The role of the financial sector in deforestation-free supply chains

The investment and financing opportunity in deforestation free supply chains will total US$200 billion annually by 2020 our report for the World Economic Forum’s Tropical Forest Alliance (TFA) reveals.

The report examines four commodities: beef, soy, palm oil and pulp and paper. Current production of these accounts for 50-80% of past deforestation. It finds that if strategic and financial investors over the next five to ten years continue to make ‘traditional’ expansion investments in these commodities, tens of billions of dollars of assets would be at risk of stranding. By contrast, the commercial case for sustainable production is a virtuous cycle of attractive returns, reduced risk and greater access to cheaper capital.

Our analysis finds that much of what is required to capture the investment opportunity is similar to that of traditional finance to date, with similar counter-parties, collateral and cash-flow conditions, as well as risks related to weather and commodity market volatility. Moreover, while publicly driven mechanisms sometimes play an essential role in enabling this transition, emerging financing models could drive change at scale, minimising the need for large-scale public funding.

To achieve the necessary transition, our report recommends that it will be critical to explore the potential and understand the limits of emerging deforestation-free financing models. To facilitate this, we also organised a ‘transactions workshop’ for the TFA. It aimed to develop coalitions between the financial industry, public actors, producers and supply-chain partners in order to identify opportunities for deforestation-free investments, to develop a pipeline of projects and to design scalable financing models.

The report is available for download here.


Client
Tropical Forest Alliance
Practice areas