Rainforests: A New Class of Asset Management and Investment

In co-operation with the Government of Guyana and the Commonwealth, the Iwokrama International Rainforest Centre and its partners are seeking a new means to bring the world’s remaining rainforests into the global economy without losing them in the process.

World leaders must be resolute in their approach to reversing the accelerating degradation of global eco-system services. Without the services these eco-systems provide, our health, wealth, leisure, travel and personal happiness will suffer - leading to individual and collective disease, displacement and insecurity.

The Stark Facts

The economic blueprint we inherited from our forefathers was based on two underlying assumptions - that the world’s natural resources were infinite and that its natural ecosystems would always be able to accommodate the environmental impact of man’s activities. While that may have been true in 1800, it is no longer valid in today’s globalised economy with 6.7 billion people consuming at levels that were previously unimaginable. If we damage life supporting eco-systems, pollute watercourses, overfish oceans and destroy forests, we are actually harming ourselves.

Deforestation continues at 13 million hectares a year and generates 20 per cent of all emissions - more than the entire global transport sector. Yet it is extraordinary that, while so much attention is devoted to reducing emissions from aviation (responsible for 3 per cent of the total), the ongoing destruction and burning of tropical forests receives relatively little attention.

While tropical forests occupy only 7 per cent of the Earth’s surface, they capture and store naturally - and free of cost - an estimated 1.2 billion tonnes of carbon per year. The forests are, moreover, part of an interconnected system that manages the pollination of plants; the maintenance of biodiversity; the absorption of wastes and pollutants from the atmosphere; the control of soil erosion; the generation of rainfall; the cooling of the earth; and the production of oxygen.

As individuals, we worry about global warming but we continue collectively to destroy the air conditioning of the planet. We worry about rising levels of atmospheric CO2 , yet we continue to be largely indifferent to the loss of the greatest carbon sinks. The accumulation of wealth on a personal or national level, without factoring in the global context, has been called the “tragedy of the commons”.

Climate change is a multi-dimensional global problem requiring truly multi-dimensional global solutions. But one element can be addressed immediately - stopping the destruction of rainforests. And it requires no new technology. It is far more cost effective than industrial solutions to carbon storage and capture and it brings numerous co-benefits in the form of sustainable development and poverty alleviation. But, if we do not halt the removal of forests, mid-century targets for climatic stability will be essentially unachievable.

So how can this be done? The answer is it can only be achieved through a fundamental reappraisal of what we value.

Valuing Rainforest

The Iwokrama rainforest, part of the wider Guiana Shield on the north eastern shoulder of South America, is uniquely placed with its research centre to play a leading role in reversing this process of destruction by establishing financial mechanisms to allow the continued sustainable use of forests.

In 2008, a UK company, Canopy Capital, and the Iwokrama International Centre signed a pioneering agreement, through which private financial investors recognised the vital role of Iwokrama’s eco-system services and agreed to work together to generate financial value for them. Their initial payments - the first ever private payment for eco-system services made with the intent of generating financial returns - have enabled the further protection and sustainable use of the forest.

This significant stepping stone complements the wider initiative of President Jagdeo of Guyana to establish a low carbon model of economic development for his country. Securing value for the services of Guyana’s forests is a key component of the President’s proposal.

The Next Step

Canopy Capital, in close co-operation with the IIC, is seeking to formulate a further and longer-term financial instrument to enable international institutions and private investors to participate in the value which it is anticipated the international community will attribute to the services of the forest in the future

Under a capital protected mechanism, income generated from the instrument would be shared equitably between investors, Iwokrama and the government and people of Guyana. Investors would receive assurance of the forest’s protection and the continued delivery of the services for which they are paying; Iwokrama would work closely with the local communities to allocate income towards research, continued conservation activities and income generation schemes; and the government of Guyana would apply its share of the proceeds towards adaptation to climate change and sustainable development, as a precursor to a national scale model arising from international support for President Jagdeo’s wider initiative.

In short, Iwokrama and Canopy Capital and its international partners believe that, instead of converting finite natural capital into extractable goods, it would be to mankind’s immediate and long-term benefit to re-direct precious capital to the maintenance of the significant ecosystem services of the world on which everything else depends. As recognition of those services becomes widespread, their financial value will increase and the next great emerging market will be formed.

A Model for the World

The Iwokrama approach, with its philosophy of combining conservation and sustainable human use, can help to encourage the international community to recognise the value of all standing forests. Why pay subsidies of 100 Euros per tonne to perform industrial capture and storage (CCS), whilst ignoring the CCS function of the standing forest? Saving forests is the best, most immediate and most cost effective manner in which to combat climate change and to narrow the poverty gap.

The continuing volatility in the global financial markets has provoked intense debate about how global financial flows should be regulated and what is truly valuable. Just as the link between the US dollar and gold was abandoned in 1971 when conditions no longer made it practical, the unparalleled conditions of today demand that the world begins to value the world’s fast diminishing natural capital as never before.

The international financial crisis has triggered the opportunity to do things differently. In 2008 major stock markets of the world declined 30-50 per cent and lost US$30 trillion in value. In contrast, the Stern Report called for US$30-50 billion to halt the destruction of the rainforests - 1/1000th of the market loss last year. Put another way, the world spends US$3 trillion on all forms of insurance each year - but fails to under write the natural systems on which human life depends.

Valuing nature is an essential step in mankind’s battle for survival. The political climate is right to take far-reaching decisions and financial markets are urgently seeking a new way forward. Iwokrama and its partners are proud to have taken the first steps towards unlocking the financial potential hidden in the canopy of the forest.

About The Authors

Edward Glover, previously a senior British diplomat including UK High Commissioner to Guyana, has been Chair of the Iwokrama Trustees since 2005. He has also advised on foreign ministry reform in Iraq, Kosovo and Sierra Leone and is an Associate Fellow of the Centre for Caribbean Studies, Warwick University.

Hylton Murray Philipson established Morgan Grenfell in Brazil in 1982 and subsequently combined a career in venture capital with increasing concern for the fate of the forests. He is a director of a number of companies addressing the challenge and opportunity of climate change and is Trustee of Rainforest Concern and of the Global Canopy Programme.

Michael Woods was a partner and head of the climate change practice at international law firm Eversheds LLP. He has previously worked at the UN climate change negotiations with FIELD, as an advisory lawyer with the UK Environment Department (DEFRA) and as a senior research fellow at University College London.


Friday, 25 March 2011
Rainforests: A New Class of Asset Management and Investment In co-operation with the Government of Guyana and the Commonwealth, the Iwokrama International Rainforest Centre and its partners are More...