Financial Mechanisms for Sustainable Forestry

Costa, Pedro Moura/ Salmi, Jyrki/ Simula, Markku/ Wilson, Charlie (1999) - EcoSecurities and Indufor OY

The report aims 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, the authors propose a new financial mechanism 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 financial- and 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 report contends that the question of how much additional financing is required for SFM is answered by addressing issues of how to finance SFM, particularly in the context of the private sector. The financing strategy therefore focuses on the structural reforms needed at both international and national levels, and the conventional and innovative financing mechanisms that can be used to this end.