How Wall Street can save our forests

How Wall Street can save our forests

Dr Fiona Wild
Dr Fiona Wild

Vice President, Sustainability & Climate Change

To restrict climate change to less than two degrees Celsius, we’ll need to protect the world’s forests and financial markets will have an important role to play.

Every year around 130,000 km2 of forest is lost, an area the size of England or Mississippi. Deforestation and land degradation are responsible for up to 20 per cent of global greenhouse gas emissions and are the largest sources of emissions in many developing countries.

Addressing the economic drivers of deforestation will take investment. It’s been estimated that stopping deforestation in the next decade would cost up to US$300 billion. Fundraising on that level requires the participation of the world biggest financial institutions.

The United Nation’s climate change mitigation mechanism REDD+ program, an extension of REDD (Reducing Emissions from Deforestation and Forest Degradation) provides the basis of an international system that could make this possible. It allows forest protection projects to generate income and support alternative livelihoods in project areas by selling carbon credits that purchasers can retire, use to offset their own emissions or sell on in the carbon market.

The more potential purchasers of these credits there are, the more capital will be drawn to forest protection, with its complementary conservation, sustainable management of forests and community development benefits.

To kick-start the process, BHP Billiton, the International Finance Corporation (IFC), Conservation International and Baker & Mackenzie developed the Forests Bond, issued by IFC in November – a global first in directing investment for the benefit of the climate, forests and people. This US$152 million issue will allow its institutional investors to choose to receive coupons in the form of carbon credits, instead of cash coupons.

These carbon credits come from the Kasigau Corridor REDD Project in East Kenya. The Bond is listed on the London Stock Exchange.

We hope this innovative Forests Bond will cause much more capital to be drawn into forest protection than its issue alone and will help encourage the products which need to be launched to broaden and deepen the market for investment in REDD+. Forest protection is one of the most cost effective tools we have to combat climate change, protect biodiversity and support developing economies.

The Forests Bond will hopefully also provide an example to project developers, governments, donors and the private sector on how to overcome key market, governance and financial bottlenecks.

BHP Billiton is providing a price support mechanism of US$12 million that ensures that the project can sell a pre-defined minimum quantity of carbon credits every year until the Bond matures, whether or not investors in the Bond elect to receive carbon credit coupons. REDD projects must usually sell a certain number of carbon credits each year to be sustainable.