Financiers warns of huge costs for failing to protect forests



A coalition of the world's foremost financial institutions have issued a warning about the huge financial and environmental losses that could stem from unchecked deforestation and forest degradation.

In a new report, READy-Set-Grow Part II: Recommendations for international climate change negotiators, over 200 leading actors of the financial sector have called on countries to follow through with their previous commitments as incorporated into the 2010 Cancun Agreements.

United under a partnership with the United Nations Environment Programme Finance Initiative (UNEP FI) the report supports adherence to the international policy architecture for deforestation and forest degradation reduction in developing countries known as REDD+.

The report asserts that any post-Kyoto climate convention negotiated in Durban and beyond must include text that clarifies the fundamental role of private engagement and investment in funding REDD+, as well as effective measures to tackle the fundamental drivers of deforestation.

'The most promising policy option for private sector involvement in REDD+ is the 'nested' approach,' says the report. 'There is a high likelihood of private sector involvement in REDD+ activity implementation and financing … as long as private entities at the sub-national level are eligible for crediting', it concludes.

The 'nested' approach has significant advantages over alternative policy options, the report says. Among them, it notes:

  • a crediting mechanism is preferable to an international fund as it means carbon emitters will be paying rather than taxpayers;
  • a market-based mechanism will give a price signal that will incentivise the private sector to address the root causes of deforestation;
  • country and regulatory risk is much reduced compared with an approach in which all REDD+ revenues are administered and distributed by government agencies;
  • the environmental integrity of the system can be safeguarded by ensuring that regional and activity-level baselines are harmonised with national baselines; and
  • it allows for a smooth transition from the current patchwork of scattered voluntary projects to national-level policies, agreed under the UN Framework Convention on Climate Change.

The report highlights the huge costs for the world economy and the global environment of policy-makers coming short of fulfilling these criteria.

An ineffective climate change regime on forests would entail losses in the global economy of $1 trillion per year by 2100 and affect an estimated 1 billion people who rely on forests for their livelihood.

In contrast, a healthy forestry-based carbon market could achieve to mobilise investment for the protection and rehabilitation of natural forests in the order of $10+ billion by 2020 according to a 2010 study.

The fundamental reason for current levels of deforestation worldwide, says the report,  is that cleared forests translate into economic opportunity for farmers, local communities and governments while standing forests do not.

There is a price for soybeans, palm oil, beef and other products grown on deforested lands, but not for the many critically important services provided by healthy forests, including the sequestration and storing of carbon,' said BNP Paribas' Director - Environmental Markets & Forestry, Christian del Valle.

'With the possibility of a global funding mechanism for REDD+ we now have, at the global level, the unprecedented opportunity to address this imbalance. I hope we do not miss it so that natural forests are given the value they deserve,' he added.

Paul Clements-Hunt, head of UNEP Finance Initiative, noted 'The climate-change mitigation debate has not kept apace with the finance community's rapidly growing understanding of its critical role in enabling and driving the shift to the green and low-carbon economy.

'Private banks and investment funds can contribute to the global struggle to mitigate climate change. Our detailed recommendations on financing forest-based mitigation hopefully bode the beginning of a new dialogue between the finance community and governments,' he added.

According to the report the price tag associated with halving global deforestation and forest degradation at the required scale and speed to meet internationally agreed CO2 reduction targets is steep - estimated at $17-$40 billion per year.

With total government pledges for REDD+ adding up to $7 billion, READy-Set-Grow Part II stresses that plugging the funding gap will require the close involvement of private finance, which has so far been on the margins of the funding debate.

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