“Financialisation” of Africa’s forests is driving inequality, says report

The IUFRO argues that financial actors and shareholders are more often interested in short-term profits than long-term just and sustainable forest governance.

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Image : Kola Sulaimon /AFP

Market-based approaches to forest governance, such as forest carbon trading and deforestation-free supply chains, have proved largely ineffective in protecting forests or reducing poverty, according to a report by the International Union of Forest Research Organizations (IUFRO)

“Market-based approaches to forest governance such as forest carbon trading and zero deforestation supply chains are becoming an increasingly popular pathway for forest governance and finance, but unfortunately, as the report shows, they risk perpetuating inequalities and producing perverse effects on sustainable forest management,” says Constance McDermott, professor at the University of Oxford and lead author of the report.

“The evidence does not support the claim of win-wins or triple wins for environment, economy and people often made for market mechanisms as a policy response to environmental problems,” adds Maria Brockhaus, professor at the University of Helsinki and contributing author.

An economic goldmine?

Market-based approaches to forest governance, such as exploiting the value of Africa’s carbon sinks, have been lauded by African leaders.

“The restoration and expansion of Africa’s natural carbon sinks are not just an environmental imperative, but an unparalleled economic goldmine,” said Kenyan President William Ruto at the Africa Climate Summit 2023.

“They have the potential to absorb millions of tonnes of CO₂ annually, which can translate into billions of dollars to improve livelihoods and millions of opportunities across the continent. And all of this comes while safeguarding our rich biodiversity”, he added.

The market for carbon credits could be worth upward of $50bn in 2030, according to a McKinsey report. It also predicts that demand for carbon credits could increase 15-fold or more by 2030, and potentially 100-fold by 2050.

Cautious approach required

But the report points out that, instead of providing a solution, market mechanisms can drive inequalities.

“The increasing urgency of the climate crisis has influenced the commodification of forests for their carbon sequestration potential. This has led to the rise of new markets for carbon and biodiversity that often focus on short-term economic gains over long-term sustainability and justice. Finance that includes philanthropic and community-led mechanisms offer a just alternative, but so far, have played a limited role,” says Dr Nelson Grima, deputy coordinator of IUFRO’s science policy programme.

The IUFRO argues that financial actors and shareholders are more often interested in short-term profits than long-term just and sustainable forest governance.

“The growing financialisation of the forest sector has led to short-term gains for financial actors, neglecting inequalities,” the report argues.

A $120m REDD+ financed project in the Democratic Republic of Congo “reinforced entrenched interests” by restricting local people’s access to forests without tackling logging by powerful extractive companies.

In Ghana, deforestation rates had risen despite a slew of sustainable cocoa standards, corporate pledges, and carbon offset projects, while farmers were earning less today than decades ago, said McDermott.

“Wins are often gained elsewhere, while the burdens of forest loss, enclosures and forestland conversion are carried locally,” said Brockhaus.

Holistic view of forests needed

The report authors argue that the financial value of forests is only one thing that should be taken into consideration when governments assess their underlying value.

“Measuring governance has mainly been related to the deforestation rate as the main indicator. However, forests provide many goods and services essential for people, which is why the effectiveness of international forest governance should also be measured against these needs,” said Daniela Kleinschmit, professor at Freiburg University, vice-president of IUFRO and main lead author of the report.

“Regardless of the finance sources, the underlying common ground must be to pursue social inclusion, redress social-environmental injustice, protect the land rights of resource-dependent communities, and support the transition towards a more just ecological future”, added Franklin Obeng-Odoom, professor at the University of Helsinki and lead author of the report.

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Adam Saidane