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Turning rainforests into tangible ESG assets

Sustainability

A new approach to valuing forested areas could help conserve tropical rainforests

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Spotted: Since 1947, the total area of tropical rainforests has been reduced by more than half, with around 100 acres of rainforest cleared every minute for agricultural and industrial development. Now, one organisation – Forestbase – has an idea about how to significantly slow this process by valuing forest land much higher.

Forestbase founder and CEO Kjell Clarysse points out that most forest land is priced so low that it is the main driver for deforestation, with buyers able to make high profits turning the forest land into timber, mining, agriculture, or tourism. Instead, Clarysse suggests moving conservation away from a donation basis and into financial markets as an infrastructure asset.

First, Forestbase buys tropical forest land when it becomes available, outbidding extractive and environmentally damaging industries. Then, in collaboration with local communities, Forestbase establishes a conservation plan that is mutually beneficial for locals and the land.

In order for the bought land to be turned into a formal infrastructure asset, Forestbase built its own legal assessment tool, the Land Tenure Stability Index (LTSI). The company then sets up special purpose vehicles (SPVs) for the land it buys. Investors can buy shares of the SPV, which equates to the number of hectares of land purchased, and this asset can be used to meet environmental, social, and governance (ESG) goals. Because the ownership of the land has been fractionalised and spread over multiple land titles, it de-risks the purchase for investors and makes the assets easier to trade.

By turning hectares of rainforest into tangible assets, Forestbase brings the price of the land much closer to its intrinsic worth, taking into account the value of the biodiverse ecosystem that exists in one block of land. The ultimate goal is to drive up the price of rainforest to the point where it is more profitable to trade it than to exploit it. As Clarysse summarises, the company is “re-calibrating the position of nature in our financial system”.

Forestbase is currently focusing on increasing its asset financing capacity.  

A variety of novel financial products and markets are working to improve sustainability. In the archive, Springwise has spotted CO2 insurance products and fossil fuel-free funds.

Written By: Lisa Magloff

Website: forestbase.io

Contact: forestbase.io/contact

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