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GLOBAL

PARTNERSHIP ON FOREST LANDSCAPE RESTORATION



Feasibility study to assess the options for mobilising private
investment in carbon-intensive landscape restoration


Dominic Elson1
Seventy Three Pte.Ltd.
2nd May 2013

Contents
1 Introduction .......................................................................................................................... 2
2 Documentation, mapping and identification of existing information and examples of
investment into landscape restoration ........................................................................................ 5
2.1 Knowledge .............................................................................................................................................................................. 5
2.2 Project examples .................................................................................................................................................................. 5
2.2.1 Carbon finance projects .................................................................................................................................................. 6
2.2.2 Conservation projects (international funding) .................................................................................................... 7
2.2.3 General Country Examples ............................................................................................................................................ 8
2.2.4 Historic Examples of land restoration ................................................................................................................... 10
2.2.5 Investment Funds ........................................................................................................................................................... 11
2.2.6 Large Donor-funded projects .................................................................................................................................... 12
2.2.7 Private Sector companies & projects ..................................................................................................................... 13
2.2.8 Project Sponsors / Investors ...................................................................................................................................... 14
2.2.9 Projects led by Local NGOs and cooperatives ..................................................................................................... 15
2.2.10 Public-Private Partnerships .................................................................................................................................... 16
2.2.11 Company-community partnerships ..................................................................................................................... 17
3 Key conditions, analysis frameworks and knowledge gaps for the main study ..................... 18
3.1 Defining private sector investment .......................................................................................................................... 20
3.2 What is the role for private sector investment in landscape restoration? .............................................. 21
3.2.1 The scale of the problem is beyond the public purse ....................................................................................... 21
3.2.2 Improve the incentives for private sector investment .................................................................................... 22
3.3 Aligning private sector investment goals with local and global - needs ............................................... 23
3.4 Grow rural economies, not just trees. ...................................................................................................................... 24
3.5 Rural economies need local businesses .................................................................................................................. 25
3.6 Rural economies need healthy ecosystems ........................................................................................................... 26
3.7 The Layered Investment Approach ........................................................................................................................... 28
3.8 How investment decisions are made ....................................................................................................................... 29
3.8.1 Mismatches between external private investors and local rights-holders ............................................ 31
3.9 Possible investment frameworks and financing structures ........................................................................... 31
4 Designing the main study ..................................................................................................... 34
4.1 Objective ............................................................................................................................................................................... 34
4.2 Methodology and Scope ................................................................................................................................................. 34
4.3 Knowledge Pathways ...................................................................................................................................................... 35
4.4 Study outlines ..................................................................................................................................................................... 35
5 Bibliography ........................................................................................................................ 41

1 Author can be contacted at: d.elson@73-Ltd.com

IUCN - Investing in FLR - Feasibility Study (2013)

Introduction


The Global Partnership on Forest Landscape Restoration (GPFLR), hosted by IUCN generates and
disseminates knowledge for frontline policy makers and practitioners to take action that helps quicken
the pace by which deforestation is controlled, land-based carbon stocks are enhanced and the
concentration of atmospheric CO2 is stabilized.

One of the most significant sources of global CO2 emissions is from land use (e.g. agricultural practices)
and changes in land use (e.g. conversion of forestry to cropland). The recent focus of international
efforts to reduce emissions has tended to dwell on forestry, for instance REDD+ projects for avoiding
further deforestation and degradation, as this has been seen as the first least-cost method for cutting
emissions. However, as these project have been tested on the ground, it has become clear that forests
are not often so easily categorised and delineated. In reality, the line between primary forests,
secondary forests, agroforests, trees on farms, woodlots and plantations is often blurred. Seen from
above, this is a mosaic of land types. Seen from below - from the point of view of the local person
dwelling there - this is a continuum of different land uses, all of which have different functions and
useful outputs.

But landscapes need to be understood in time as well as place. In the context of socio-economic
change, these landscapes change over time. Formally this is known as the forest transition [see
diagram], whereby land use (and especially tree cover) changes over time, firstly through
deforestation, and then later into recovery of trees and ecosystem functions. Therefore, any landscape
we encounter is somewhere along this transition. However, socio-economic change is not always the
same as development. It is possible to have reversals of human development (for instance war and
famine), which puts strain on landscapes and ecosystems, and leads to rapid degradation of land and
soil. Even when change happens in the name of economic progress, in a peaceful and prosperous
times, the impact on landscapes and the people that occupy them can be destructive, as in the case of
conversion of natural forests to oil palm plantations.

At some point in the transition, the landscape can be regarded as degraded, and thus in need of
restoration. This may happen naturally (as in the case of Puerto Rico), or it may require deliberate
intervention to bring it about. Such interventions may often require investment, either from
government, investors, donors, or by local people themselves. There are still many unanswered
questions about how such investment can be attracted into landscape restoration, and how it should
be structured to best serve the needs of local people, ecosystems, economic development and
mitigating climate change.


IUCN - Investing in FLR - Feasibility Study (2013)

Initially, it is necessary to discuss the definition of land that needs to be restored. This may be served
by a physical description of the landscape as degraded, denuded or in a critical condition. But this view
of degradation depends on the beholder. Not long ago it was regarded as an improvement when forest
land was cleared for cropland, or peatland drained, and it would have been strange to describe such
improvements (which often required substantial investment) as somehow degrading to the landscape.
For some people, oil palm plantations are beautiful in their orderliness, as well as representing
prosperity and development. The level of land degradation may not be visible to many people, as it
could be a scientific measurement of carbon stocks, biodiversity or ecosystem services. In order to
restore the landscape, one may first need to agree which attribute is worth restoring. It is not always
the case that these goals are mutually supporting: landscapes restored for maximum carbon
sequestration may reduce the presence of hemiepiphytes, shrubs and lianas that are crucial for animal
habitats and biodiversity.

From the perspective of economic development, landscape restoration may focus on different
outcomes and thus have different notions about what is most important (see table of restoration
types). An exhausted logging concession may be seen as degraded because it lacks density of valuable
hardwoods, and yet in all other respects it is still a healthy forest, with good carbon stocks. Local
people may often focus on food, fuel and fibre as desirable landscape outputs, and thus alter
landscapes to an agroforestry system. This is increasingly being seen as a positive restoration
intervention, yet for years national parks and forest conservation areas have seen agroforestry (e.g.
jungle rubber, cocoa, sago) as an invasive destructive activity.

Where investment is required for landscape restoration, the first question likely to be asked is: where
is the cashflow? REDD+ projects are being viewed warily by investors as is becoming clear they are in
fact a risky derivative investment masquerading as a simple commodity (indeed, what could be
simpler than carbon?). Landscape restoration, on the other hand, holds the prospect of real revenue
from tangible tradable commodities. However, just as a singular focus on carbon may have
unintended consequences for local people and ecosystems, a demand for maximum early cashflow
may not lead to the kind of landscape restoration indicated by the forest transition model.
Monoculture tree plantations may be an improvement on abandoned scrubland, but may not be the
most suitable intervention for that landscape. Who pays (or invests) in landscape restoration will
often determine the goods and services that will be targeted, and these value judgements will be
contested.

Successful interventions will thus be site-specific and take account of the whole landscape, which is
not just a physical survey, it also requires an understanding of how people currently use the land, and
how they perceive its potential. Although the term restoration implies returning the landscape to
some previous point in history, in some cases, the land will actually be improved rather than simply
restored. As rural landscapes come under further pressure to increase food production, and good
farmland is lost to urbanization, it will become more important to bring unconventional landscapes
into production. Areas once though barren may be restored by using trees, engineering and soil
science.

The Bonn Challenge set a target to restore 150 million hectares of deforested and degraded lands by
2020. Putting in place these measures will contribute net benefits to local economies worth more than
84 billion USD per year.2 Even if the political will was present in all the countries where such
restoration is necessary, the cost is probably beyond the scope of government budgets, even with
external donor assistance. Private investment, from both local people as well as external investors,
will be necessary to pre-finance the work required to bring these landscapes back into a shape
whereby they can deliver economic outputs, social amenity and environmental benefits.


2 GPFLR Operational Work Plan: Knowledge, tools and capacity for implementing the Bonn Challenge (IUCN,
2013)


IUCN - Investing in FLR - Feasibility Study (2013)

However, the concept of Private investment remains, in essence, the holy grail for the NGO and donor
community and its mythical status obscures its true meaning. There is a tendency to link the desirable
outputs from landscape restoration to the apparent huge stock of private capital, and to suggest that
private investors ought to invest, or that private assets can somehow be unlocked in order to meet
the Bonn Challenge target. This magical thinking is counterproductive, as it gives the impression that
landscape restoration is an end, in and of itself. History suggests that, in order to work, investment in
landscapes will be the means to an important end that is desirable to both government and the locals.
The private sector invests to make a profit, not in a collective effort to restore landscapes. This is as
true of the smallholder building terraces on a steep hillside in Kenya as it is of the London investment
fund financing the planting of trees in Uganda. Taken en masse, and with tolerable conditions of
governance and accountability, the aggregate effect of the multitude of private investors, both small
and large, is that landscape restoration just happens, as the pursuit of commercial interests is aligned
with the wider economic, social and environmental objectives.

To bring about this confluence of private and public interest requires collective action by
governments, communities, firms and civil society. Allowing any one group to prevail at the expense
of another will probably not lead to legitimate landscape restoration. Certain instruments of public
policy or donor action may play a part in de-risking certain kinds of investments, or incentivising one
type over another. In many ways, the process of mobilising private investment is the most important
and beneficial aspect of landscape restoration, as to achieve it requires the sort of convergence of
public policy, democratic legitimacy and institutional reform that is associated with successful and
resilient economies.

Table: Types of landscape restoration
Focus
Natural forest restoration
Landscape rehabilitation

Conservation & Bio-diversity


Carbon sequestration
Landscape Enhancement

Example
Rehabilitation of logged-over & badly managed forest
Enrichment planting of valuable species
Reforestation of degraded areas
Agroforestry - upgrading and market access
Re-wetting of peatlands
Habitat rehabilitation, wildlife corridors
Reserves and parks
REDD+ or VCS projects with main focus on enhancing C stock
Afforestation
Improving unconventional landscapes
e.g. sand dune stabilization in Niger, hillside terracing in Eritrea



The purpose of this document is to summarise the broad state of knowledge on private sector
investment in landscape restoration, key knowledge gaps and options for mobilising private
investment in forest and landscape restoration. This will provide the basis for the terms of reference of
a larger study.

The main study will therefore review landscape restoration projects that have taken place in the past,
those that are being implemented today, and plans for future projects. The aim is to develop some
practical frameworks that allow project developers, investors, NGOs, donors and community based
organizations to evaluate options for landscape restoration projects, and ensure they are likely to be
successful in the terms of financial, economic, ecological and socio-cultural benefits and sustainability.


IUCN - Investing in FLR - Feasibility Study (2013)

Documentation, mapping and identification of existing information and


examples of investment into landscape restoration

2.1 Knowledge
i)


Reports


Some recommended resources are listed in the bibliography, but this is just a small sample of the large
amount of literature in the subject.

ii)
Key Informants and project developers

Organization
Contact person
Climate & Land Use
Chip Fay
Alliance (CLUA)

Eco-Agriculture Partners Sara Scherr

ICRAF

Profor

Frank Place

Ford Foundation

Penny Davies

Enviromarket

Simon Petley

Munden Project

Lou Munden

Seventy Three Pte.Ltd.

Dominic Elson,
Matthias Rhein

UNEP FI

Ian Henderson

Global Mechanism at
UNCCD

Camilla Nordheim-
Larsson

Notes
Evaluated the Ecosystem Restoration Concessions in
Indonesia
Arose out of the Nairobi Declaration. Foremost
research organization promoting landscapes that
support both agricultural production and
biodiversity conservation

Agroforestry resources

Investment meetings (e.g. Nairobi 2011) and
background papers

Developing global landscape approaches & climate
smart agriculture projects
Design of Forest Bonds
http://www.enviromarket.co.uk

Designing fund structures for landscape restoration
and management:
a) Dryad Project
b) Inari Project (with FAO)

Developed investment model for community
reforestation projects,
also developing the Papua Green Investment
Facility.

Mobilising finance sector capital to stimulate REDD+
and sustainable land use
http://www.unepfi.org/work_streams/redd_and_su
stainable_land_use/index.html
The OSLO approach involves assessing the net socio-
economic benefits of sustainable land and
ecosystem management (http://www.unccd.int/)

Peter Dewees

2.2 Project examples




The examples listed below may be regarded as reference points for learning about the success factors,
risks and outcomes to establish a broad profile of the existing public or private sector investment
models in landscape restoration that result in enhanced biomass and soil carbon. Because of the
diversity of projects and circumstances where landscape restoration has or is in the process of
taking place, the examples have been grouped under various categories.
IUCN - Investing in FLR - Feasibility Study (2013)


This list is a starting point for study and is not yet complete there may be important projects not
listed, and there could also be projects listed here that are not worth further study. The GPFLR has
already identified a number of projects as learning sites, and these are included in this list and
marked with an asterisk.3 In each case, some knowledge gaps are identified that could form the
subject of further study.

2.2.1 Carbon finance projects

Conventional avoided deforestation projects are reliant on the counter-factual performance in
a natural forest setting against a theoretical business as usual baseline (what would have
happened if no project was in place), and therefore they are somewhat abstract and hard to
value. The focus has therefore shifted to landscape restoration or forest rehabilitation,
whereby carbon credits can be sold based on the amount sequestered in the changing
landscape, either through VCS or as part of speculative REDD+ project. The attraction of such a
scheme is that they seem to provide a source of cashflow early in the project before the
restored landscape is able to provide any other income. However, the uncertainty in the
carbon market, and the problems of leakage and non-permanence, may mean these schemes
will struggle to survive on carbon revenue alone.

Critical questions
To what extent are REDD+ projects including FLR in their goals?
How do the projects integrate FLR in the financial model for the carbon investors is it
an implementation cost, an investment for cashflow, or an additional project expense
to be covered by a donor?
How do the projects manage trade-offs between carbon sequestration and local
livelihoods, e.g. do they accept less carbon-rich restoration options if they have better
income opportunities for local people? Who negotiates these trade-offs?

Examples
Earth Carbon voluntary carbon initiative
Mexico, Uganda, Mozambique
Livelihoods Fund
India, Indonesia, DRC, Senegal, Kenya
PT Rimba Makmur Utama (Katingan)
Indonesia
Terra Global Capital
Cambodia
Ecosystems Restoration Associates Inc.
DRC
Godwana Link (Threshold Environmental)
Australia


3 Projects in EU and USA have been excluded from the list, but may later be brought back into the study

IUCN - Investing in FLR - Feasibility Study (2013)

2.2.2 Conservation projects (international funding)



International conservation projects seem to be evolving from the national parks model to a
more flexible landscape model with less rigid boundaries. However, their approach to
livelihoods and enterprise may not be wholly successful. Some of them are important scientific
research sites, reflecting their heritage as arising from the conservation movement.

The Birdlife Harapan case is interesting for study as it is the attempted restoration of a 100,000
hectare former timber concession, partly funded by RSPB in UK. It has encountered local
difficulties and has needed to shift priorities and encompass real local livelihoods in its
planning. This is an example of how landscape restoration may be less successful if it takes a
purely conservation approach.

Critical questions
What is the long-term revenue model post-restoration?
Who pays for the ongoing restoration and maintenance, and who then benefits from the
revenue streams (if any)?
How do the projects manage trade-offs between biodiversity and local livelihoods, e.g.
do they accept less bio-diverse restoration options if they have better income
opportunities for local people? Who negotiates these trade-offs?

Examples
*Birdlife Harapan
Indonesia
Conservation farming in southern Zambia
Zambia
Lake Victoria Ecosystem Management Project (LAVEMP)
East Africa
*Mount Elgon National Park (IUCN)

Uganda

*PRESENCE
*Minshan Panda Reserve

South Africa
China

*Tahura Bukit Soeharto (Tropenbos)


Indonesia

IUCN - Investing in FLR - Feasibility Study (2013)

2.2.3 General Country Examples



In some cases, a country-wide or cross-boundary approach to landscape restoration has led to
very impressive results in aggregate. They have often been a case of government-directed
intervention, but may also be grass-roots action that was unplanned by any central body, but
was also unhindered by regulatory obstacles or poor governance. In either case, the role of
government is key, whether active or passive.

Of particular interest is the deliberate expansion of planted forest in China, which has been
driven by the state for both ecological reasons (e.g. reducing air-borne pollutants from sand
storms, and reducing flooding) and commercial considerations (supply of pulp wood). The
Niger example is remarkable for the way it re-greened a fragile dryland landscape, with 200
million trees planted by smallholders. This was facilitated by revised government regulation
(The Niger Rural Code), but largely driven by NGOs and smallholders. The rehabilitated
landscape has led to yield improvements for staple crops. Vietnam shows how the government
can successfully combine agrarian reform with a credit scheme for tree planting, transferring
about a quarter of Vietnam's forestland to households during the past 15 years. This has led to
a significant increase in planted forests, of which 40% (1 million ha) is owned by smallholders.
Contrast this with Indonesias HTR scheme, which had very similar aims to the Vietnam plan
but has yet to meet its goals.

The most recent forest restoration plan has been announced by the President of Haiti, in and
attempt to double forest cover by 2016 from the current level of just 2% one of the lowest
rates in the world. However, it will do this with a coercive approach: using environmental
legislation dating back to 1920 and enforce fines and prison terms for cutting down trees, and
aims "to turn every Haitian into a forest guard". It will be interesting to see how this project can
simultaneously stimulate tree planting whilst also cutting off the market access for timber. An
ecologist from IUCN-SSC Global Tree Specialist Group was quoted as saying: Reforestation
would proceed more effectively without tree-planting if mechanisms were enacted to restrict
access to land. This raises an important question: are humans the enemy of forest restoration,
or the enablers?

Critical questions
What are the success factors for the large restoration schemes?
What causes some schemes to fail despite state-backing?
How is finance channeled to where it is most needed?
How high are the transaction costs when the state is managing the finance?
What matters more: regulatory push, or market pull?
To what extent do coercive laws such as logging and extraction bans impede or
facilitate FLR?
To what extent is local participation important for successful forest restoration
compared to the enforced removal and exclusion of people from forest areas?

Examples
*Alto Acre Extractive Reserve
Brazil
Amazon Fund
Brazil
*Bosque Modelo Colinas Bajas
Dominican Republic
Ethiopia Strategic Investment Program
Ethiopia
FMNR - Niger
Niger
Kagera River Basin: Transboundary Agro-Ecosystem
Uganda, Tanzania, Rwanda, and
Management
Burundi
*Doi Mae Salong Watershed
Thailand
IUCN - Investing in FLR - Feasibility Study (2013)

Resource Management Service


*Gishwati Area Conservation Programme
Vietnam smallholder forestry programme
Hutan Tanaman Rakyat Programme
Haiti Forest Restoration Programme
*COCOB Bikoro Project
*ITTO/FORIG Community Collaborative Restoration
*Tasmania Forest Restoration
*Miyun Watershed

China
Rwanda
Vietnam
Indonesia
Haiti
DRC
Ghana
Australia
China

IUCN - Investing in FLR - Feasibility Study (2013)

2.2.4 Historic Examples of land restoration



The forest transition theory suggests that over time, and in pace with economic development,
forest loss will be reversed and a new equilibrium will arise. Looking at historical examples
helps us understand how this comes about, to establish if this is an immanent process or if
there were underlying policy drivers and investment events that made it possible.

Landscape restoration in the past has often been more accurately termed landscape
development, with the objective of maximizing productivity or economic returns. Such
programmes were characterized by high levels of integration between macro and micro policy
issues, and between policy, regulations, financing, implementation. They would also seek a
good balance of state, private and collective interests, and overcome the tension between local
and national needs. Following from this, it is fair to assume that initial conditions, including
culture and history, will matter to landscape restoration, and so will policy. Pathways leading to
successful landscape restoration programmes, are therefore very likely to be unique.

The oldest example here is the Prussian system of landscape bonds, used in the late 18th
Century to help farmers restore their land after several years of destructive war. It introduced
the innovation of covered bond financing, that could today be seen as a model for forest bonds.
It also tied the financing to certain obligations on the part of the lender to care for the long term
health of the landscape.

The Swedish forest law of 1903 is an example of a deliberate policy intervention, but it was
accompanied by private investment and action that led to Sweden doubling the standing
volume of the forest (large parts of which were very degraded) whilst becoming a dominant
player in the international timber market, and now using sustainable timber as part of its
power generation mix. It was thus an ideal mix of economic, social and environmental goals,
and it was led by the smallholders themselves.

In contrast, the Costa Rica experience was an example of how broader social and economic
changes lead to the forest transition. The strong forest regrowth during the 1990s may have
been due to the fall in the price of agricultural commodities. Pastures were abandoned in
response to declining beef markets and better economic opportunities becoming available in
the urban areas. The abandoned land regenerated naturally.

Critical questions
Is land reform (to redistribute land from large landowners to smallholders) a pre-
condition of more sustainable land use?
To what extent is FLR compatible with human social and economic development?
How can public finance mechanisms be made compatible with private landowner
interests in the cause of FLR?
Is the forest transition an inescapable artifact of the long term development process,
which should not be short-circuited?

Examples
Costa Rica Forest Recovery
Costa Rica
Puerto Rico Forest Recovery
Puerto Rico
The 1903 Swedish Forest Law
Sweden
th
18 Century Prussian Landscape Bonds
Germany

IUCN - Investing in FLR - Feasibility Study (2013)

10

2.2.5 Investment Funds



Investment funds invest capital on behalf of others. They usually have a fiduciary
responsibility to maximise financial returns, and thus may not be compatible with sustainable
landscape restoration. They will also need predictable cashflow. Thus they may focus on fast-
growing timber rather than mixed agroforestry. They may have difficulty modelling the
financial returns from a more complex mixed landscape.

The GSFF invests money on behalf of the Lutheran church and thus has a remit to include social
and environmental goals in its planning. The African Agricultural Capital Fund has a structure
that includes first-loss cover from USAID and equity finance from various philanthropic
foundations, which may allow it to invest in more complex landscape deals. Other funds may
be more overtly commercial, and thus focus only on timberlands. It would be instructive to
compare these different fund management approaches, to see if impact investment really is
leading to different types of landscapes being formed.

Critical questions
To what extent are timber investment funds differentiated by their approach to
balancing timber yield with forest biodiversity? Do investors care?
Are non-timber forest products seen as part of the business model, or a co-benefit
outside the model (i.e. not part of the target rate of return)?
To what extent are local livelihoods a core driver of investment value, or are they a co-
benefit to satisfy CSR needs?
Where are there examples of projects where profit-oriented investment funds have led
to successful FLR?


Examples
Actis Africa Agribusiness Fund
Tanzania
African Agricultural Capital Fund

Cambium Fund
Brazil, Australia
Global Solidarity Forest Fund (GSFF) - Lutheran
Mozambique, Angola
Church of Sweden
International Woodland Company (IWC)

New Forests Tropical Asia Forest Fund
Malaysia, Indonesia, and Vietnam.
Phaunos Timber Fund


IUCN - Investing in FLR - Feasibility Study (2013)

11

2.2.6 Large Donor-funded projects



Multilateral and bilateral donors have been involved in landscape restoration for some time,
but their programmes were often not conceptualised in that way. Instead, they were very often
seeking other goals, such as poverty alleviation. Recently, their focus has been on climate
change either mitigation or adaption.

The Nepal LFP was an example of a project that had good outcomes for the landscape but was
firmly focused on the livelihoods of the poorest. In contrast the AusAid Kalimantan Forests &
Climate Partnership is a largely scientific approach to restoring a large peatland area that was
destroyed by the infamous mega-rice project and thus reduce emissions. A recent evaluation
reported that only 50,000 trees have been planted against the initial target of 100 million, and
that the project has been subject to some protests from indigenous and community groups.

Scale and soft money does not seem to be a precursor for success, for instance the ADB Laos
project was an ambitious attempt to finance smallholders that would start woodlots, but has
apparently led to indebtedness and not much tree-planting.

Critical questions
Are donor projects more successful if they focus on livelihoods first and FLR as a co-
benefit?
How sophisticated is the financing structure?
To what extent is donor finance blended with private capital?


Examples
ADB plantation programme
Laos
AusAid - Kalimantan Forests & Climate Partnership Indonesia
DFID - Nepal Livelihoods & Forestry Programme
Nepal
UKCCU - Papua Green Investment Facility
Indonesia
DFID (CDC) - TANWAT Project
Tanzania
World Bank - Fadama III project
Nigeria

IUCN - Investing in FLR - Feasibility Study (2013)

12

2.2.7 Private Sector companies & projects



The private sector in this case encompasses non-profit organizations and various entities that
seem to have broad goals of land restoration (mainly reforestation) and social improvement.

For Forest Finance, the local people benefit through skills training and job opportunities, but
the land is owned by the company (which is a common requirement for private investment in
tree planting). In contrast, Planting Empowerment leases land from local people, and is
interested in assisting communities to accrue and manage financial assets.

Critical questions
What is the correlation between local ownership and control, and successful FLR
outcomes?
Does local involvement in landscape planning lead to more diverse planting?
To what extent are investors attracted by the prospect of total landscape restoration, or
by the prospect of timber revenue?
What percentage of financing is dependent on either carbon /PES, or on donor grants?

Examples
Cochabamba
Bolivia
Ecobosques
Costa Rica, Argentina
Face the Future
Uganda, Ecuador, Malaysia
Forest Finance
Colombia, Costa Rica, Germany, Panama,
Peru and Vietnam
Forest Trends - Climate Smart Coffee
Ethiopia, Ghana
Futuro Forestal
Panama
Green resources Limited
Tanzania
Kilombero Valley Teak Company
Tanzania
New Forests Company (UK)
Uganda, Mozambique, Tanzania,
Rwanda
Planting Empowerment
Panama
Precious Woods Reforestation Projects
Brazil, Costa Rica, Nicaragua
Tatepa
Tanzania

IUCN - Investing in FLR - Feasibility Study (2013)

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2.2.8 Project Sponsors / Investors



These organizations tend to be large, often global, players that have a broad focus on social,
environmental and economic development. Some of them, such as CDC and FinnFund
originated as bilateral aid projects, whilst others (e.g IFC, GEF) are multilateral initiatives.
Others are private banks or investment management companies. They all share a common
belief that investing via the private sector is the best route to attaining social and
environmental goals.

Not all of them have specific plans for FLR, although they all have some impact on the sector,
perhaps unintentionally. For instance, IFC has been criticised for investing in companies
responsible for landscape degradation. CDC has had to bring its policies on landscape use up to
date, re-visiting long-standing projects (such as TANWAT) to make them more appropriate to
well-managed landscapes. The CAF project is worth close study: Led by Forest Trends and the
Katoomba Group, it aims to design Climate-Smart Agricultural Finance models that can (a)
deliver climate resilience and mitigation gains, (b) improve agricultural productivity, (c)
protect natural ecosystems, and (d) leverage public as well as new private sector finance. The
project is funded by Rockefeller Foundation: a leading proponent of impact investment.

In contrast, New Forests Pty.Ltd. (not to be confused with New Forests Company UK) is
engaged in attracting private capital for developing sustainable forestry investments focused
on existing rubberwood and timber plantations, greenfield timber plantations and mixed land-
use areas.

The Nedbank and BNP Paribas projects are structured around carbon revenue, and it would be
interesting to learn how that guides landscape restoration choices, and how it will achieve long
term sustainability.

Critical questions
How have investor goals changed over time? Is FLR becoming more common as a
deliberate project goal?
Where investors have switched focus to FLR, what was the reason? What other project
goals does FLR support?
How can complex projects such as climate smart agriculture finance be structured to
account for multiple revenue streams and timelines?
In public/private finance partnerships, which is the leader and which is the follower?
How is enabling investment kept separate from asset finance?

Examples
Pearl Capital
Africa
Climate-Smart Agricultural Finance (CAF)
Ethiopia, Ghana
Commonwealth Development Corporation (CDC)
Global
FinnFund

Global Environment Fund (GEF)
Global
Global-Woods International AG
Uganda, Paraguay, Argentina
IFC
Global
Nedbank
Kenya & Uganda
New Forests Pty.Ltd (Australia)
Indonesia, Malaysia, Vietnam
Private Infrastructure Development Group (PIDG)
Global
Sindicatum
Indonesia
Wildlife Works / BNP Paribas
Kenya

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2.2.9 Projects led by Local NGOs and cooperatives

In the absence of private sector investment, or often in anticipation of it, some local NGOS and
cooperatives just organise themselves to undertake various forms of landscape restoration.
Often with limited capital, they need to think of smarter ways to achieve their objectives. They
may not have started out with a focus on FLR, for instance KHJL was set up to reduce illegal
logging by increasing the returns to legitimate teak cultivation on private lands, and then
expanded into a project to restore an area of state-owned degraded land.

NGOs often have to adapt their approach, for instance Reforestamos Mexico wanted to protect
priority lands for preservation, so acquired 470 hectares of cloud forest in Sierra Gorda (which
is similar to how a private investor may approach the project). But they soon realized that to
ensure the recovery of forest landscapes, they had to work with ejidos and communities, who
own more than 70% of land in Mexico.

Lake Taupo Forest Trust is an indigenous owned and operated forestry enterprise. To
overcome the problem of fragmentation and small scale, individual landholdings have been
aggregated into a large estate with integrated management. The trust is investing in tree
planting, but also accruing a strong asset base by enhancing the value of the landscape whilst
also building a business with a strong balance sheet. This approach to asset growth and
diversification (rather similar to a Sovereign Wealth Fund, in fact) is a sophisticated way to
enable indigenous communities to move from short-term rent seeking and build long-term
sustainable wealth, comprising both natural and financial capital.

Critical questions
What are the financing needs of local bottom-up FLR projects?
To what extent is the prospect of timber revenue a driver for local community and
smallholder involvement in FLR?
What types of land tenure are most suitable for an FLR project to be successful?
Do financial constraints lead to innovation in organisational approach or product
development?


Examples
Agroforestry in Central highlands of Embu, Kenya
Kenya
Bosques Pico Bonito
Honduras
Dipantara
Indonesia
*Gomo (AFED & IUCN)
DRC
Isles of Harris and Lewis community trust
Scotland
*Kampar Peninsula Peat Forest
Indonesia
*Kibera & Mukungu
Burundi
Koperasi Hutan Jaya Lestari (KHJL)
Indonesia
Lake Taupo Forest Trust
New Zealand
Masaranga (Willie Smits)
Indonesia
*Mukura (ARECO)
Rwanda
Reforestamos Mexico
Mexico
Wana Lestari Menoreh
Indonesia




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2.2.10 Public-Private Partnerships



In most tropical countries the state claims ownership of the majority of the forest estate, and
has attempted to manage it in the national interest. In general, the state has been a poor
landlord, failing to overcome the principal-agent problem when allocating concessions to
private companies. However, landscape restoration at scale (often of land that has been
degraded by the concessions or other private land clearance) requires stable governance and
appropriate regulations. It may also need de-risking of private investments.

The reformed state (e.g. Brazil and Indonesia) is therefore in a quandary: how to overcome
the failings of historic state control without inadvertently allowing the private sector to capture
excess rents. Furthermore, such enlightened governments will be looking for ways to devolve
landscape management to local communities, as policy-makers come to recognise that local
control is one of the keys to successful projects on the ground. The answer may be some form
of Public-Private Partnership, whereby the state covers the general risk, and private capital and
management are deployed to execute the project. This may be a three-way partnership with bi-
lateral donors, government and smallholders, as in the case of the proposed Indonesia
Investment Facility. Or it could be a more conventional credit enhancement programme, such
as that planned by the Strategic Affairs Secretariat (SAE) of the Brazilian government to
stimulate more private financing in the forest sector. This will offer a grace period for
repayments for borrowers. At the same time the SAE recognizes that there is a need to provide
guarantees to investors since plantation development requires substantial investment for
periods that can range from 7 to 35 years before income is generated.

Critical questions
Are public finance mechanisms, for instance concessional loans, subject to the moral
hazard problem?
Are public-private partnerships superior to top-down state programmes in terms of
their success in restoring landscapes and improving livelihoods?
Has any government been successful in setting up a system to evaluate projects,
distribute finance and monitor performance in a large landscape?
To what extent is finance earmarked for FLR and smallholder development in reality
used to finance industrial plantations?


Examples
Brazil PPP funding for plantations
Brazil
PINFOR
Guatemala
Southern Agricultural Growth Corridor of Tanzania (SAGCOT)
Tanzania
Tanzania Public-Private Partnership (PPP)
Catskills Watershed (Catskill Center for Conservation and
Development)

Tanzania
USA

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2.2.11 Company-community partnerships



Private sector companies that rely on a consistent supply of raw materials have in the past set
up a vertically integrated supply chain in order to control every aspect of the process from
upstream to downstream. However, this approach has not always been efficient in terms of
landscape utilisation and rural economic development. Some companies have therefore chosen
to develop partnerships with upstream suppliers of raw materials (especially timber, but now
moving into other commodities).

In the case of Greenwoods need for high quality timber for guitar parts, this means cultivating
a long-term relationship with the community in order to foster mutual trust and cooperation.
The Novella Partnership was founded to help scale up the production of Allanblackia oil in
Ghana, Tanzania and Nigeria and at the same time to reduce poverty, promote sustainable
enterprise and biodiversity conservation in Africa. IUCN is also involved, working to integrate
forest landscape restoration principles into the different models for increased production of
Allanblackia.

More conventional partnerships are outgrower schemes, whereby the company gives inputs
(seeds, fertilizers etc.) and technical training, while local communities agree to set aside a
portion of their land for cultivation, and to sell the produce to the company at an agreed price
formula. There do not seem to be many schemes that have included landscape restoration. But
there is potential for large commercial buyers of cocoa, coffee and other NTFPs to link estate
development with broader landscape goals. Cooperative caf Timor (CCT) is one example of
such a scheme, where teak trees have been planted for shade and to enhance landscapes and
livelihoods.

Critical questions
To what extent is tree-planting an unintended consequence of improving certain cash
crop yields and quality?
Are commodity buyers capable and willing to tie pre-financing deals to ecosystem
goals?
What is the level of awareness amongst buyers of the long term risks facing their
product because of degraded landscapes and weaker ecosystems, and what steps are
they taking to invest in risk mitigation?
How can product buyers channel finance for producers to invest in improving their
farms and landscapes?


Examples
GreenWood
Honduras and Peru
Kericho tea plantation restoration
Kenya
Kilimo Trust
Uganda & East Africa
Mondi
South Africa
NCBA / Cooperative Cafe Timor
Timor-Leste
Novella Partnership
Ghana, Tanzania and Nigeria
PhytoTrade
Southern Africa


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Key conditions, analysis frameworks and knowledge gaps for the main study



This paper will not attempt to rehearse the debate over what is the best option for landscape
restoration, or cover the historical development of the subject. However, this paper will demonstrate
that scaling up FLR is not just a case of understanding what investors want. There are many different
types of investors, and a myriad of combinations of restoration approaches and investment
opportunities. Unpicking this requires a holistic approach that recognises the complexity of the
system. Landscape restoration concepts have moved on from the bifurcated distinction between
monoculture tree plantations on one side, and the goal of recreated natural forest on the other.

However, recognising the value of mosaic and agroforestry landscapes has introduced more
complexity, both in the physical sense, but also in the social and economic sense. Crudely put,
monocultures and homeostatic natural forest are both relatively uncomplex. From an investment
perspective, monoculture tree plantations have a clear revenue stream from timber or oils, whilst a
protected natural forest may be able to trade carbon or other environmental services. Although there
is now more attention given to the diverse forest landscape approach there still seems to be a case of
'pick your goal'. Is it for carbon? Or fisheries? or flood control? or supplying pulp wood to the
mill? The sense is that an investor will be led by just one of these things. But this runs the risk of
transferring the relative clarity of a monoculture plantation to the complexity of a forest landscape
without first recognizing that the whole dimension of the proposition changes in proportion to the
diversification, but only up to a point. This can be illustrated with a simplified chart (below) that plots
value to local economy, biodiversity and complexity. The sweet spot is the centre of the chart, being
the best overlap of both economics and diversity.

However, the best balance of local economic value and landscape diversity is also the point where
complexity peaks. These landscapes are multi-functional and multi-story, encompassing local people,
a broad range of different products and services, and overlapping rights and development plans.
Modelling the development cost, revenue streams and benefit sharing is more challenging, and
matching investors to opportunities takes more work. On the other hand, landscape approaches are
more honest about the trade-offs required and the role of local economic development plans. Any
landscape change involves trade-offs, for instance between national and local economic needs (in the
case of mining), local versus export crops (in case of estates and plantations), traditional swidden
usage versus conservation (in case of preserved natural forest). In most cases, these trade offs are
between powerful winners and powerless losers. Arguably, mixed forest landscape restoration
narrows the asymmetry between interest groups, by balancing economic value with local needs and
ecosystem viability. This has been the attraction of landscape approaches.

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Monoculture

Multi-function
Forest Landscape

Forest
Reserve

Complexity

Value to local economy

Degraded
land

Best compromise
for financial return
& biodiversity.
But:
With most complexity

Bio-diversity / Forest density


Chart: Mapping complexity in landscapes
(complexity is a composite of social, environmental and economic aspects)

However, the theoretical appeal of landscape approaches has not yet led to widespread adoption at
scale, except in some notable cases which are highlighted in the previous section. Even in countries
where mixed forest landscape restoration has taken place, this is often in spite of the conditions,
rather than because of them. For instance, Indonesia has seen some successful pockets of FLR, but the
national discourse is in favour of plantations on one side and REDD+ ecosystem restoration schemes
on the other. Neither of these options holds much potential for building rural economies, but both of
them are undoubtedly simpler to define, finance and implement. The challenge for the GPFLR project
will be to clarify the forest landscape restoration business model, whilst recognising that it is both
complex and dynamic, meaning, by default, the best solutions will tend to be unique.

The rest of this section of the paper will build up an understanding of private sector investment and
how to align investor objectives with local and global needs, by placing the local rural economy at the
heart of the system. There is no one size fits all model at the end of this road, and no simple panacea.
A forest landscape restoration project that builds upon the foundation of local social context and
economic potential is perhaps more likely to be flexible enough to account for the complexity of the
system, and robust enough to account for the ever-shifting socio-economic and political context.

Box: Motivation for investing in Forest Landscape Restoration

If we view investment only through the lens of the direct output (e.g. return on financial investment for the
external investor, or long term asset growth for the smallholder), then we will miss the many other reasons for
restoring landscapes. There is increasing evidence that investing in healthy landscapes will protect other
investments and assets (Scherr 2011). In a resource-constrained world, reliable flows of ecosystem services are
increasingly critical to the business models of a wide range of industries and sectors.

Need / sector
Reason to invest in Landscape Restoration
Aquaculture
Restore mangroves to improve aquaculture and protect
coastline from storm surges and tsunami
Fisheries
Reduce coral bleaching from run-off of nitrates and excess
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sedimentation from erosion


Denuded hillsides leads to flash flooding (e.g. restoration of
Puncak could save Jakarta millions of dollars in annual flood
costs)
Watershed rehabilitation
As urbanisation increases and city water tables drop, it
becomes more important to manage hinterland watersheds.
Reduce exposure to correlated prices Conventional intensive farming is correlated to fuel prices.
Agroecology (conservation agriculture using trees in
landscapes) is less dependent on fossil fuels, and thus
uncorrelated.
Timber concessions (in natural
Investing in buffer zones outside the concession may: reduce
forest)
illegal logging and slash and burn agriculture within
concession, mitigate fire, maintain biodiversity corridors,
maintain genetic diversity and protect high value species,
prevent market distortions that suppress timber prices.
Arable farmers
Landscape restoration can improve pollination, integrated pest
management, water management, and soil fertility.
Land owners (including
Degraded landscapes and neglected forest frontier reduces land
smallholders)
values and thus returns to investment for farming. Landscape
restoration improves asset values by: reducing low value / low
yield open access land; and improving ecological conditions
such as stable water table, reduced erosion, wind breaks and
aesthetic value.
Public Infrastructure
Protect roads from landslides. Benefits public sector through
reduced repair costs, and benefits private sector through
keeping market access open.
Processing industry
Ensure stable supply of raw materials, at predictable costs (e.g.
pulp wood, sawn wood for furniture, tree crops such as coffee,
cacao etc.)
Social harmony
Improved livelihoods, stronger tenure and more resilient rural
economy reduces conflict, and thus lowers risks of investing in
other assets.
Flood mitigation in cities

3.1 Defining private sector investment



In this context, private sector investors are distinct from government, NGOs or donors. Note that
private investors are not just foreign capital, banks or investment funds. Smallholders and indigenous
people are also private investors, and in aggregate actually invest more in forest restoration and
management than any other group of private investors (for instance forest communities invest $2.6
billion in conservation, exceeding state funding and all forms of international conservation
expenditure combined4).

For this study it will be important to maintain a distinction between local private investors (e.g.
smallholders, communities, rights-holders, indigenous people) and what we may call external private
investors, as they often have quite different objectives and modes of operation. External may mean
they represent foreign capital (either directly or as trustees), but it could also describe domestic
investors, such as companies. In some circumstances State-owned enterprises could be said to be
private capital as they are operating in the private sector. Conversely, a parastatal that is operating in
the public interest (e.g. as a commodity marketing board), would not be regarded as a private investor.

Therefore, we need to understand more about how these different types of investment occur in
landscapes, how they interact in order to meet their goals, and the extent to which different investors

4 Sherr, S.J., White, A. and Kaimowitz, D. (2003) A new agenda for forest conservation and poverty reduction:
Making markets work for low-income producers. Washington, DC: Forest Trends

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are mutually exclusive or crowd out other types of investment. The different types of investment are
summarised in the table below.

Private versus public investment in landscape restoration
Local private investors
Smallholders
Farmers
Forest dwelling rights-holders
Indigenous people
Local cooperatives
Businesses owned by local
people and cooperatives
Local entrepreneurs

External private investors


Foreign investors
Investment funds
Non-local Companies (e.g.
timber, palm oil, processing
companies)
Domestic urban investors
Foreign & Domestic banks
Some state owned enterprises
REDD+ funds
Concession holders
Conservation NGOs
Environmental funds

Public sector investment


Public spending and subsidies
Bi-lateral or multi-lateral donors
Parastatal organizations
Some state owned enterprises

3.2 What is the role for private sector investment in landscape restoration?

Engaging with the private sector to invest in landscape restoration is necessary because of the scale of
the problem, and also because the private sector is often engaged in activities that work against
effective landscape restoration:
3.2.1 The scale of the problem is beyond the public purse

It has been estimated that 1.5 billion hectares of lost or degraded forest lands worldwide offer
opportunities for restoration as forests, woodlots, or agroforestry (GPFLR 2011). The capital required
to restore such a huge expanse of land is beyond the capacity of public sector finance or the various
bilateral and multilateral funds committed to REDD+. Furthermore, a large amount of this land, if not
actually formally owned by smallholders and local people, is often under their de facto control. Thus
the management and restoration of such landscapes will be subject to decisions taken in households
and within communities rather than in government offices or global planning meetings.

Besides the land managed by local people, there is a large amount of degraded land held in the name of
private corporations, either through freehold or lease. In some cases it is the company itself that
degraded the land, as in the case of logged-over natural forest concessions in Indonesia. In other
cases, previously denuded land has been taken over by private companies with a view to investing in it
for biofuels, cereals or pasture which may not lead to its full ecological restoration. Since the global
financial crisis, as many other assets have become too risky or bring too little return, the commodity
boom has led to wide scale speculation in land. Much of the land allocated in so-called land grabs has
in fact been held in portfolios and not been developed. Of the 464 land acquisitions identified by the
World Bank between October 2008 and August 2009, production had begun on only one-fifth of them,
partly because many deals were made by land speculators, not agribusiness investors.

Even the land that is still firmly under the control of the state may still require private investment at
scale in order to bring about restoration. In many countries the state has been a careless landlord,
allowing one of the countrys most precious assets fertile and productive forests or mosaic lands - to
become degraded. Although concession contracts for forestry or mining may include obligations to
the lessee to restore the land after use, in many cases this has not been enforced, and thus the extent of
degraded land has increased. Indeed, poor management and inefficient usage of forests has probably
done more to devalue certain countrys asset base than straight-forward conversion to soy or oil palm.

It is therefore clear that in developing countries with weak institutions and lack of resources,

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whoever may be theoretically responsible for land, or formally liable for its restoration, in practice it
will require a joint effort to bring about land restoration at scale. And the private sector both the
local people and the external investors will be critical as suppliers of capital, labour, know-how and
access to markets. This does not mean that FLR is inherently expensive, or that it is impossible
without external capital. There are many examples where local communities have restored forest
landscapes because it matters to them. Therefore, we can learn from such examples in order to see
how private sector approaches be better designed and combined with multiple scales of action by
the public sector - to ensure both economic and environmental sustainability.

3.2.2 Improve the incentives for private sector investment

The scientific literature is filled with compelling examples as to why forest landscape restoration is a
rational activity for any kind of investor. It can raise agricultural yields, increase income diversity and
resilience, be part of a climate change adaptation or mitigation strategy, raise land values and provide
new sources of renewable energy. Yet, over 1.5 billion hectares worldwide is degraded. What is going
wrong?

In classical economic theory, private sector investment is more advantageous than public action, as it
assumes private capital will be invested rationally, in a manner that maximises an individual or firms
marginal return. This ensures that resources are allocated efficiently for maximum welfare. In
practice, of course, this outcome requires a perfect set of conditions, which is never the case even in
developed country settings, and is inconceivable in the places where investment in landscape
restoration is required.

Where conditions are not perfect, investments may be irrational, poorly executed and have
unintended consequences. In many cases, the right sort of investment may not be possible at all. The
forestry sector seems to be especially prone to these kinds of market failures, for example:
Industrial timber concession are rapidly denuded in order to accelerate early cashflow, even
though this greatly diminishes the longer term flow of income from the forest.
Forest land is cleared at private expense but then not deployed to productive purposes
such as plantations.
Vertically-integrated industries (e.g. pulp and paper mills) drive down the cost of their own
raw material supply to improve apparent profitability in the downstream processing unit, thus
diminishing incentives to plant trees in the local area, which later leads to a raw material
shortage and possible closure of the mill.
Degraded land lies unused, while natural forests are felled for new plantations
As nearby fuel wood supplies are depleted, prices rise and smallholders over-extract from
their woodlots rather than aim for a sustainable supply, even though this will lead to misery
when the fuel runs out.

For some of the these problems, the answer lies in better regulation, tenure reform and confronting
monopolies, oligarchs and rent-seekers. Where these market failures prevail, landscape restoration
may still be possible, but the financial rationale for it will be absent or very thin, and thus subsidy from
some public body will be required. Most countries of interest to this study are in some state of
transition, both in terms of landscape and governance. Even where good regulations are in place, they
may not be implemented. Private investment does not waiting for good governance to prevail (if it
did, many countries would never attract as much investment as they do), but poor governance
increases risk, leads to exclusion of local people and may mean investments that undermine landscape
goals rather than supports restoration. The incentives can work both ways: for good or ill. Therefore,
analysing where investment in landscape restoration has been possible, and where it has stumbled,
will enable us to evaluate the level of good enough governance that is required, analyse the capacity
gaps in both local and national government and understand more about how incentives may be
adjusted in favour of FLR goals, and if so at what cost.

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3.3 Aligning private sector investment goals with local and global - needs

It is clear that private sector investment at scale is required for landscape restoration. But it is also
clear from recent history that such investment may not work in favour of either eco-systems or the
long-term interests of local people. It is not sufficient to attract any investment at any cost that is
arguably what has occurred with land grabs, where governments have failed to account for the long
term cost of the asset they are giving away to the investor. It may seem harsh to tell developing
countries that you get the investors you deserve, but there is some truth in it. Where the state sets high
standards, insists on social and environmental impact assessments and Free Prior and Informed
Consent (FPIC), formal transaction costs rise for the investor, and the time to close a deal lengthens.
But only the most tenacious and diligent investors are likely to remain in the field, and they are also
those that are most likely to accept their obligations.5

But it would be lazy to characterise profit-driven private sector investors as the wrong sort, and
philanthropists, conservation NGOs and corporate CSR projects as the right sort of investor. Although
conservation NGOs may acknowledge the importance of improving socio-economic conditions in order
to meet conservation goals, they often encounter contradictions in the execution of their projects. In
particular, local livelihood development is often an afterthought, and may in some cases be seen as
incompatible with nature conservation.6 This can reinforce the impression that the costs of ecosystem
restoration are borne locally (through reduced livelihood options and access to land), whilst the
benefits accrue far from the forest, as local usage value is subordinated to global option value. Many
rights-groups are worried that REDD+ projects are likely to suffer from similar conflicting goals.

Different investors have different goals for investing in landscapes. In a crude typology: Profit-seeking
investors wish to maximise risk-adjusted return on capital; processing companies want cheap raw
materials; conservation investors have ecological goals; social impact investors consider development
outcomes such as education and gender; local people are interested in maximising income from the
next harvest.

For the two groups, the ultimate goals of investing in trees and landscapes might be summarized as
follows:
For the investor: Acceptable returns on capital (economic, environmental, or social returns, depending
on the type of investor) invested in viable entities, often over relatively short time frames with
acceptably low transaction costs, where stability, liquidity, and measurable risk are preconditions.
For the rights-holder: Strengthening of local control (autonomy) over land, resources, and enterprises
so that holistic social, environmental, and economic aspirations can be furthered on the rights-holders
terms.

In most if not all cases of landscape restoration, local people are central to the activity, either as
rights-holders, smallholders or hired labour. There is a growing recognition that locally controlled
forestry (LCF) has clear attractions: it implies local participation, decentralisation and equity. It also
claims some rationale as a superior landscape management system (compared to top-down state or
corporate control), as local people are more likely to have cultural and practical knowledge of the local
landscape, and have a vested interest in the long-term conservation of its ecological services and
income-generating features. The definition of locally controlled forestry, that could just as easily apply
to any landscape, is:


5 As The Munden Project (2012) demonstrates, there are powerful financial reasons for investors to be diligent

when negotiating use of land. Failing to do so can significantly increase costs and even lead to the project being
abandoned.
6 For an example of this tendency see the Birdlife Harapan Ecosystem Restoration Concession in Sumatra,
Indonesia.
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The local right for forest owner families and communities to make decisions on commercial forest
management and land use, with secure tenure rights, freedom of association and access to markets and
technology.7

The investors response to the demand for local control will depend on their goals. There is certainly a
rights-based argument to be made that all external investment in farming and forestry should place
local people at the heart of the matter giving them a good degree of control and ensuring they are
part of a fair benefits sharing plan. In landscape restoration there seems to be a strong practical reason
for doing this: the evidence shows that when local people have a degree of control of the project, and
benefit directly from its success landscape restoration is more successful, replicable and scaleable.
The next step for research on this subject is to test this hypothesis, and establish what conditions are
required to make it robust.

BOX: Devolving rights and responsibilities in European forestry

In Germany, community forests are often managed by the local government authority, as a democratically
representative body it is best-placed to navigate the trade-offs required to balance public and private claims on
the resource. This may work because it is a delegation of powers upwards (from the community to the local
political institution), whereas in many tropical forest countries, the decentralization movement has pushed some
autonomy over forests outwards to district governments; with little discernible improvement in management,
and in many cases much more degradation.

The ideal sequence of institutional change may therefore be to start at the bottom and allow self- declared
communities to define the boundaries of their forest and negotiate with proximate communities over rights and
access (blending traditional norms with modern legal legibility), which may include gazetting smallholdings in
some places, and then over time allow these institutions to merge with the local political authorities providing
they have legitimacy and accountability.

Even where local people do have formal rights, as in most northern hemisphere smallholder forests, they do not
necessarily have much influence over how the land is managed. Unlike most other land types, the forest is
regarded as either a local amenity, a national strategic asset or a global public good. For instance, community
forests in Germany have clear legal title but they are heavily regulated, with sustainability and local amenity
value as the objectives rather than economic value. The Norwegian system gives the forest owner freedom with
responsibility, meaning that in the event of mismanagement the forest will be put under public management,
with the costs of any work charged to the owner. (Elson, 2010)

3.4 Grow rural economies, not just trees.



Putting local people at the centre of things means more than simply developing a compensation model
(as often proposed by REDD+ projects), or employing them as labour. In many cases the land became
denuded in the first place as a consequence of a failed rural economic model, for instance unregulated
industrial forestry, or clearance for large-scale plantations. Where local people live with unclear title,
poor rural public goods, no extension service, and the absence of viable local rural non-farm economy,
then this may be the perfect conditions for marginal subsistence farming, poverty and continued
landscape degradation (or at the best, stasis). Any solution to the landscape problem must also tackle
these underlying socio-economic conditions, or else the project is likely to fail once again.

In order to incentivize the planting of such trees, smallholders need reasonably secure tenure, access
to capital, technology and markets. Even with these conditions in place, Wiggins (2011) has pointed
out that not all farmers are alike, or respond to incentives in the same way. Some of them do not even
want to be farmers. See the box below (Small farm economics and the agrarian transition) for some

7 As defined by: the Global Alliance of Community Forestry (GACF), the International Family Forestry Alliance
(IFFA) and the International Alliance of Indigenous and Tribal Peoples of Tropical Forests (IAITPTF), known
collectively as the G3.


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background on this issue. It is possible that agrarian transition and landscape restoration are inter-
dependent. Autonomous and resilient smallholders are more likely to be receptive to landscape
restoration projects than down-trodden peasants or landless labourers. This could be a positive
feedback loop: where the rural economy is boosted for instance through increased yields brought
about through introducing trees into landscapes this in turn stimulates the rural non-farm economy,
and enables a benign agrarian transition to take place. This socio-economic transition is correlated
with the forest transition, but it is not clear which is the cause and which is the effect. Understanding
the relationship between these transitions will be an important part of developing the correct set of
conditions for private sector investment.

Box: Small farm economics and the agrarian transition

Productivity may be constrained by the fact that many small farms are simply too small to be viable. The optimal
farm size varies according to crop, conditions and location. For farmers with less than 3 hectares, then a quarter
to half of these smallholders are in marginal conditions, in terms of land, assets, quality of soil, remoteness,
political connections, isolation from markets etc. It is most unlikely that they will ever be capable of investing in
their farm in order to become a fully commercial operation from which they can earn a decent living (Wiggins,
2011). The policy response to this in many developing countries has been to favour very large plantations and
estates, which are assumed to benefit from economies of scale and thus improve productivity. However, there
seems to be no evidence that larger farms - above a certain size -achieve any further economies of scale. In
developed countries, where the combination of clear property rights and access to finance would enable
consolidation into huge farms if that was the best use of capital, most farms are still owned and managed by
families (97% of farms in USA are family farms), indicating that they have reached an optimal size.

Many developing countries have a large number of very small farms (many of which are barely viable), and an
increasing number of huge plantations (many of which are not very productive per hectare). There are very few
family farms that are of the optimal size, producing staples at low cost as well as higher value crops and export
commodities. This may be because it is difficult to consolidate farm holdings when tenure is informal and legal
methods of transferring title are unavailable. This situation may be inhibiting a 'benign transition' from taking
place, whereby some farmers would invest in expanding their farms, whilst others gradually move to the rural
non-farm economy, or they migrate elsewhere (probably to the city), and improve their conditions. They do not
lose the rights over their land, instead they probably continue to farm it during the transition, and when
alternative income sources become more stable (e.g. returns to labour from rural non-farm employment or
migration far outstrip value of subsistence production, and vulnerability is reduced) they either sell the land, or
rent it to neighbours, or reallocate amongst the extended family.

The alternative to this benign transition is where returns to farming continue to stagnate, rising rural
populations farm ever smaller an unviable plots, exhausting the soil and straining the ecosystem. As the
resource base degrades, poverty worsens, forcing people to migrate to the cities or take up an offer to migrate to
a plantation, where over-supply of cheap unskilled labour will bring down wages and thus deepen poverty. In
this scenario, it is not a case of whether plantations are 'good' or 'bad', but simply that they may not be tackling
the key challenge, which is to raise small farmer productivity rather than just to raise national aggregate
production. Raising production in absolute terms is of interest politically, as it chimes with the desire to be 'self-
sufficient', but if it is achieved through expanding inefficient plantations into forests, then it is a chimera.
Increasing small farmer productivity will intensify economic returns in rural areas and allow for the benign
transition to urbanization.

3.5 Rural economies need local businesses



The corollary to the agrarian transition described above, is that it presupposes a local class of
entrepreneurs, or at least some locally-accountable businesses to be in place (perhaps in the form of
company-community partnerships). These are the businesses that form the backbone of the rural
non-farm economy, and thus the support structure for long-term landscape restoration. For instance:
processing companies (both timber and NTFPs), renewable energy for local power generation,
equipment rental and repair,

IUCN - Investing in FLR - Feasibility Study (2013)

25

Where investment in forest landscape restoration has taken place, it has often been from
governments, donors and philanthropists, working through NGOs or state-run bodies. In some cases
investment has also come from the private sector, under the umbrella of a Corporate Social
Responsibility scheme. The downside of these kinds of investment is that they usually aim to achieve
non-business outcomes, such as social or environmental goals. That may mean they bypass the
essential business development steps needed for long-term commercial success.

For external investment in FLR to be sustainable (financially as well as environmentally), it will need
to catalyze co-investment by local people and thereby improve the likelihood of effective agrarian
transition, local enterprise and socio-economic resilience. This will require a strategic combination
of grants and capital investment (explained in more detail below). Building local enterprise capacity
creates a positive feedback loop that strengthens the entities that are engaged in landscape
management, and generates local multiplier effects that enhance rural prosperity. By focusing on
building local economic output managed by real small businesses, for instance the enhanced food, fuel
and fibre outputs expected from restored landscapes, the project will simultaneously mobilise local
people, cooperatives and SMEs to be involved in the scheme, but will also improve the likelihood that
FLR projects will be legitimate and sustainable. Therefore, we need to understand where such a focus
on building small business sector has worked, how aiming for tangible outputs from landscapes builds
a stronger investment case, and the extent to which a growing rural non-farm economy improves the
legitimacy and resilience of landscape restoration.

Box: The rural economy generates the capital base and human resources for equitable, sustainable
development

The rural economy need not be confined to just cultivation and extraction, and it seems likely that agriculture
alone will not lift rural communities out of poverty. In fact, more successful rural economies have a broader base
of activities, known as the 'rural non-farm economy' (RNFE), that alleviates poverty through multiplier effects.
But this state of affairs does not arise out of thin air, but depends on a thriving agriculture (or fisheries) sector to
generate demand for goods and services. If smallholders are at the subsistence level, then there will be
insufficient surplus income, and thus demand, in the rural economy. Thus improving agriculture is the first step
in building a successful rural non-farm economy. However, this is not simply a matter of increasing total
aggregate output from an area (for instance by replacing small farms with large industrial plantations).
Distribution is the key to a stable rural economy. If rural income distribution is too unequal, for instance when a
small elite gain disproportionate advantages from land rents or by being insiders on land grab deals, then
they take a larger share of rural income, which they spend outside the area (because their consumption patterns
are different from people of more modest means), thus inhibiting the benefits of linkages and multipliers.

Furthermore, outsiders (or elites that can insulate themselves from local issues) have less of a stake in the long-
term ecological health of the area. They may therefore engage in deals that undermine landscape restoration
goals. Reasonably equitable distribution of land and assets and local ownership of businesses - may be
correlated with improved land management and healthy ecosystem services.

3.6 Rural economies need healthy ecosystems



Recent evidence from Brazil shows that the relationship between tropical deforestation and poverty
needs to be better understood at the local level, in terms of how it affects communities proximate to a
moving frontier of deforestation (Rodrigues et al.,2009). As the land use changes, there is a short-term
boost to the livelihoods of local people caused by the work available for clearance and other associated
economic activities. Thus the human development index (HDI), relative to the district, rises. However,
the evidence shows that after the forest is cleared, the economic opportunities diminish, even if the
land is now in agricultural use. Thus there is a boom / bust cycle over time, leaving local people more
impoverished at the end of the cycle than before the forest was disturbed.

IUCN - Investing in FLR - Feasibility Study (2013)

26



Box: The New York City Watershed, from coercion to partnership

9 million residents of New York City receive clean drinking water from the upper watershed area of the Catskills.
This is the largest unfiltered water supply in the United States, and there is a huge stake in keeping the streams
and watersheds that supply the six reservoirs in the Catskills as clean as possible. Until recently, the relationship
between New York City government and the communities living in the upper catchment area where the
reservoirs are located was acrimonious. Through reduced economic opportunities, land grabs (under the
eminent domain law) and regulations on land use, the rural communities were in effect paying the costs of the
positive externality of clean water for the city. Meanwhile, the city faced the monumental cost of installing
infrastructure to mechanically filter the water if the watershed could not be relied upon.

In 1997, a new partnership was formed that was able to bridge this gap. By bringing local communities into the
deal, for instance by setting up the $60 million Catskill Fund for the Future (CFF) to stimulate rural economic
development, the watershed has been restored and is now managed appropriately.8 The key to the deal was for
the city to recognise not only the economic value of the ecosystem services (which was self-evident), but also the
important role that a vibrant and economically viable rural community plays in ensuring a sustainable and stable
landscape.


One of the reasons for the diminished economic opportunity is that the ecosystem has become
degraded by the process of rapid transition, leading to exhausted soil, poor hydrology and erosion.
The only viable land use (e.g. pasture) is extensive or marginal, with low value per hectare. In an
extractive model of landscape exploitation (seen from the point of view of national GDP), these local
effects are barely discernable, although they will have long term consequences. At the local level, they
are devastating as they inhibit the possibility of building a viable rural economy. In such
circumstances, FLR could have positive co-benefits, either by protecting essential ecosystem services,
or by restoring services that have been compromised. Furthermore, restoration may improve land
productivity and financial performance of farms, as shown in the diagram below.



8 www.catskillcenter.org
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27

Figure: Restoration improves land productivity and food security9



In many cases, these ecosystem co-benefits will have positive impacts far away from the restoration
site, as is the case in hillside restoration near cities. In some cases, the value of these services can be
far in excess of the cost of restoration, and better value than more technologically-driven alternatives
(e.g. see the New York watershed example), thus justifying schemes that include Payment for
Ecosystem Services (PES). However, the potential income streams from PES in tropical countries can
sometimes be over-estimated. In many developing countries there is not yet an ethos of public goods
delivery (such as water), or the systems to pay for it, and thus no entity that could afford the PES
payments. Just because a local ecosystem service has objective value (we cannot live without water)
this does not mean that it automatically carries a market price. In order to understand this issue
better, we need to evaluate relative success of projects that differentiate between global and local
value of the ecosystem service, including boosting productivity, and in what circumstances valuing the
ecosystem has actually led to landscape restoration, as distinct from preservation.

3.7 The Layered Investment Approach



The issues outlined above call for a programme that recognises the need for FLR to entice external
private investors, yet also build rural economies, facilitate a benign agrarian transition and cultivate
healthy ecosystems that sustain social, economic and environmental wellbeing. No one investor or
type of investment is capable of such a broad spread of objectives in one project. There will need to be
a combination of different types of investment that will co-exist to deliver public goods (e.g. ecosystem
resilience, technology, community capacity, infrastructure) and private assets (tradable commodities,
value added, non-farm economic goods).

Based on recent research and the literature on impact investment and enterprise philanthropy, the
most appropriate way to characterise investment types is as either enabling investments or asset
investments. In this model, there is no need for a tolerant soft investor in the middle, who is
neither taking big risks nor getting decent returns. Investment is either channeled to creating the
enabling conditions (so it is pure grant), or is engaged in impact investing (where some form of return
however low is expected). In summary, the enabling investment creates the public goods, which in
turn enable asset investments to create private assets. These private assets are not all just carried
away by the investors, they are also the assets formed by the rights- holders themselves: in companies,
private savings, physical infrastructure, standing trees, healthy eco-systems and improved health and
education. In the mission to achieve equitable economic growth combined with environmental
sustainability, public goods and private assets are co-dependent.10

a) Enabling investment
Enabling investments are made by governments, donors, NGOs, philanthropists, rights-holders and the
private sector in order to create the conditions for productive investments in assets. Enabling
investments may be the basic nuts and bolts of institution building, but they could also be pioneering
investments that create public goods such as SME forestry business models, associations, market
linkages and new technology. Enabling investment differs from the usual donor grants as it is made
into both public institutions and private businesses. Grants to businesses are not for working capital,
but are for a narrowly defined purpose, linked to the main objective of moving the enterprise further
towards being self-sufficient and thus capable of attracting capital investment. But in each case there is
no expectation of a direct financial return on capital deployed and no financial or physical assets are
accrued.

b) Asset investment
An asset investment is not expected to lose the nominal value of the underlying capital, even

9 Liniger et.al (2011, p.41)
10 For a more detailed explanation of this approach to investment, see Elson (2012).

IUCN - Investing in FLR - Feasibility Study (2013)


28

if the anticipated level of financial return may vary according to the needs and attitudes of the
investor. The investor deems the capital invested as an asset, which either has immediate tangible
value (for instance through the payment of interest on a loan) or gives the right to receive future cash
flow. The aim of this kind of investment is to create private assets. At the project level, asset
investments will most likely need to be made via a portfolio of projects, whereby certain risks can be
offset.

In order to understand the practical interaction of enabling and asset investments, we need to look for
examples of how FLR investments have been structured. In some cases the investment types may not
have been clearly delineated, or have confused goals. Conversely, there may be some cases where
asset investment is not possible until enabling investment is made available.

3.8 How investment decisions are made



A brief outline of the some of the conditions is listed in the table below, divided between their
importance to local rights holders and external private investors. A more detailed description of
conditions for investment can be found in the ILCF Guide,11 and some other resources listed in the
bibliography.12

Condition
Tenure

Source(s) of Revenue

Return on capital

Time to break even

Risk

External investors
This depends on the type of investor and
their objectives. Plantation companies
and investment funds usually prefer
formal (de jure) tenure, such as freehold
or very firm leasehold.

Local rights-holders
Accustomed to de facto tenure, often
grounded in local institutional
norms. Formal title is preferable,
but in practice not always a pre-
condition. The exception is where
smallholders are moving into new
land (e.g. former state forest), in
which case formal tenure will be a
precondition for longer-term
projects such as tree planting.
Asset investors will be looking cashflow. Smallholders are more accustomed
In practice, this will usually arise from a to multiple sources of revenue from
single commodity, but this need not be
a diverse portfolio.
the case.
Asset investors will usually be seeking a Smallholders need a real return on
risk-adjusted rate of return, but some
capital, and often will not have the
(e.g. impact investors) may be content
luxury to invest for non-economic
with merely a real rate of return, or even reasons. However, they may not
just to preserve the principal.
have the tools or skills to model and
measure the predicted rate of return
accurately.
Investors will have different time
Local rights-holders often have a
horizons, but the patient investor has
shorter time preference than
often proved to be elusive. Investment
investors from cities or abroad.
funds can take a longer term view, by
Their discount rate is higher,
ensuring they have sufficient liquidity to meaning they place greater value on
pay out to shorter term investors.
quicker returns.
There are many different risks facing an In many places, rural communities
investment that need to be quantified in are accustomed to living in a state of
order to calculate the minimum rate of
vulnerability where risks are a part
return needed to justify the investment. of everyday life. When assessing
Risks can be political, physical,
their own investments, bitter
institutional or market-driven. Note that experience (by themselves or
whilst measurable risks are acceptable
others) will tend to lead them to be
to investors, uncertainty is harder to
risk-averse. For instance, where


11 Elson (2012)
12 e.g. Forest Investment Review (2009), Elson (2010)
IUCN - Investing in FLR - Feasibility Study (2013)

29

price. Higher complexity means more


uncertainty. One way round this is to
allocate the heavier risks to the
enabling investment, for instance
through a guarantee scheme.
Governance

Liquidity & collateral

Social impact

Environmental impact
Investible Entity

Scale

Capacity of local people &


organisations

Track record

Local and national governance needs to


be good enough to improve the
investment climate in forestry and
landscapes. The process of improving
governance creates the circumstances
for good institutions, which in turn
improves the enabling environment for
business

Asset Investors will need an exit
strategy, so the asset will need to have
some market value, or the business will
have sufficient cash to buy out equity. In
the case of bank loans, the collateral will
need to be accessible and marketable
which will not be possible for new FLR
schemes, woodlots, plantations etc.
Some impact investors appreciate the
importance of evaluating impacts
beyond financial return, such as social,
cultural and environmental benefits.

Local communities may deem social


impact to be more important than
either financial or environmental
considerations. Poorly designed
investments and landscape
interventions can have catastrophic
impact on social cohesion, and may
lead to conflict (which in turn as
economic and environmental
effects).
As above.
As above
Investors will be accessing FLR via an
Local communities may be more
entity that can receive equity or loans (in accustomed to informal entities, but
case of asset investments), or grants (in
setting up more formal structures
case of enabling investments. There will will benefit their economic
be differences of approach on the extent development.
to which this entity will be controlled by
the investor or by local communities, or
government.
Investors prefer larger scale businesses
From the local perspective, bigger is
because the may benefit from scale
not always better. Large scale
economies (but not always), and because plantations may have better returns
the transaction costs of planning the
on capital, but lower returns to land
investment will be lower in proportion
and labour. Large scale projects may
to the capital deployed. In FLR, this may involve over-simplification of
require project aggregation and portfolio complex landscapes.
design.
For the investor, one of the key factors
Local organizations will regard
that will determine if a business is
access to training and technical skills
capable of delivering the outcomes
as one of the key benefits of
predicted in the business plan is the
partnerships with external
quality of the leadership and capacity of investors.
the organization.
In evaluating a business proposition,
This kind of information may not be
investors will look at the track record of available in an easily accessible
the country, the enterprise (for example, form.

IUCN - Investing in FLR - Feasibility Study (2013)

tenure is weak, it is less rational to


plant perennial crops or trees. On
the other hand, there are some risks
such as fire and theft over which
local people have a much greater
degree of influence than external
investors.

30

Transaction costs

historic performance in terms of


management competencies, planning,
implementation and financials), and of
the product.
The better the institutions, the lower the
transaction costs, the more attractive for
investors. Commercially oriented parties
will make better deals where there are
decent institutions than where
governments are left alone with
investors to strike deals out of the public
eye, as in many of the so-called land
grab deals13


3.8.1 Mismatches between external private investors and local rights-holders

Based on the table above, the mismatches between investor conditions and local needs can be
identified. Most of these will need to be resolved in order to ensure FLR projects are successful. In
reviewing previous projects, it may be instructive to find out how a projects failure may be
attributable to a mismatch in conditions.

Condition
Tenure
Source(s) of Revenue
Return on capital
Time to break even
Risk
Governance
Liquidity
Social impact
Environmental impact
Investible Entity
Scale
Capacity of local people &
organisations
Track record
Transaction costs

Overlap between external investor and


local rights-holder? (Yes, No, Maybe)
N
M
M
N
M

Notes

N
N
M
M
N
N
Y

N
Y

3.9 Possible investment frameworks and financing structures



This section has outlined the challenges of attracting private sector investment into landscape
restoration. It has noted the inherent complexity of mixed landscapes when compared to monoculture
or strict conservation models. It has suggested that the answer may lie in what we now call landscape
approaches or various forms of agroforestry, combined with meaningful partnerships with local
communities and a commitment to rural economic development. Landscape restoration takes time,
therefore it is best to ensure that the financing is self-sustaining by building the underlying economy
in parallel to improving the landscape. The farm (or forest) and non-farm economy will be the scaffold
on which long term forest landscape restoration will be built. This is the triple win illustrated in the
figure below.


13 von Braun & Meinzen-Dick (2009)
IUCN - Investing in FLR - Feasibility Study (2013)

31


Figure: Win-win-win solutions for livelihood, ecosystem and productivity14

However, not all practitioners may agree with this analysis, and there may be empirical evidence of
successful FLR that has taken place absent of these conditions. Indeed, one of the purposes of a
detailed FLR study will be to use evidence to test the proposition set out here.

Based on the quick scan of the examples listed in section one, there are a number of different
investment frameworks and financial structures that have been applied in the past to achieve some
forms of landscape restoration. These may be led from the public or private sector, arise from grass-
roots action, or be various forms of partnership (e.g. public-private, company-community). Financing
may come from selling carbon credits, or finding impact investors that are willing to be patient or
accept lower rates of return. Some investment funds may be able to deliver market clearing risk-
adjusted returns whilst also improving landscapes, thus attracting much larger amounts of
mainstream capital.

One way to review the case studies and test the hypothesis is use the scoring framework below. The
first table evaluates some of the enabling conditions, in order to identify the strong and weak spots
that may be predictors of the eventual outcome of an FLR project. The second table assesses the main
categories of benefits as they pertain to different stakeholders, using the standard stakeholder interest
scoring method (pluses and minuses). Note that financial benefits are distinct from economic benefits
as they refer to the private gains (or losses) from a transaction, whereas economic issues are public
systemic gains or losses.


14 Liniger et al. (2011, p.41)
IUCN - Investing in FLR - Feasibility Study (2013)

32



Enabling Condition
Value proposition
Tenure
Potential risk adjusted returns
Risk mitigation strategies
Risk and benefit sharing arrangements.
R&D
Capacity building
Infrastructure
Political will
Regulations
Transaction costs


Benefits
Local land users
/rights holders
Financial

Economic

Ecological

Socio-cultural




IUCN - Investing in FLR - Feasibility Study (2013)

Score
(0= weak, 5= very strong)










National level



Enabling
Investment



Observations










Asset Investment



33

Designing the main study

4.1 Objective

The purpose of the study is to discover how best to attract investment into successful landscape
restoration, and identify the most appropriate financing structures, ownership and benefit sharing.

It will achieve this by filling in the gaps in our knowledge about how and why restoration has taken
place in the past (and is currently happening now) in certain places around the world. It will improve
the understanding of the complexity of the subject, for instance by answering such questions as:
How can multiple stakeholders find common ground in their goals, while balancing the
distribution of costs and benefits, in order to create new impetus for landscape restoration?
What are the key conditions that different types of investors, including local people, require to
make landscape restoration investments?
To what extent does local control and benefit sharing ensure that landscape restoration is
more successful, replicable and scaleable?
How can external investment catalyse the local investment and improve the likelihood
of effective agrarian transition, local enterprise and socio-economic resilience?
How can Enabling and Asset investments be structured to deliver public goods (e.g. ecosystem
resilience, technology, community capacity, infrastructure) and yet still build private assets
(tradable commodities, value added, non-farm financial assets).

This will be an iterative process, working with researchers and practitioners to understand the
background conditions, test certain hypotheses and acquire new knowledge.

The final output (after the September 2014 Investment Forum) will be: New knowledge, evidence and
analysis on key economic, social and biophysical opportunities and conditions for landscape
restoration generated, packaged and disseminated.

4.2 Methodology and Scope



One of the insights of this brief feasibility study and background paper is that identifying and
categorising the examples of investment in landscape restoration shows the diversity of project
objectives, financing and management. One single large study may be broad enough to claim to
encompass all relevant projects, but it is unlikely to get sufficient depth to facilitate understanding of
what is really happening on the ground.

This paper therefore recommends that IUCN commission a series of mini-studies, each of which
tackles a particular theme or type of project. This will enable us to find the people who know best how
to shed light on a topic. Some of them may be policy researchers, but they could also be project
practitioners who are prepared to provide in-depth detail on their own project. The list of informants
would be a good place to start.

This will complement the GPFLR Learning Sites initiative,15 but that is mainly concerned with the
management of landscape restoration, rather than how it is financed. For instance, the standardised
profile of GPFLR Learning Sites is interested in finding out who funds the stakeholders, but does not
seem to take an interest in the source of investment.

Conversely, the studies envisaged by this project will have a greater focus on how FLR can be best
financed. There are of course some overlaps: the focus on local livelihoods in the GPFLR Learning
Sites is also a highly relevant focus area for these investment studies.


15 http://www.forestlandscaperestoration.org/case-study/learning-sites
IUCN - Investing in FLR - Feasibility Study (2013)

34

4.3 Knowledge Pathways



The knowledge pathway could take the form of an action research loop, as depicted in the diagram
below. This document is the initial background that kicks off a learning cycle, bisected by epicycles
where reflection and dialogue move the process to the next stage.

The studies will provide the background knowledge and talking points for the proposed partnership
meeting to be organised by IUCN in September 2013. The purpose of that meeting will be to identify
candidates for a collaborative research approach, which in turn will be reported and evaluated at the
next World Bank investment forum in September 2014. In the first stage, the studies will be
conducted by people with specific expertise on the subject area, and whilst they will draw on empirical
evidence of projects, they will still be speculative in their recommendations. The second stage,
running up to the next World Bank Investment Forum in September 2014, will combine research with
actual projects (that may be already up and running, or in the design phase), so as to test key
conditions and results in the field. By this time, real private and public sector investment models will
have been tested, for instance in landscape restoration in both semi-natural mosaic and heavily
modified (industrialized and/or mined) landscapes.


Inquiry:
Illuminate background

Evaluate
effects of action

WB Investment
Forum
(Sept. 2014)

IUCN
Working
Group

Reflection &
Dialogue
Epicycles

Forest
Landscape
Restoration
Knowledge
Pathway
Data
gathering
& Analysis,
identify projects

Collaborative
action &
interaction
Partnership
Meeting
(Sept. 2013)

Proposing & planning


actions

4.4 Study outlines



The mini-studies will each focus in depth on a particular topic, analyzing the empirical evidence to
draw some tentative conclusions and recommendations that can then be tested in the next phase of
IUCN - Investing in FLR - Feasibility Study (2013)

35

the project. Some of the studies will also need to build a theoretical case for how an intervention can
take places (this is especially the case for the study into financial structures).

Study A: Defining the type of private sector investment and role it plays
Condition / theme
Knowledge Gaps
3.1 - Defining Private Sector
How do know about different types of investment interact? To what
Investment
extent do goals clash, leading to poor outcomes? Are the investment

goals of local people necessarily at odds with the goals of external
investors? To what extent does state-led investment, including SoEs,
crowd out private capital?

3.2 Role of the private sector
Learn from examples of joint action by local communities, private
investment
investors and governments. How can private sector projects be better

designed to ensure both economic and environmental sustainability?
3.2.1 The private sector
How can multiple scales of action (e.g. sectoral strategies, district
brings scale
development plans, commodity purchasing agreements, etc) be

reconciled/ harmonized efficiently to create new opportunities for
landscape restoration?

Relevant case study groups
General country examples
Large donor-funded projects
Private sector companies and projects
Projects led by NGOs and cooperatives
Public/private partnerships
Company / community partnerships
Additional questions
Learning from Private Sector Investment
To what extent are timber investment funds differentiated by
their approach to balancing timber yield with forest
biodiversity? Do investors care?
Are non-timber forest products seen as part of the business
model, or a co-benefit outside the model (i.e. not part of the
target rate of return)?
To what extent are local livelihoods a core driver of
investment value, or are they a co-benefit to satisfy CSR
needs?
Where are there examples of projects where profit-oriented
investment funds have led to successful FLR?
How sophisticated is the financing structure?
To what extent is donor finance blended with private capital?
How have investor goals changed over time? Is FLR becoming
more common as a deliberate project goal?
Where investors have switched focus to FLR, what was the
reason? What other project goals does FLR support?

IUCN - Investing in FLR - Feasibility Study (2013)

36


Study B: Governance and incentives
Condition / theme
Knowledge Gaps
3.2.2 Changing the incentives
Are there institutional models from other sectors that we can draw

on?
What informal / semi-formal frameworks offer the best prospect to fill
capacity gaps in governments to support landscape level negotiations?
What does 'good enough' governance look like?
How can incentives be adjusted in favour of FLR goals, and at what
cost?

Relevant case study groups
Historic Examples of land restoration
General country examples
Public/private partnerships
Private sector companies and projects
Projects led by NGOs and cooperatives


Role of Rules and Incentives
Regulations e.g. export bans, transport restrictions, rigid
rules on planting (controlled list of species, banning cereals or
tree crops) , cultivation, extraction
Law enforcement positive or negative? Impact of illegal
timber on prices and financial incentives to plant trees
Market incentives: is the market pull more powerful than
regulatory push to stimulate tree planting and restoration?
Subsidies: When are they necessary to attract investment?
When do certain subsidies work against FLR goals?. To what
extent is subsidy earmarked for FLR and smallholder
development in reality used to finance industrial plantations?
Are public finance mechanisms, for instance concessional
loans, subject to the moral hazard problem?
To what extent is formal tenure a pre-condition for
investment?

IUCN - Investing in FLR - Feasibility Study (2013)

37


Study C: The relationship between the rural economy and FLR
Condition / theme
Knowledge Gaps
3.3 Aligning investment goals
Test the hypothesis that when local people have a degree of control of
with local needs
the project, and benefit directly from its success landscape

restoration is more successful, replicable and scaleable.
What conditions are required to make this possible?

3.4 Growing rural economies
What is the role of the benign agrarian transition in better landscape
as the key to landscape
management?
restoration
To what extent are agrarian transition and landscape restoration

inter-dependent?

3.5 Rural economies need local Where has focusing on building the small business sector worked?
businesses and a growing
Does aiming for tangible outputs from landscapes builds a stronger
RNFE if they are to thrive
investment case, and the extent to which a growing rural non-farm

economy improves the legitimacy and resilience of landscape
restoration.

Relevant case study groups
Projects led by NGOs and cooperatives
Private Sector companies & projects
Company / community partnerships

Additional questions
Landscape transition and development
Is land ownership reform (to redistribute land from large
landowners to smallholders), or tenure reform a pre-condition of
more sustainable land use?
To what extent is FLR compatible with human social and
economic development?
How can public finance mechanisms be made compatible with
private landowner interests in the cause of FLR?
Is the forest transition an inescapable artifact of the long term
development process, which should not be short-circuited?
What is the difference in outcome between FLR on state land and
on private land?
Locally Control
What is the correlation between local ownership and control, and
successful FLR outcomes?
Does local involvement in landscape planning lead to more
diverse planting?
To what extent are local investors attracted by the prospect of
total landscape restoration, or by the prospect of timber revenue?
What percentage of financing is dependent on either carbon /PES,
or on donor grants?
What are the financing needs of local bottom-up FLR projects?
To what extent is the prospect of timber revenue a driver for local
community and smallholder involvement in FLR?
What types of land tenure are most suitable for an FLR project to
be successful?
Do financial constraints lead to innovation in organisational
approach or product development?
Is successful FLR more highly correlated with increasing land-
holding size, or are smallholders more successful stewards?

IUCN - Investing in FLR - Feasibility Study (2013)

38


Study D: Incorporating ecosystem services in FLR project design
Condition / theme
Knowledge Gaps
3.6 Rural economies need
evaluate relative success of projects that differentiate between global
healthy ecosystems
and local value of the ecosystem service, and in what circumstances

valuing the ecosystem has actually led to landscape restoration, as
distinct from preservation.
Is pricing necessary?
Or is ES always a co-benefit, which as a public good deserves some
public subsidy or co-investment to bring about?

Relevant case study groups
General country examples
Carbon finance projects
Conservation projects (international funding)
Investment funds
Private Sector companies & projects
Project Sponsors / Investors

Additional questions
Carbon finance
To what extent are REDD+ projects including FLR in their
goals?
How do the projects integrate FLR in the financial model for
the carbon investors is it an implementation cost, an
investment for cashflow, or an additional project expense to
be covered by a donor?
How do the projects manage trade-offs between carbon
sequestration and local livelihoods, e.g. do they accept less
carbon-rich restoration options if they have better income
opportunities for local people? Who negotiates these trade-
offs?
Can conservation be compatible with attracting investment to
landscape restoration?
In a national park or conservation area setting, what is the
long-term revenue model post-restoration?
Who pays for the ongoing restoration and maintenance, and
who then benefits from the revenue streams (if any)?
How do the projects manage trade-offs between biodiversity
and local livelihoods, e.g. do they accept less biodiverse
restoration options if they have better income opportunities
for local people? Who negotiates these trade-offs?
Conservation
Can conservation be compatible with attracting investment to
landscape restoration?
In a national park or conservation area setting, what is the
long-term revenue model post-restoration?
Who pays for the ongoing restoration and maintenance, and
who then benefits from the revenue streams (if any)?
How do the projects manage trade-offs between biodiversity
and local livelihoods, e.g. do they accept less biodiverse
restoration options if they have better income opportunities
for local people? Who negotiates these trade-offs?

IUCN - Investing in FLR - Feasibility Study (2013)

39


Study E: Designing investment structures
Condition / theme
Knowledge Gaps
3.7 Ideal investment structure

In order to understand the practical interaction of enabling and asset
investments, we need to look for examples of how FLR investments
have been structured. In some cases the investment types may not
have been clearly delineated, or have confused goals. Conversely,
there may be some cases where asset investment is not possible until
enabling investment is made available.

Relevant case study groups
Carbon finance projects
Investment funds
Private Sector companies & projects
Project Sponsors / Investors
Projects led by NGOs and cooperatives
Large donor-funded projects


Designing financing structures for FLR
How can complex projects such as climate smart agriculture
finance be structured to account for multiple revenue
streams and timelines?
In public/private finance partnerships, which is the leader
and which is the follower?
How is enabling investment kept separate from asset finance?
Are public-private partnerships superior to top-down state
programmes in terms of their success in restoring landscapes
and improving livelihoods?
What is the cost of FLR? How much external finance does it
actually require?
How to construct diversified and de-risked landscape
portfolio approach, preferable spreading across several
landscapes
Role of landscape bonds and forest bonds
How can supply chain management, including risk sharing,
leakages, etc., be improved to influence the incentives to
invest in FLR?

IUCN - Investing in FLR - Feasibility Study (2013)

40

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