By Gill Cassar, Head, 1t.org, World Economic Forum, Jean-Charles Guinchard, Associate Partner, Dalberg and Wijnand DeWit, Partner, Dalberg
The world is facing two interdependent environmental crises: the accelerating destruction of nature and climate change. Corporate citizenship is an integral part of the problem and solution to these twin threats. Over half of global GDP, or $44 trillion, is potentially threatened by nature loss, making restoration an economic priority in the decade ahead. Halting environmental degradation and deforestation, conserving remaining natural sites and restoring those at risk, paired with rapid Paris Agreement-aligned emissions reductions are increasingly recognized hallmarks of a robust corporate response.
In light of the urgency to act, the United Nations is launching the UN Decade on Ecosystem Restoration to prevent, halt and reverse environmental degradation worldwide. The UN didn’t just dedicate a day, a month, or even a year to this issue. Over the next 10 years, the UN aims to reduce poverty, combat climate change and prevent mass extinction across the globe – restoring our threatened natural heritage.
Creating business opportunities and jobs
Investing in forests provides a significant opportunity for companies seeking to address climate change, protect nature and create jobs, in a single intervention. Forests have a net carbon absorption of around 7.6 billion tonnes of CO2e per year, 1.5 times more CO2e than the US emits annually. Responsible forest conservation and restoration can be a cost-effective solution to help remove atmospheric carbon and build climate resilience. As forests are also home to 80% of the world’s terrestrial biodiversity, they are an essential landscape in our efforts to preserve habitats and protect natural heritage. In addition, the sustainable management of forests could create $230 billion in business opportunities and 16 million jobs worldwide by 2030.
Companies from across industries are investing in forests, given their multifaceted potential for risk mitigation alongside the ability to create short-, medium- and long-term value. These are generated in three principal ways:
1. Business resilience: Investing in forest conservation and restoration today protects businesses against the loss of natural capital and physical effects of climate change later on, while preparing for shifting consumer and investor preferences. With many governments set to introduce new regulations to address nature loss and climate change, investing in forests offers an opportunity for businesses to stay ahead of these policy shifts.
2. Business profitability and growth: The economic value of forests is vast – one estimate suggests that the total value of intact forests and their ecosystem services is up to $150 trillion, around double the value of global stock markets. Forest conservation and restoration can indirectly increase core business profits, through lower costs of capital and equity, and increased customer loyalty associated with sustainability attributes. Investing in forests also directly generates environmental and commercial returns, e.g. through the sale and use of sustainable forest products.
3. Values-based leadership: Strong business positioning and values-based leadership are instrumental for businesses to build long-term value. Forest conservation and restoration support businesses to become leaders in sustainability, strengthening business reputation among customers, employees and ecosystem partners, including the communities in which they operate.
Recognizing these economic benefits, businesses are already investing
Businesses that are highly dependent on forests, such as certain consumer goods and forest products-reliant companies, are investing in forest restoration and sustainable forest management. Such practices build resilience to key risks and enable companies to seize new opportunities for business growth and profitability by integrating ecologically sound and socially responsible approaches.
For example, L’Oréal identified that a lack of strong management on forest-related issues could damage its brand value, putting more than $180 million, around 1% of its operating expenses in 2018, at risk. In addition to its avoided deforestation commitments, L’Oréal created a Fund for Nature Regeneration, a €50 million impact investing initiative that aims to restore more than 1 million hectares of damaged marine and terrestrial ecosystems.
Nestlé has announced they will distribute 2.8 million shade trees by 2022 in Côte d’Ivoire and Ghana, and will train its farmers in how to implement agroforestry practices. These trees will provide vital ecosystem services beneficial to its cocoa plantations, including shade and improved soil health.
Companies with low direct dependencies on forests, such as those in the technology and financial services industries, have identified opportunities to develop new products that benefit forest conservation and restoration, and increase business profitability and growth, while simultaneously enhancing their relationships with employees, customers and partners.
Recognizing customer demand from food and agricultural businesses to transition to more sustainable agricultural practices, Rabobank created a $150 million guarantee fund, the Agri3 Fund, in partnership with the UN Environment Programme. This fund aims to de-risk loans and investments that financial banking partners plan to make in agriculture supply chains to a total of $1 billion.
Meanwhile, Mastercard has launched the Priceless Planet Coalition and committed with its 30-plus partners to restore 100 million trees over the next five years. Through “round-up’’ campaigns, this initiative allows Mastercard to directly engage with consumers on sustainability by giving them the possibility to donate to plant trees at the point-of-sale. Businesses with large greenhouse gas emissions acknowledge the need to avoid and reduce their emissions as a priority, and are simultaneously investing in forest conservation and restoration to mitigate and capture their residual emissions on the journey towards net zero.
Shell plans to invest around $100 million a year in nature-based solutions, adopting the policy of “avoid, reduce and then mitigate”. As part of this portfolio approach, Shell is co-developing and investing direct equity in forest conservation and restoration projects worldwide. It is also purchasing high-quality carbon credits from projects that support forest conservation and restoration, ensuring that projects are certified under high quality and independent standards.
By adopting the following principles, companies can ensure that their investments in forests successfully generate business value while supporting nature, climate and local communities.
– Protecting existing forests: protect existing primary and intact forests as a priority to avoid and reduce deforestation and forest degradation, since they are biodiversity hotspots, long‐term carbon sinks and a repository for bio-innovation in the search for new drugs or novel materials.
– Partnering with local communities, Indigenous peoples, governments, NGOs and other businesses: co-develop and implement projects with local partners, communities and municipalities to ensure that activities are effective, build on local knowledge of forests, and protect local land-use rights, with a long-term approach in mind.
– Preventing greenhouse gas emissions and nature loss as a priority: invest in forest conservation and restoration as a complementary measure to broader strategies focused on avoiding and reducing emissions as part of net-zero targets, and to reverse negative impacts on nature and biodiversity.
– Prioritizing projects that deliver both environmental and social benefits: set clear goals on the mix of environmental and social indicators that a project prioritises and develop milestones throughout implementation to track progress.
– Planning for growing the right trees in the right way and in the right regions: pick the most appropriate regions and trees to ensure climate resilience and permanence of new forests in the long term, while avoiding unintended negative consequences.
Businesses embracing this movement have a unique opportunity to pledge their contribution to the UN Decade on Ecosystem Restoration to conserve, restore and grow a trillion trees by 2030 while accelerating resilience, profitability and value creation.
