"REDD and the Private Sector"
December 2008
by Pavan Sukhdev
Ecosystem Losses and Climate Change are both big problems. REDD( a proposed scheme for Reduced Emissions from Deforestation and Forest Degradation) has the potential to be a big global solution, but it needs much hard work to make it succeed, and some of this may have to come from the Private Sector.
What can the Private Sector do to help make REDD real ?
Corporations, investors, carbon market intermediaries, and insurers are rightly expressing great interest in REDD. Up till now, the private sector has played a significant role in developing climate change mitigation. In the developed world, Corporations have invested in improving the energy efficiency and GHG intensity of their industrial processes, and in substituting fossil fuels with renewable energy. In the developing world Corporations have invested in technologies for reducing emissions through the Clean Development Mechanism (CDM).
However, with trillions of dollars still needed to address climate change, the financial resources, organizational capacity and human capability of the private sector becomes essential. In particular through REDD there is an opportunity for companies to have a wider and more holistic effect on mitigating climate change.
There is potential for private financing to shift from an end-based technology focused approach to having a more equitable and broad-based impact through its investments. The current REDD structure being discussed allows for the private sector to engage with a diverse set of stakeholders including NGOs, scientists and local and national governments. Companies already present in countries such as Indonesia, Brazil, India and many others, which have high biodiversity rates with threatened landscapes can directly finance projects conserving standing forests, afforestation and reforestation.
Direct payment schemes within the voluntary nature of REDD or payments through a national structure under a regulated market approach can have a real benefit for farmers and forest users when communities are paid, through corporate investments, to preserve peat lands, mangroves, etc. There is potential for a pro-poor dimension in climate change and CSR that the private sector can foster through its investments. Some international firms have already begun to take on REDD eligible investments.
In their pursuit of profit and their management of risk, the private sector has developed people skills and process efficiencies which enable it to carry out very complex tasks whilst limiting its bureaucratic burden. This sector can be an efficient and effective implementer of climate change initiatives if invited to the fray. It has administrative capacity, managerial and financial skills, and capital raising capacity which can and should be contracted for REDD-related work. For example, work on framework & systems design, on project design, project implementation and management, and indeed on setting up and running the arms-length evaluation, monitoring and control mechanisms and infrastructures that are needed for REDD projects.
Insurance is another area of opportunity. In the context of the financial crisis, we must be realistic in our view of insurance capabilities, however, as has recently been said, if Tina Turner’s legs could be insured, why not forests ?
What does the Private Sector need from Governments and Agencies ?
To engage the Private Sector early, UNFCCC might consider (as we saw successfully done with its Clean Development Mechanism) incentives for early action, to attract private investors and kick-start pilot activities, even during the process of negotiation of a multilateral agreement. REDD policy should include the possibility of getting credit, based on clear criteria, for pilot investmentsundertaken today, so that countries and their financial partners have some prospect of recouping their investment through sales of pre-approved credits when an agreement is finally signed and comes into force.
There is much to be commended for a fund-based approach, but the challenge for the future is clear : REDD should be linked to a worldwide emissions trading scheme, a global market that delivers price discovery, transparency, and financing in an efficient way. Future REDD market development by the US and in the European Union are vital in this regard. If the EU ETS works towards tighter caps, I believe there is an opportunity for linking in forestry credits with EU-ETS without fear of “flooding the market”. We are still far from achieving that vision of a global REDD market, but the private sector looks forward to participate in and benefit from the orderly development of such a marketplace.
What does REDD have to do with Tomorrow’s Corporation ?
The private sector has taken much criticism for short-termism, for over-focus on profit-maximization at the cost of all other objectives, and for a lack of understanding of its detrimental impacts on ecosystems and biodiversity and thus also on human well-being. However, all that does not have to be the case.
Many leading CEO's today are aware of the costs to nature and to society (through pollution, emissions, and land-use change) that their operations can cause. They do take steps to reduce the negative impacts of their companies on nature and on society. Corporate investments in the social upliftment of the disadvantaged and the poor, and funding of nature conservation schemes, are often part of the Corporate Social Responsibility or CSR programmes. Voluntary REDD investments are among the best investments from this "CSR" perspective. If designed and managed appropriately - they can achieve community upliftment, nature conservation, and emissions mitigation - all in one go.
As the negotiation scenario unfolds here in Poznan, I believe there is much hope for a wide-ranging and purposeful business engagement with REDD. And this is not least because the Corporation itself is evolving. I believe that as 'Tomorrow's Corporation' emerges as a successful species, its success will mirror the greater willingness of its visionary CEO's to honour the main purpose of any Corporation, which is in fact the Community it was created to serve. In so doing, they will be creating something wondrous in the not too distant future, and that is a Society in Harmony with Nature.
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