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Conservation and Alternative Investment Groups Team Up to Back Forest Conservation Bond Market

| Tuesday September 27th, 2011 | 0 Comments

The World Wildlife Fund (WWF) has joined the Global Canopy Programme and the Climate Bonds Initiative to call on governments around the world to foster growth and development of a global market for forest conservation bonds, according to a report from Environmental Finance.

A market for forest conservation bonds would help slow down deforestation by raising investment revenue from institutional and other investors, such as pension funds, in return for a steady stream of revenue from sustainable timber operations, carbon sequestration and other ecosystem services. They’d also provide a much needed alternative, and supplement to carbon emissions offset markets.

Thirty billion dollars a year invested in forest conservation bonds would cut deforestation rates in half, thereby assuring that the world’s forests will continue to function as sinks that soak up carbon dioxide from the atmosphere, the groups assert.

A healthy market for forest conservation bonds can provide a necessary supplement and offers advantages over markets for carbon offsets and credits, which the groups believe are not reliable enough.

Climate Bonds Initiative chairman Sean Kidney believes that investors will flock to forest conservation bonds as they can be high credit quality debt securities that offer attractive returns, as well as provide diversification, even negative correlations, with stocks and other bonds.

“If you offer investors an AA-rated forest bond or an AA-rated oil bond, most of them will take the green option. You have to remember that 19 of the 20 largest pension funds are public sector funds and they’re concerned about climate,” Kidney was quoted as saying in an Alternative Asset Analysis news report.

“The alarming rate of forest loss around the globe is releasing billions of tonnes of CO2 [carbon dioxide] and destroying irreplaceable biodiversity,” said Don Kanak, chairman of insurance group Prudential Corporation Asia and advisor to WWF’s forest and climate initiative. “The world needs to increase forest finance by tens of billions of dollars in the current decade just to halve this forest loss.”

In order to get the market up and running, they are urging governments and private sector organizations, such as insurers, to participate and publicly support the market’s development, such as political risk guarantees to help offset risk.

Benefits, as well as assessments, they add, should be shared broadly and equitably across stakeholder groups, including local communities and the public sector, as well as the international investment groups and investors.

The three conservation groups have published a report, “Unlocking Forest Bonds,” supported by Goldman Sachs and Fondation 1796, the philanthropic arm of Swiss private bank Lombard Odier Darier Hentsch & Co. based on a workshop held earlier this year.


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