Trees, Forests Undervalued
According to some estimates, approximately 41 million trees are cut down every day—much faster than we are replanting them. The consequences of deforestation and land degradation include climate change, biodiversity loss, and declines in ecosystem services that support hundreds of millions of people.
In response, governments around the world have committed to restore 160 million hectares of forests—an area larger than South Africa. But it will take more than government action to execute on these commitments; the private sector has an important role to play, too.
In fact, these commitments are spurring increased demand for companies that can deliver large projects cost-effectively—restoring degraded land has the potential to become a big business opportunity, on top of providing much needed climate mitigation and other ecosystem benefits. Established companies and entrepreneurs alike are finding new ways to make money from sustainably managed forests and farms.
Some are responding to governmental incentives; others are responding directly to the market, restoring land to generate new products and services, or to differentiate their offerings from the competition. Some entrepreneurs are betting that a huge new business opportunity for natural carbon capture and sequestration will emerge as more governments charge a fee for emissions driving climate change.
New research by The Nature Conservancy, World Resources Institute and other partners shows that restoration and other land management improvements could provide more than a third of the emissions reductions necessary to keep global warming under 2°C.
A new report launched today by The Nature Conservancy (TNC) and World Resources Institute (WRI) finds that restoring degraded land is not only good for the planet, it’s also a good investment opportunity as well. Through the analysis of 140 restoration-focused businesses in eight countries and four continents.
The Business of Planting Trees shows that the economic benefits of restoring land are estimated at $84 billion per year and deliver a range of financial returns.
This new emerging “restoration economy” represents a wide range of business models and not only brings economic and financial benefits, but also co-benefits including clean water, sustainable agriculture and functioning ecosystems. Reforestation also provides the single largest potential for storing carbon of any land-based natural climate solution. However, there is still a$300 billion shortfall in funding for restoration needed to achieve these outcomes at scale.
The report highlights four promising investment themes – technology, consumer products, project management and commercial forestry and explores how for-profit companies and impact investors can begin to close the financial gap while also turning a profit.
“If we are to be serious about climate change, we have to get serious about investing in nature,” said Justin Adams, Managing Director Global lands for The Nature Conservancy. “The way we manage lands in the future could cost effectively deliver over a third of greenhouse gas emissions reductions required to prevent dangerous levels of global warming.”
The report authors selected 14 commercial businesses that have restoration at the core of their customer value proposition to highlight the breadth and depth of the restoration economy. Companies ranged from those with over $50 million in sales, to fewer than 10 employees, startups and mature land management organizations in operation for over 40 years. Each business had to meet five specific criteria:
• Profitable: Does the enterprise make money today (or is on track to do so in the future)?
• Scalable: Does the company have the potential to become much bigger than it is today?
• Replicable: Can this concept be replicated in other regions by other businesses?
• Environmental impact: Does the enterprise result in degraded lands being restored?
• Social impact: Does the company have a positive impact on people?
The report found that that investors would like to invest in land restoration, but were unsure of the financial landscape. Commercial investment of restoration has been limited to date, due to lacking proof of concept in new business models, the small deal sizes and future long-term planning of five or more years. The research indicates that business model development has advanced substantially, and rapid growth indicates investment sums may also rise. By presenting real world examples of companies that generate revenues from restoration, investors and entrepreneurs can gain insight into what business models exists, operational setups and how to avoid the early pitfalls. The report authors strongly recommend investors perform their own due diligence.
Political commitments like the Paris Climate Accord, the Bonn Challenge and the New York Declaration on Forests present a major opportunity for investment in restoration as countries seek to engage the private sector to help meet their commitments. The report authors hope that this report serves as a starting point for investors to understand the growth opportunity that exists within the restoration economy.
Yet hurdles remain, and one of the biggest is funding. Many investors still know little about restoration opportunities. This report is intended to bridge that information gap; it includes case studies of 14 innovative enterprises across eight countries. They cover a fascinating range of activities, from drones that shoot seeds into hardened soils to genetic research on tree species threatened with extinction.
The restoration economy is at the take-off stage. New business models are emerging, technology is advancing and governments are showing political will. This is great news for investors looking for the next growth opportunity. And this is good news for the planet, since restoring land can provide clean water, improve livelihoods and enhance biodiversity—all while pulling back to the earth excess atmospheric carbon that would otherwise be heating the planet.
Opportunities have never been greater—and the task has never been more urgent. As an ancient Chinese proverb says, “The best time to plant a tree was 20 years ago. The next best time is now.”