Making the business of forest ecosystem services work

Photo by Lukas on Jooinn

Thursday 25 March 2020, 10:30 – 17:00 CET

A virtual learning lab on business and financing for forest ecosystem services brought together SINCERE practice partners, researchers and external stakeholders in a lively online workshop.

The learning lab “Making the Business of Forest Ecosystem Services (FES) Work”, organised by Prospex Institute and the University of Copenhagen, facilitated cross fertilization within the SINCERE innovation actions and with external parties on the topics of FES finance and business case development. In addition, key learning outcomes were identified from the SINCERE consortium and beyond. More specifically, the lab focused on:

  • Business models: income streams,
  • Reverse auctions as a novel instrument for FES, and
  • The landscape of financing for FES.

The learning lab was hosted and mediated by Marc Gramberger from the Prospex Institute. The SINCERE project was introduced by Jeanne-Lazya Roux, who explained the project’s aims to review and analyse innovations in relationship to forest ecosystem services. This is being achieved through implementing a eleven Innovation Action case studies across Europe and in beyond which allow learning and sharing of transferable innovative mechanisms to help forest ecosystem service provision.

Business models: income streams

Pia Katila, Senior Scientist at the Natural Resources Institute of Finland (LUKE) presented an overview of the different income streams for funding FES identified by SINCERE’s 9 of the 11 case studies.  The following incentive mechanisms were identified:

  • Reverse Auctions: The forest owners will put forward offers/bids to the contractor, these bids represent the prices at which the land owners are willing to sell goods and services, i.e. in the case of forest protection the prices at which they would give up harvesting rights. The best fitting offers will be awarded the contract.
  • Payment- Market Orientation: Payment for a clearly defined service with a close market connection, such as mushroom picking licences or funeral forests.
  • Market-based compensation: Compensation for the lost revenue due to change in forest management. Funding was collected through donations from tourists and visitors.
  • Payment/Benefits with ‘Administrative Pricing’: Payment comes from those who benefit from FES such as city water utilities or park users who need to apply for permits.

These mechanisms present valuable opportunities for income generation, sustainable business and replication. Local level initiatives involving marketable products, strong leadership and history with collaboration are relatively easier to develop, while initiatives involving extensive areas with multiple stakeholders are more challenging. Bundling of multiple FES can provide possibilities to increase incomes from the forests.

Income streams in practice

Andreas Bernasconi from PanBern, Switzerland, summarised the success of Funeral Forests as a form of FES. In recent years the business has grown to three site locations, with estimates that the funeral forest scheme generates between 5-20x the income in comparison to normal forestry practices.

Juhani Pyykonen from the Finnish Forest Center demonstrated that funding is not always straightforward for FES. In the case of the market-based compensation used in the Finland case for example, estimated around 10,000 euros in donations from a mailing list of 1.5 million people who were contacted to raise money for the location. Instead only 1,000 euros was raised from 50 donations. Mr. Pyykonen highlighted the key role that a group of around 50 local people played in the campaign and design of the project. This demonstrated that local grassroot level support can be more successful than tourist market-based compensation alone.

Enrico Vidale, Technical consultant at Consorzio Comunalie Parmensi, Italy, demonstrated how cultural services provided by forests need to adapt to younger generations in order to maintain forest income. For example, in previous years, permits were offered at a restricted time in a specific location which did not foster a good relationship with the younger forest users. To overcome, this Fungo di Borgotaro created an app for permit purchasing at any time. This has increased permit applications and therefore improves funding.

The interactive exchange during the learning lab highlighted the key role that personal values of forest owners can play in increasing forest benefits. Combining different forest ecosystem services such as carbon credits, funerals etc. provides opportunities, however, this may lead to an increase in the value of some services provided by the forests while reducing the effectiveness of conservation measures. It was concluded that carefully weighing health and cultural ecosystem services in comparison to the use of forest for nature conservation is highly important.

Reverse auctions as a novel instrument for FES – experiences from SINCERE case studies

Thomas Lundhede, from the University of Copenhagen described how the Danish case study used reverse auctions as an instrument for obtaining ecosystem services from forests. The reverse auction system is new to Denmark as a way of obtaining land for conservation, and with the government pledging to set aside 12% of Danish forestry for nature conservation, reverse auctions may offer a more affordable way of conserving nature.  The case study had 60,000kr to acquire land. In order to get the highest quality for the best price, land owners were encouraged to put forward their own conservation actions.  Out of the 24 bids, 8 land owners were offered contracts. One of the reasons this form of reverse bid was so successful was that these actions were considered less restrictive than government set aside schemes for land owners.

Alexander Therry, from Natuurinvest represented the Belgian case study and one of the aims was to support initiatives without subsidy in the most cost-efficient way. The case study highlighted that although hunters play a role in nature management, there are few income streams which recognise this. Therefore, the case studies aimed to fill this gap by implementing two key FES via reverse auction: wild boar buffers which are strips of low vegetation between farmland and forest boarders, and habitat restoration in forested hunting areas. Due to the controversy around hunting at the time of the project proposal, there were insufficient biddings for the wild boar buffers and the case study could not go ahead. However, the habitat restoration proved more successful based on the price and qualitative criteria. In total 15 proposals were selected and this is due to be approved by January 2022.

Dan Burgar Kuželički, from the Slovenian ministry of agriculture, Forestry and Food highlighted the potential of reverse auctions, particularly in terms of land owners evaluating the value of their own land and what they can offer nature. This can help form policy incentives, in some cases forest owners are not interested in subsidies so this may result in disengagement. Concerns brought forward included the use of long-term contracts and the ability to scale up the process of reverse auctions.  In particular with regards to the auditing process used to assess the success of the SINCERE case studies in terms of conserved/improved FES. Ensuring consistency is difficult to achieve at scale but necessary when funded by public finance.

The landscape of financing for FES

Bo Jellesmark Thorsen from the University of Copenhagen, presented an overview of the financing landscape for FES. Regulation varies across the EU which can have significant consequences for the legal basis for policy instruments as well as their political popularity. This has been demonstrated to influence who is perceived as responsible for financing ecosystem services. An uptake in social responsibility from the private sector, driven by tax breaks and consumer demands are emerging, giving rise to an increased demand for financing opportunities for forest owners and public-private sector cooperation.

Additionally, Bo Jellesmark, presented in place of Flemming Nielsen the Director of The Danish Nature Fund.  The Danish Nature fund collaborates public-private funding to manage forests and improve FES. The funding comes from two conservation organisations, the Villum Foundation and Aage V. Jensen Nature Foundation alongside public funding. Flemming’s presentation highlights further opportunities for public-private funding with the use of tax breaks. Tax breaks can be given to businesses in exchange for the financing of biodiversity and environmental conservation, therefore this also offers an opportunity for income streams for funding FES.

Nuno Oliveira, Natural Business Intelligence (NBI) highlights this opportunity to increase investment in FES from a business perspective. NBI aims to bridge the gap between scientific knowledge and strategic management. Creating a business opportunity in a way which is clear to the financial and business sectors is key to success, Nuno highlights that speaking the language of business can create opportunities for conservation.

The session concluded by acknowledging the power of practical examples in terms of reverse auctions and successful demonstrations of FES as a business strategy for both land owners and policy makers.

For more information visit SINCERE website here.

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