Financial Mechanisms for Sustainable Forestry

The principal objective of the report is to outline a comprehensive global financing strategy for
the implementation of sustainable forest management (SFM). The core components of this strategy include: the development of enabling conditions for the transition to SFM, including appropriate policy frameworks at international and national levels; the targeted use of concessionary finance in leveraging private investment; and the coordinated development of widely applicable instruments for SFM financing. In addition, a new financial mechanism is proposed to fill a significant gap that is identified in the international forest financing architecture. This SFM Investment Promotion Agency (IPA) is specifically designed to leverage private sector finance by using small amounts of seed capital from the donor community to mitigate key investment barriers. The IPA's core activity would be to package investment opportunities and structure financial deals through a range of financialand information-based services. These recommendations are built up from a detailed analysis of the structural and operational barriers restricting investment in SFM, including weak sectoral financial management and the lack of mechanisms designed to recover value from the supply of forest services. Such barriers are the root causes of a financial shortfall, which is characterised as both quantitative and qualitative. The financing strategy addresses the quantitative shortfall by more carefully targeting conventional forest financing flows and channeling additional private sector resources through innovative financing mechanisms, such as the Clean Development Mechanism and the proposed IPA. These actions, however, are recognised as being dependent on structural reforms needed both to create an 'enabling environment' for private sector investment and, crucially, to facilitate the transition away from unsustainable short-term forestry to SFM. Thus, ways to address this qualitative shortfall form an integral part of the financing strategy. Recommendations include strengthening the international forest regime, building national-level sectoral capacity through the national forest programme (nfp) process, and creating positive incentives for SFM. The establishmen t of an international 'forest fund' is not being proposed because it would duplicate the efforts of many existing institutions and financing mechanisms, and there would be great difficulty foreseen in raising funds on a sustainable basis.