- decline in ODA to about US$1.75 billion a year. However, mentallyandsociallysustainableforestryindevelop- current levels of investment in the forest sector, both ingandeconomictransitioncountries; domestic and foreign, fall far short of investment · Consider actions that the World Bank Group requirements necessary to realize the potential of and Forum participants could take to create an well-managed forest resources to contribute to poverty enabling environment for responsible private sector alleviation, the protection of vital environmental investment; and services,andsustainableeconomicgrowthindeveloping · Explorethewillingnessofforumparticipantstosupport andtransitioncountries. a process to develop clearly defined and mutually compatible social, economic and environmental Toaddressthisissue,theForestInvestmentForumbrought investmentguidelinesspecifictotheforestsector. together 150 senior executives of domestic and multi- This publication includes a summary of workshop national forest product companies, private and public proceedingsaswellasananalysisofopportunitiesandkey sector financial institutions, and leading conservation constraints to environmentally and socially responsible agencies from around the world. Organized jointly by the privatesectorinvestmentintheforestsector. World Bank, the International Finance Corporation (IFC), ProgramonForests(PROFOR) TheWorldBank 1818HStreetNW WashingtonDC20433 USA tel:+1(202)473-2396 fax:+1(202)522-1142 email:profor@worldbank.org Internet:http://www.profor.info