Investing in the forest value chain

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1 Investing in the forest value chain realising the commercial and environmental potential of forest resources With EUR 4.5bn invested in the forestry value chain between 2011 and 2015, the EIB is one of the largest global financiers of this important sector. Forestry and agriculture are at the heart of our efforts to support sustainable landscapes, foster rural economic growth and employment, and strengthen the availability of a range of key renewable resources. Forests and forest-based biomass are critical to efforts to decarbonise the global economy, and central to meeting the growing demand for innovative biomaterials. Forestry contributes to a range of EU policies, including rural development, renewable energy, development cooperation, biodiversity protection and climate action. Forests play an important kt of CO2 equivalent sequestered by our forest sector projects each year EUR 4.5 bn financing investments throughout the forest value chain from 2011 to 2015 role in maintaining soil health, reducing soil erosion and mitigating flood risks. They are also important carbon sinks, sequestering additional carbon as they grow. The recreational and amenity value of forests is extensive and varied, from hunting, tourism and non-timber forest products to health, wellbeing and enjoyment. The EIB: the EU bank Owned by the 28 EU Member States, the EIB supports public and private sector projects, which help to further EU policy objectives. The Bank provides a range of funding solutions and can finance up to 50% of the total project cost. Loans can be granted directly to large projects, whilst smaller operations are supported through a network of local partner banks in the EU and our partner countries.

2 ha of degraded or damaged forests rehabilitated by our projects each year full time equivalent (FTE) permanent jobs created by projects signed between 2011 and ha of new forest plantations established by our projects each year FTE temporary jobs created during implementation of operations signed between 2011 and 2015 Our activities support the full forest value chain from production to processing and research, development and innovation. We can finance both public and private sector entities, including timberland funds. Throughout its lending, the Bank supports the EU Forestry Strategy and the EU Forest Action Plan, which frame EU forestry policy; as well as the EU Timber Regulation and Forest Law Enforcement, Governance and Trade (FLEGT) Initiative for tackling illegal logging and improving timber traceability. Increased consumption of sustainably sourced wood products and bioenergy could offer economic and environmental gains if the principles of sustainable forest management and sound bioenergy production are respected. These include achieving a careful balance between society s increasing demand for wood products and benefits, and the protection and promotion of forest health, biodiversity and regenerative capacity. Conservation and management practices need to be environmentally, socially and economically sustainable, thus generating and maintaining benefits for both present and future generations. The EIB Group does not support conversion of natural forest to plantations, or commercial logging in primary tropical and subtropical forests. High conservation value forests must be protected regardless of their location. We require that all the forest projects we support be certifiable according to international third-party accredited best practice standards in order to ensure sustainable management of forests and increased wood mobilisation from sustainable sources. A flexible EIB offer, meeting needs across the entire forest value chain The Bank s lending to the forestry sector includes planting activities, forest rehabilitation and protection (including disaster recovery), wood processing and RDI (research, development and innovation). Eligible activities cover the full forest value chain, from site preparation for planting to the production of timber, paper, packaging and energy. The investment needs of the forest sector vary widely depending on project scale and the position in the value chain. To meet client- and project-specific needs, the EIB offers tailored products, from large-scale capital investments to guarantee schemes for small farmers and intermediated lending solutions for small businesses as well as research and development programmes. Over the five-year period , the Bank lent EUR 4.5bn to forest sector projects in the EU and around the world. This includes EUR 2.0bn for intermediated loans to SMEs in the sector, and EUR 2.5bn for standalone public and private sector operations. 2 The EIB and the forest sector

3 Investing in the forest value chain: realising the commercial and environmental potential of forest resources Further details: Kempeneers, P. et al. (2011); Päivinen, R. et al. (2001); and Schuck, A. et al (2002) Financial backing for the EU Forest Strategy Forests cover 33% of Europe s total land area and the forest area continues to increase¹. Managing forests carefully can help tackle erosion, flash-flooding and landslides. Alongside the considerable financial and cash returns that well-managed forest investments can deliver, they have a disproportionately important role to play in biodiversity conservation. About 50% of European forests are designated for the protection of water, soil and ecosystems, as well as the protection of infrastructure and managed natural resources. In addition, a significant proportion of the EU s forests have been designated as Natura 2000 areas. In September 2013, the European Commission published a new Forest Strategy in response to emerging challenges facing forests and the forest sector. The strategy, which was welcomed by the Council in May 2014, takes a holistic look at the forest sector, recognising the EU s forests as a resource for improving quality of life and creating jobs, while also protecting ecosystems and providing global ecological benefits. It is complemented by a Blueprint for Forest Industries which outlines the remedial activities that could be undertaken to help EU s forest-based industries to overcome their current commercial challenges. The EIB seeks to support the implementation of the 2013 EU Forest Sector Strategy and the Blueprint for Forest Industries within the EU, financing projects at all steps in the value chain. The Bank stands ready to co-finance national and regional Operational Programmes as they relate to forests and forestry, blending loan finance with support from the Structural and Investment Funds, LIFE and Horizon Outside Europe, the Bank promotes operations in line with the EU s FLEGT Initiative. ¹ State of Europe s Forests 2015 ( The EIB and the forest sector 3

4 A sound investment The value of timberland investments worldwide has risen steadily over the past 25 years and is now estimated to exceed EUR 55bn. Institutional investors have emerged as a major source of capital for the expansion and growth of the forestry sector. Timberland has an attractive riskreturn profile, particularly in the current era of low bond returns. More than ever before, forest assets are earning their place in wider investment portfolios as a counter-cyclical hedge against inflation, offering a range of tangible environmental and social benefits which are attractive to shareholders and to the wider public. Overcoming fragmented ownership for long-term profit sharing Forest ownership and management in many European countries is highly fragmented. About 60% of European forests are privately owned and national inventories indicate that a large share of the unused biomass can be found in small-scale or fragmented private forests. Efforts to rationalise unfavourable ownership structures can be applied to facilitate management, resulting in improved long-term profit sharing. The voluntary formation of forest owner groupings and improved collaboration between actors in the sector are important success factors for increased sustainable wood mobilisation. Efforts to tackle this include land consolidation programmes which facilitate the acquisition or swapping of parcels to promote more contiguous ownership and management; and timberland funds which allow the outsourcing of management and use rights for a defined period of time. Forests: at the heart of the bioeconomy As the world aspires to decarbonise the global economy by 2050, to limit global warming to 2 degrees centigrade, and with the growing demand for bioenergy, innovative biomaterials and wood-based construction systems replacing carbon-intensive steel and concrete, future demands for timber biomass are expected to far outstrip supply. Research, development and innovation on the use of forest-based resources to develop new ingredients and materials are crucial; but securing the supply of those raw materials is just as important. Investments in protecting remaining natural forests, rehabilitating degraded and secondary forests, ensuring productivity gains on existing plantations, and expanding the area of sustainably planned and managed forest plantations around the world are essential to meet the needs of the future bioeconomy. A growing resource to meet growing demand Forests and other wooded land account for over 40% of the EU s land area. In recent decades, afforestation and natural succession have increased this area by approximately 0.4% annually. The standing volume of the EU s forests is also rising, with only 60% of the annual increment being harvested. In parallel, global demand for wood, renewable fibre and other forest products continues to grow steadily at an annual rate of 3%². This demand is driven primarily by biodegradable packaging, soft tissue products and renewable energy. ² The EU Forest Strategy 2013: 4 The EIB and the forest sector

5 Investing in the forest value chain: realising the commercial and environmental potential of forest resources Forests: central to meeting the climate challenge Forests play a major role in climate change mitigation, by storing carbon in trees and soil, and adaptation, through reducing risks of erosion, flooding and landslides. The increased utilisation of wood as a renewable raw material and for energy generation offers opportunities for Europe to contribute to a more renewable energy future and thus to reduce its greenhouse gas emissions, to secure its energy supply and to maintain competitiveness. Innovating for renewable energy The burning of wood in its various forms is still by far the biggest source of renewable energy in the EU, with half of the EU s total renewable energy consumption being derived from forest biomass. According to EU Member States National Renewable Energy Action Plans, biomass used for heating, cooling, electricity and transport would supply about 42% of the 20% renewable energy target for This is equivalent to today s total EU wood harvest. Gaining the right balance between the sustainable increase of timber harvesting and wood mobilisation within the EU and growth in imports is critical. Moreover, while innovations and new technologies increase opportunities to process wood and fibre into higher value goods, wood by-products and residues also can be utilised for renewable energy. Promising pathways include biorefineries for new bio-based renewable materials such as advanced second generation biofuels. Growth and employment for the rural economy: the products delivered by forests Forests contribute to the economic development of rural areas and provide around 3 million jobs in the EU. Wood is still the main source of financial revenue from forests, supplying sawmills, panel board and other construction materials manufacturers, pellets and wood chips for bioenergy production, and the pulp and paper industry. In addition, a range of non-wood forest products and ecosystem services from pine nuts and mushroom picking to Christmas trees, recreation and carbon storage offer significant economic and often locally targeted financial returns from forests. In many parts of the world, forests have a role to play in food security and nutrition which can be particularly important during poor harvest years, both through the foodstuffs that can be gathered for direct consumption, and the cash that can be generated through sale of non-wood forest products. The most important source of forest sector financing within the EU is the EU s Common Agriculture Policy via the Rural Development Programmes (RDPs), and the EIB actively co-finances the forest-related measures under the RDPs in several EU Member States. The EIB s rollout of the European Fund for Strategic Investment (EFSI) includes forest sector investments, extending EFSI s coverage of rural Europe. The EIB and the forest sector 5

6 The EIB in action Coillte Sustainable Forestry, Ireland: a new chapter in the story of the EIB s support for the Irish forest value chain The EIB is financing Coillte Teoranta, the Irish state-owned forestry company, in its forestry operations for the period. This will entail the replanting of existing forest stands over approximately ha, nurseries, road improvements, and the maintenance and upgrading of km of publicly accessible walking routes and mountain bike trails in various locations around Coillte s fully FSC certified ha estate. The company is the custodian of significant biodiversity resources, and is responsible for many amenity and recreation sites which are valued both by local communities and tourists from further afield. This operation represents a welcome resumption of the EIB s support for the sector in Ireland: alongside CAP support, we helped to finance the country s afforestation programmes with a series of loans through the 1980s and 1990s, which are now the basis for a vibrant indigenous industry, a valued amenity and recreational resource, and one of the fastestgrowing forest estates in Europe. In addition we supported the development of the Medite MDF manufacturing facility with a loan of IEP 11m in Annual afforestation in Ireland Corticeira Amorim RDI, Portugal Our EUR 35m investment is supporting Amorim s RDI investment programme for innovation and product development in the cork industry, including energy efficiency, environmental protection and safety. Source: Ireland s Forests - Annual Statistics The EIB and the forest sector

7 Investing in the forest value chain: realising the commercial and environmental potential of forest resources Sustainable forestry fund in Latin America and Africa The EIB committed EUR 24m in the Arbaro Fund, a forestry fund targeting sustainable forestry projects in Latin America and Africa. The fund combats the impact of climate change by protecting soils and sequestering carbon, and supports socio-economic development in rural areas. It invests in existing forest plantations as well as in the establishment and management of new plantations, with a strong commitment to sustainability and certification. When fully invested and implemented (EUR 200m investment volume), the fund manager estimates that the fund will contribute to the creation of over jobs, including upstream and downstream in small-scale nurseries and wood processing facilities, and sequester more than 50 million tonnes of CO2 eq in total. Rural development programme, Slovakia In March 2014 the EIB signed its first ever rural development and forestry loan in support of the Slovak Ministry of Agriculture and Rural Development s inaugural comprehensive rural development programme. EUR 120m in EIB financing will contribute to the upgrading of agricultural infrastructure, afforestation projects, and improved forest protection and management. The project s final beneficiaries represent a wide range of public and private entities, including over farmers whose land will benefit from the modernisation of on-farm facilities to improve the environmental performance of farms. Dasos Timberland Funds: timberland asset class pioneers in Europe and beyond The EIB financed the Dasos Timberland Fund with EUR 20m in 2009, later investing EUR 30m in 2013 in its successor Fund, followed by a further EUR 28.5m co-investment commitment by the EIB. Dasos Timberland Fund targets sustainable forestry investments both within and beyond the EU, and is a European pioneer of the timberland asset class, which is well-established in North America. Dasos aims to build a portfolio of sustainable forestry assets, diversified by geography, age, wood fibre and end-use market. Value added is created through sustainable forest management, consolidation of forestry properties, and enhancement of operational efficiency. The EIB and the forest sector 7

8 Investing in the forest value chain Forestry Framework Loans, China The EIB is currently financing a total of 14 forestry projects in China, encompassing approximately ha of a variety of different plantation types, and rehabilitation of existing forests. These are organised under two framework loans and one individual operation in Sichuan following the 2008 earthquake there. The total committed EIB loan amount stands at EUR 580m, with a total investment cost of approximately twice this amount. The implementation of these various projects is estimated to generate hundreds of thousands of jobs, and the portfolio as a whole sequesters approximately 1 million tonnes of CO2 equivalent each year. European Investment Bank , boulevard Konrad Adenauer L-2950 Luxembourg Information Desk U info@eib.org twitter.com/eib facebook.com/europeaninvestmentbank youtube.com/eibtheeubank EIB 02/2017 print: QH EN-C ISBN doi: /3826 EIB GraphicTeam, EIB photolibrary, Shutterstock, Corticeira Amorim SGPS, S.A. digital: QH EN-N ISBN doi: /618810