The forest-related finance landscape and potential for just investments

Over the past decade, the forest1-related finance landscape has further grown in complexity. While public and private sources provide financial incentives in support of forested lands and forest-reliant people, financial interests simultaneously drive forest conversion and its attendant negative impacts on society and nature. In this Chapter, we examine the implications of current forest-related finance landscape on social and environmental justice and pathways that could fundamentally transform this financial landscape. Based on a careful review of studies, we find an orchestra of forest-related finance – to halt deforestation and degradation, as well as to grow trees and forests. Part of this finance is led by states (e.g., through taxes, loans, grants), while others are based on markets (e.g., equities), philanthropy (e.g., grants), or community-led finance. The related finance instruments range from those that adjust or augment markets (e.g., carbon tax and land tax) to those that create new markets (e.g., emissions trading schemes). Finance related to markets and a growing financialisation of the forest sector (and forest lands) that prioritises short-term financial gains have been criticised for either neglecting, or perpetuating inequalities, and have been shown to be a major driver of deforestation and biodiversity loss. Alternative finance that includes global mechanisms, state-based tax mechanisms, philanthropy, and community-led mechanisms that aim explicitly for social and environmental justice may be more effective to directly redress inequalities and tackle the driving forces behind the triple problem of deforestation, biodiversity loss, and unsustainability. The review of the literature indicates that market-adjusting and -augmenting measures persist, alongside a rapid rise of market-creating sources of finance. Alternative, just finance and the financing of market-resisting activities to halt forest loss and enable reforestation are, at present, still marginal.

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