Delano attended the “Seeing the Forest through the Trees: Innovative Financial Services for Forestry Value Chains” panel at the European Microfinance Week, hosted by e-MFP at Neumünster Abbey on 16 November 2023. Pictured: Kaspar Wansleben (Investing for Development Sicav / LMDF & FCCF). Photo: Romain Gamba/Maison Moderne

Delano attended the “Seeing the Forest through the Trees: Innovative Financial Services for Forestry Value Chains” panel at the European Microfinance Week, hosted by e-MFP at Neumünster Abbey on 16 November 2023. Pictured: Kaspar Wansleben (Investing for Development Sicav / LMDF & FCCF). Photo: Romain Gamba/Maison Moderne

A recent panel explored the challenges and unexpected opportunities when exploiting various types of forests and their derived products, all while adopting an investment approach that is “by definition” inclusive as people are an integral part of sustainable solutions.

“A diverse assembly of trees, which is a forest, is very essential when we speak about biodiversity,” said Kaspar Wansleben, executive director at Investing for Development Sicav / LMDF & FCCF, during the European Microfinance Conference Week, hosted by the European Microfinance Platform (e-MFP), which took place on 15-16 November. “It’s actually quite hard to [reflect] that into tangible [financial] products.”

Moreover, Wansleben explained that it is “quite hard” to find microfinance institutions, or MFIs, “working with trees” and it’s “even more challenging” with forests. The Paris Accord was the catalyst that contributed to the creation in 2017 of their Forestry and Climate Change Fund (FCCF).

A three-dimensional approach

“The first articulation of our strategy is to say, we will need to think increasingly about restoration strategies,” said Wansleben. The reality is that a pristine tropical forest is a foregone image for most of them. He commented that their goal is to articulate their positive impact around sustainable development goal (SDG) 13, which focuses on climate action, the Paris Accord and SDG 15, which relates to life on land. He acknowledged the “very ambitious targets,” but argued that “we need to save and restore those ecosystems, because they are of such a tremendous value collectively to all of us.”

The second articulation is about writing a business model “around a value chain” that we “can understand, analyse, predict, finance and attach risk to,” stated Wansleben.

The third articulation is about “inclusive green finance.” It is “particularly important in this industry” as the conservation movement tends to disregard people in favour of establishing national parks, more marine protected areas and to ensure that 30% of the planet's surface is not touched by man. “That, by definition, is not very inclusive.”

Wansleben observed that valuation for degraded and the least valuable land has been going up on speculation that they could be considered as stores of carbon for carbon projects. He referred to , a company based in Colombia which operates such a business model and is not in line with FCCF approach as they are not seen as inclusive, “by definition.”

How to be inclusive while protecting forests?

“We never buy into, we always work with the communities, managing forests, we always work with small forest owners… diverse small producers, communities… to try to include them in these productive systems,” said Wansleben.

He explained that the role of FCCF in the forest value chain starts with the sustainable management of forests by getting legal documentation in order. This can include forest permits, management plans and certification schemes.

Through the financing of various businesses involved in tree harvesting, milling, wood drying or the manufacturing of transformed products (such as flooring, decking, construction panels, etc.), FCCF tries to influence behaviour away from informal channels and foster inclusion.

Positive reinforcement mechanism between the inclusivity and sustainability

Wansleben told the story of Guatemala, which, after the war entrusted its land and forests to the people under a concession scheme. “At the time, they weren’t quite sure what the outcome would be.”

The vast majority of tropical and subtropical countries today are completely dominated by informality
Kaspar Wansleben

Kaspar Wanslebenexecutive directorInvesting for Development Sicav / LMDF & FCCF

Separately, the government also set up “a whole series” of national parks around protected areas. Amazingly, 25 to 30 years later, it is acknowledged that the forests given to the people are nowadays feeding thousands of people and are considered as “very well protected and sustainably managed.”

On the other hand, publicly administrated lands suffer from a lack of resources from the government to effectively protect the forests. Consequently, it is “a disaster with narco traffic and all kinds of disastrous effects… including corruption problems.”

Walking a tightrope in informal economies

“The vast majority of tropical and subtropical countries today are completely dominated by informality,” said Wansleben. The challenge for MFIs is to navigate an environment whereby the reality on the ground, which he described as “very informal, fluid and elastic,” is far from the rules, laws and regulations dictated by the government.

Contrary to the coffee or cocoa businesses where end-buyers are expecting a certain level of “formality, legality and sustainability,” Wansleben reflected on the difficulty of competing with informal markets in the wood sector as it “influences market prices.” He sees the effort by European Union positively, through its , covered in  by Delano, to provide a level playing field.

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Integrating biodiversity as a key criterion in their process requires FCCF to be attentive to the “life side” that supports a diverse ecosystem. Wansleben reminded the audience that Europe has only 40 tree species, “all of them marketable,” compared to 120 to 150 tree species in Central America. “This diversity creates big challenges along the value chain” as there is little demand for unknown species.

Moreover, he explained that FCCF cannot manage a forest like a plantation. “The forest only remains a forest if the canopy continues… I need to harvest very selectively and sustainably… with high unit cost,” said Wansleben.

“The higher the ecological value of what I’m dealing with, the more complex the value chain, and the less competitive I am against an intensive production mode.” Despite being a low labour cost country, Guatemala cannot compete against large-scale plantations based in Chile or Canada.

, a tropical hardwood species, “is very, very, very hard to grow in a plantation.” Wansleben noted that those natural systems “produce fantastic things which are not so easy to just copy and paste in monoculture conditions.”

Enforcing biodiversity

He observed that some other funds are adopting an indirect approach by financing Brazilian farmers to produce cattle or soy, as long as they leave the forest on their land alone. They then control the size of the forest through a satellite monitoring system. It enables financial institutions--large and small--to improve their green credentials “as a sort of do no harm approach, but positively pushed.”

Wansleben explained that “intensive production systems are increasingly facing the limitations.” The recent resulted in “significant” damage to plantations. It shows that the plantations “are also fragile” and that there may be a “natural push into more diverse systems because they’re also more resilient.”

This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .