A New Paradigm: Partnerships and Rights in Forest Investments

Report of the Side Event ‘”Investing in Locally Controlled Forestry” by The Forests Dialogue

Partnerships for collaborative solutions between investors and rights-holders can mobilize unused natural resources, improve forest protection, and promote sustainable development. The Forests Dialogue (TFD) presented the initiative Investing in Locally Controlled Forestry (ILCF) at the UN Forum on Forests 10th Session in Istanbul. TFD showed ILCF is different from common investments in natural resources in that it promotes a paradigm shift from ‘capital seeks natural resources and needs labor’ to ‘rights-holders manage natural resources and seek capital and partners.’

Why is ILCF relevant?
A growing trend toward local control and rights for rural communities and indigenous groups unleashes increasing support from investment funds and philanthropic foundations for community-driven initiatives. Besides enhancing the socioeconomic situation of rights-holders, ILCF may also contribute to Reducing Emissions from Deforestation and Forest Degradation (REDD+) by connecting communities to funding schemes and enhancing benefit sharing. ILCF builds on the premise that rural livelihoods need to be improved in order to protect forests and to increase forest cover. Peter DeMarsh, chair of the International Family Forestry Alliance and UNFF focal point for the Major Group Farmers and Small Forest Landowners, said: “You cannot protect what you don’t get value from. You need to cut a few trees.” In this respect, ILCF can fill the gap between local resources and global markets.

What is the framework for ILCF?
ILCF categorizes investments in enabling and asset investments. While asset investments seek financial returns and entail typical commercial interests, enabling investments prepare the ground for profit-making and do not yield financial rewards by themselves. The first step for enabling investments is to respect and guarantee the rights of local people and forest owners. Building partnerships and brokering deals between rights-holders and investors need to happen under the leading role of local people and their representatives. Enabling conditions include the clarity of tenure and rights, transparency and accountability, and ‘good enough governance.’ The latter requires governments have the capability to ensure crucial institutional standards, while not insisting on the holistic but often utopian concept of ‘good governance.’ Diji Chandrasekharan Behr, natural resource economist at the World Bank, emphasized the need for a common vision. “What are we thinking about when we talk about investments in locally controlled forests?”

How can communities or small to medium forestry operations attract investment?
Small forest owners, indigenous peoples, and rural communities manage one third of the world’s forest. This holds great potential for green growth, according to Chandrasekharan Behr. While the private sector invests $15 billion in the forest sector per year, increased emphasis on SMEs is needed. Gary Dunning from TFD explained institutions needed to be developed at the local level to further understanding of the value chain. Partnerships with the private sector – locally, regionally, nationally, and internationally – are instrumental to mobilize enabling investments. Once these conditions are met, so Dunning, there are good chances for ILCF to scale up.

How can the objectives of locally controlled forestry be achieved?
Effective associations are critical for forest owners, DeMarsh pointed out. Associations facilitate the sharing of knowledge and information, contribute to education and training, and enhance fair market access. They lobby governments to improve tenure security, push markets to open themselves, and force consumers to pay more, according to DeMarsh. Furthermore, so DeMarsh, knowledgeable brokers are crucial to mesh together the interests and needs in the partnerships between SMEs and investors. To further assess social and environmental benefits, as well as economic viability of the concept, money for a good variety of pilots is needed, DeMarsh concluded. So far, case studies described in the Guide to investing in locally controlled forestry give reason to increase the scope of the initiative. Governments can play an instrumental role to achieving the objectives of ILCF by creating incentives to encourage enabling investments.

ILCF is a promising initiative that may change the way we think of investments in natural resources by establishing rights-holders in a leading position. Unused resources that are not marketable under current conditions may be mobilized through ILCF and contribute to improving rural livelihoods while meeting global fiber demand. Evidence suggests that ILCF can contribute to broader environmental goals like forest landscape restoration, forest protection, and REDD+, while benefiting all stakeholders.