Forest Resilience Finance Opportunities & Challenges: Helping forests adapt to climate change

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December 2018

This paper, Forest Resilience Finance Opportunities & Challenges: Helping forests adapt to climate change, is intended to support the climate finance community, consisting of policy makers; multilateral agencies; development finance institutions; and private sector insurance and capital markets, in understanding the value that forests create; what risks forests face; how climate change will impact these risks and lastly, the role of traditional and innovative climate finance solutions to address the values at risk.

Forest landscapes generate significant value globally. This value may be captured in established and developed markets through activities such as commercial timber production or through smaller more fragmented markets for non-timber forest products. Equally, forests also provide high value ecosystem services, the value of which is often not directly captured by any one entity and remains outside of any commercial value chain and, thus, is perceived as a ‘free common good’. These values are at increasing risk from climate change and if lost will incur potentially huge costs to be replaced or re-created in other ways (and some of the values are irreplaceable and are at risk of being lost forever). These risks therefore need to be managed, financed, or transferred.

Traditional mechanisms such as insurance, debt and equity finance already play an important role in forest finance. However, penetration by commercial insurance underwriters in to forestry is very low. The sustainable development sector is, however, recognising that new and innovative financing mechanisms can be deployed to attract additional capital; transfer risk and finance adaptation measures. These instruments range from parametric insurance instruments through to impact bonds.

It is a common perception that forest products and ecosystem services are being taken for granted (‘a gift from nature’) or used without acknowledging that someone is working hard to assure continued service delivery. Governments need to play a key role in educating and informing people that forests globally are at risk and that (no matter where) they need continued protection and maintenance in order to play the multiple vital roles that we need them to play to manage a warming world.

The International climate finance community will need to continue and increase collaboration to facilitate, design, and implement financing solutions for forest adaptation. 

Finance, Forestry