Mechanisms to Encourage Private Capital Investment in the Environmental Services of Forests

Forests provide many ecological and environmental services that are unrecognized by financial markets. Yet recent research indicates that if these services were priced, their value could contribute substantially to achieving sustainable forest management. The recognition by the Kyoto Protocol of a limited role for forests in efforts to address climate change has provided a foundation for innovation and commercial development of a market for an environmental service from forests. The conceptual work is now expanding to include potential markets for the recovery of land degradation and the conservation of biodiversity. However, the challenges in establishing these new ‘environmental infrastructure' funds is the same as traditional forestry investment. Projects and investments must have a sound legal and regulatory base, commercial returns, effective investment structures, and strategies to address risk and uncertainty.