- Green bonds, regulated carbon prices, and the securitization of forests needed to plug funding gap facing global forest commitments
- New major forest fund set to launch which aims to raise capital for regenerative, biodiverse forestry projects
WAIMEA, HAWAII (March 2, 2022) -- A new wave of innovation in forest finance, including the introduction of a government-regulated carbon price and the securitization of forestry projects, is needed to ensure private capital can bridge the funding gap facing global forestry commitments.
New analysis from Bankers Without Boundaries, a not-for-profit in financial innovation, and Terraformation, a global reforestation company, calculates that the recommendation of the Intergovernmental Panel on Climate Change (IPCC) to restore 2.3 billion acres of forest in order to limit global heating to 1.5 degrees C, could cost US$2.6 trillion.
With the analysis highlighting the need for private sector investment, Terraformation and Bankers without Boundaries are today setting out plans to launch a forest fund which will focus on investing in regenerative, biodiverse forestry projects.
The fund, which is targeting up to $100 million, will target both debt and equity investors as well as philanthropic capital and aims to drive a wave of capital towards forestry projects.
While investors and businesses are increasingly investing in green initiatives, the cash flow and risk profiles of reforestation projects remain major barriers to scale. The analysis - Financing Forests: How to unlock capital for large-scale restoration - recommends several innovations in forest finance to address these issues and unlock large flows of private capital into mass scale restoration. These include:
New analysis from Bankers Without Boundaries, a not-for-profit in financial innovation, and Terraformation, a global reforestation company, calculates that the recommendation of the Intergovernmental Panel on Climate Change (IPCC) to restore 2.3 billion acres of forest in order to limit global heating to 1.5 degrees C, could cost US$2.6 trillion.
With the analysis highlighting the need for private sector investment, Terraformation and Bankers without Boundaries are today setting out plans to launch a forest fund which will focus on investing in regenerative, biodiverse forestry projects.
The fund, which is targeting up to $100 million, will target both debt and equity investors as well as philanthropic capital and aims to drive a wave of capital towards forestry projects.
While investors and businesses are increasingly investing in green initiatives, the cash flow and risk profiles of reforestation projects remain major barriers to scale. The analysis - Financing Forests: How to unlock capital for large-scale restoration - recommends several innovations in forest finance to address these issues and unlock large flows of private capital into mass scale restoration. These include:
- A regulated carbon floor price to provide greater certainty around carbon prices
- The rebalancing of subsidies and incentives, particularly in agriculture, to outweigh incentives for deforestation and land use change
- New financial structures which enable private investment in reforestation by pooling projects and utilizing instruments such as sustainability-linked bonds
- Greater links between the public and private sector on a global and local level to discuss the new infrastructure and instruments required to underpin mass-scale reforestation
At COP26, $12 billion of public funds were committed to protect and restore forests alongside $7.2 billion of private investment. However the ultimate success of achieving the IPCC’s targets to reverse the effects of climate change through restoration ultimately depend on unlocking large flows of private capital through financial innovation.
Yishan Wong, Founder and CEO of Terraformation, said: “To solve climate change, the world needs to turn trillions of dollars into forest in the next eight years. Despite increasing demand from investors, the financial products don't yet exist to put that money to work at scale. Banks and regulators have tremendous power in determining our climate future; I call on them to look at implementing the recommendations of this report, particularly by introducing government-regulated carbon prices and removing barriers that enable private investment in reforestation.”
The analysis explores some of the innovative financial solutions that could be deployed to finance forestry. Blended finance structures with a combination of instruments including grants, equity, debt and guarantees could mobilise private capital alongside public funding. Securitisation, with products such as Asset-Backed Securities (ABS) or Collateralised Loan Obligations (CLO) may provide a suitable solution. Credit facilities such as sustainability linked bonds, forest, green or social bonds are also opportunities to explore.
Rupesh Madlani at Bankers without Boundaries added: “Forest finance is one of the next frontiers for innovation in financial services. We have already seen great progress made with the launch of a number of new instruments which align the goals of multiple stakeholders around reforestation targets. But it’s clear that a step-change in both thinking and action is required. This is a global issue and it needs a global answer.”
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Yishan Wong, Founder and CEO of Terraformation, said: “To solve climate change, the world needs to turn trillions of dollars into forest in the next eight years. Despite increasing demand from investors, the financial products don't yet exist to put that money to work at scale. Banks and regulators have tremendous power in determining our climate future; I call on them to look at implementing the recommendations of this report, particularly by introducing government-regulated carbon prices and removing barriers that enable private investment in reforestation.”
The analysis explores some of the innovative financial solutions that could be deployed to finance forestry. Blended finance structures with a combination of instruments including grants, equity, debt and guarantees could mobilise private capital alongside public funding. Securitisation, with products such as Asset-Backed Securities (ABS) or Collateralised Loan Obligations (CLO) may provide a suitable solution. Credit facilities such as sustainability linked bonds, forest, green or social bonds are also opportunities to explore.
Rupesh Madlani at Bankers without Boundaries added: “Forest finance is one of the next frontiers for innovation in financial services. We have already seen great progress made with the launch of a number of new instruments which align the goals of multiple stakeholders around reforestation targets. But it’s clear that a step-change in both thinking and action is required. This is a global issue and it needs a global answer.”
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About Bankers without Boundaries
Bankers Without Boundaries (‘BwB’), an innovator in finance, is a not-for-profit powered by former investment bankers to assist high impact projects that benefit the environment and social good. BwB works with governments, institutions, cities and foundations to provide advisory and research services to mobilize capital. We apply financial concepts and structuring expertise to projects to align them with the investment needs of capital markets, considering risk reduction, the scaling and generation of financial returns, alongside broader positive co-benefits and impacts.
About Terraformation
Forests are the only carbon capture system ready to remove gigatons of carbon from the atmosphere today to help solve climate change.
They are powered entirely by renewable energy—sunlight and water—and come in varieties uniquely adapted to every location on the planet. In addition to immediate scalability, forests offer a range of co-benefits, including cleaner air and water, restoration of biodiversity, and economic growth.
Terraformation is dedicated to restoring the planet’s forests to help solve climate change. The company builds and deploys tools to tackle the largest bottlenecks to mass scale reforestation. Its technology includes off-grid seed banks that process and store millions of seeds, tracking and monitoring platforms to enable project transparency, solar-powered desalination, and more. Its current partner network spans five continents, including in South America, East Africa, and Central Asia, and includes public- and private-sector landowners and organizations.
Terraformation’s goal in 2022 is to establish the world’s largest decentralized native seed banking network.
Bankers Without Boundaries (‘BwB’), an innovator in finance, is a not-for-profit powered by former investment bankers to assist high impact projects that benefit the environment and social good. BwB works with governments, institutions, cities and foundations to provide advisory and research services to mobilize capital. We apply financial concepts and structuring expertise to projects to align them with the investment needs of capital markets, considering risk reduction, the scaling and generation of financial returns, alongside broader positive co-benefits and impacts.
About Terraformation
Forests are the only carbon capture system ready to remove gigatons of carbon from the atmosphere today to help solve climate change.
They are powered entirely by renewable energy—sunlight and water—and come in varieties uniquely adapted to every location on the planet. In addition to immediate scalability, forests offer a range of co-benefits, including cleaner air and water, restoration of biodiversity, and economic growth.
Terraformation is dedicated to restoring the planet’s forests to help solve climate change. The company builds and deploys tools to tackle the largest bottlenecks to mass scale reforestation. Its technology includes off-grid seed banks that process and store millions of seeds, tracking and monitoring platforms to enable project transparency, solar-powered desalination, and more. Its current partner network spans five continents, including in South America, East Africa, and Central Asia, and includes public- and private-sector landowners and organizations.
Terraformation’s goal in 2022 is to establish the world’s largest decentralized native seed banking network.
MEDIA CONTACTS
Angela Jo Tu, Head of Brand Marketing, Terraformation; angela@terraformation.com
Headland Consultancy, Terraformation@headlandconsultancy.com
Angela Jo Tu, Head of Brand Marketing, Terraformation; angela@terraformation.com
Headland Consultancy, Terraformation@headlandconsultancy.com