Natural Resources

Projects involving the development and management of sustainable forestry and other natural resources around the world have the potential to support both local and global sustainable development whilst simultaneously enhancing prospects for pro-poor growth. Sustainable forestry involves management of the underlying natural asset so as to preserve and enhance its long-term value for all stakeholders. According to the FAO, 'Sustainable Forest Management aims to ensure that the goods and services derived from the forest meet present-day needs while at the same time securing their continued availability and contribution to long-term development'.

From a silvicultural perspective sustainable forestry implies that, at a minimum, sustained yield of timber over time is being achieved due to adequate use of inventory data, and the application of appropriate harvesting systems. From a broader perspective, under a sustainable management regime, ecological functions and integrity of the forest should be protected, along with a wide range of values, not all of which can readily be monetized. Active management can provide social and economic benefits through the exploitation of natural resources including both timber and non-timber forest products (NTFPs), while some portion of the landbase will be set aside in protected areas for conservation purposes. Responsible management will typically lead to netdowns, or leaving some accessible standing timber unharvested, in the interests of achieving conservation objectives, such as providing suitable habitat for wildlife across the landscape.

Globally the demand for timber, especially from pulp and paper manufacturers, continues to outstrip demand. Demand for products derived from forestry operations certified by independent third-party audit as well-managed also continues to exceed available supply. At the same time interest in a range of new forest product markets such as tradable emission reductions generated through carbon sequestration, and ecosystem services such as air purification, water filtration, soil retention, and climate regulation, is building rapidly.

Investor interest in forestry as an asset class has grown steadily in the developed world, and this growing confidence is reflected in increasing capital flows into the sector. In the developing world however a more mixed picture exists. In these regions investors perceive projects as higher risk than would be the case for a comparable investment in the developed world, and cost of capital varies accordingly. This would seem to be largely due to issues of investor protection and market access, combined with very tangible political risk in some areas. There may be opportunities to generate significant social, environmental, and economic benefits by investing in emerging markets where capital is historically in short supply.