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forestry

Mixed plantation forestry for sustainable commercial timber production

Photo by Shutterstock

Mixed plantation forestry for sustainable commercial timber production

Compare IOA
Country
Brazil
Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Renewable Resources and Alternative Energy
Sub Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Forestry and Paper
Indicative Return
Describes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
10% - 15% (in IRR)
Investment Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Medium Term (5–10 years)
Market Size
Describes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
> USD 1 billion
Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.
USD 500,000 - USD 1 million
Direct Impact
Describes the primary SDG(s) the IOA addresses.
Life on Land (SDG 15)
Indirect Impact
Describes the secondary SDG(s) the IOA addresses.
Responsible Consumption and Production (SDG 12) Climate Action (SDG 13)

Business Model Description

Invest in the breeding and planting of mixed (native & bulk) timber species over deforested land, and commercialize resultant sustainable timber to commodity markets

Expected Impact

Contribute to reforestation and reduce CO2 emissions

How is this information gathered?

Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.

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Disclaimer

UNDP, the Private Finance for the SDGs, and their affiliates (collectively “UNDP”) do not seek or solicit investment for programmes, projects, or opportunities described on this site (collectively “Programmes”) or any other Programmes, and nothing on this page should constitute a solicitation for investment. The actors listed on this site are not partners of UNDP, and their inclusion should not be construed as an endorsement or recommendation by UNDP for any relationship or investment.

The descriptions on this page are provided for informational purposes only. Only companies and enterprises that appear under the case study tab have been validated and vetted through UNDP programmes such as the Growth Stage Impact Ventures (GSIV), Business Call to Action (BCtA), or through other UN agencies. Even then, under no circumstances should their appearance on this website be construed as an endorsement for any relationship or investment. UNDP assumes no liability for investment losses directly or indirectly resulting from recommendations made, implied, or inferred by its research. Likewise, UNDP assumes no claim to investment gains directly or indirectly resulting from trading profits, investment management, or advisory fees obtained by following investment recommendations made, implied, or inferred by its research.

Investment involves risk, and all investments should be made with the supervision of a professional investment manager or advisor. The materials on the website are not an offer to sell or a solicitation of an offer to buy any investment, security, or commodity, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction.

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Country & Regions

Explore the country and target locations of the investment opportunity.
Country
Brazil
Region
  • Brazil: Minas Gerais
  • Brazil: Piauí
  • Brazil: Bahia
  • Brazil: Santa Catarina
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Sector Classification

Situate the investment opportunity within sustainability focused sector, subsector and industry classifications.
Sector

Renewable Resources and Alternative Energy

Development need
Sustainability Development Report 2019 gives a score of 91.7 on SDG 13 (Climate Action) for Brazil, with 'Significant challenges remaining' subscores prevalent across indicators. (1) Brazil faces the risk of an energy blackout over the next decade due to increased energy demand driven by population and economic growth (2)

Policy priority
Brazil's National Energy Plan (PNE 2030) stresses the need to meet the increased energy demand over the next years and to diversify the electricity mix, favoring renewable energy (3) (4)

Gender inequalities and marginalization issues
Research in Brazil demonstrates that in rural areas, girls are 59% more likely to complete primary education by the age of 18 if they have access to electricity, and that rural women & men are 10.2% more likely to be employed if they have access to electricity in comparison to their counterparts without access. (29)

Investment opportunities introduction
Increased policy momentum creates a strong context for new and enhanced investment, with the contribution of solar and wind towards the Brazilian energy matrix expected to grow to 44% by 2040, up from 4.4% in 2015 (5)

Key bottlenecks introduction
The key bottlenecks include small-scale illegal commercialization in forestry management, the large amount of capital required to set up businesses, bureaucratic decision making durations, the immediate profit motive encouraging short-term exploitation over long-term sustainability and the reduction of existing subsidies.

Sub Sector

Forestry and Paper

Development need
Deforestation is a prevalent issue across the Atlantic Forest and the Amazon. Cleared areas are often managed under degrading agricultural and livestock practices. (6) This phenomenon hurts biodiversity in forests like the Atlantic, which is the single Brazilian biome with the highest number of endangered fauna (7), and increases greenhouse gas emissions (6)

Policy priority
To deliver on the PNE 2030 and meet 2030 NDC aspirations, Brazil intends to restore and reforest 12 million hectares of forests by 2030. (8) The National Plan for Commercial Forestry aims to increase the country’s tree planting area by 20% until 2030. (9) There is a growing public sector interest in outsourcing forest management in Mata Atlantica and the Amazon.

Gender inequalities and marginalization issues
The Mata Atlântica is home to two indigenous groups: the Tupi and the Guarani. (27) Agroforestry is also a strong source of income for many women living in these areas. Industrial tree plantation should not induce land grabbing or the forced displacement of these groups.

Investment opportunities introduction
Programa ABC, Pronamp and Pronaf Eco are BNDES loans to investors in reforestation or forestry protection businesses (10) BNDES Climate Fund Facility lends at below-market rates (11) Private forest concessions are permitted and regulated by the Federal Government under the Law of Public Forest Management (12)

Key bottlenecks introduction
Small-scale illegal commercialization remains unchecked (tax evasion, labor rights, sustainable harvesting), driving the emergence of pockets of unfair competition. Market prices lack full transparency, given the floor set by illegal loggers (who represent over half of the market)

Industry

Forestry Management

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Pipeline Opportunity

Discover the investment opportunity and its corresponding business model.
Investment Opportunity Area

Mixed plantation forestry for sustainable commercial timber production

Business Model

Invest in the breeding and planting of mixed (native & bulk) timber species over deforested land, and commercialize resultant sustainable timber to commodity markets

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Business Case

Learn about the investment opportunity’s business metrics and market risks.

Market Size and Environment

Market Size (USD)
Describes the value in USD of a potential addressable market of the IOA.

> USD 1 billion

Institutional investments in mainstream reforestation today represent an industry of US$ 100 billion in the US and US$ 35 billion in Brazil (13)

Brazil currently has approximately 50 million hectares available for reforestation (areas not covered by either urban areas, forests or agriculture) (7)

The market for mixed species plantations has not yet been developed, given the absence of a proven model – until now

Indicative Return

IRR
Describes an expected annual rate of growth of the IOA investment.

10% - 15%

A benchmark investor is deploying this business model at an IRR of 11.7% and is showing potential to reach over 17% if operation is doubled (13)

Investment Timeframe

Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.

Medium Term (5–10 years)

While mixed species reforestation can include fast growing species that can be commercialized on an annual basis, higher quality timber will take 10-15 years to grow and generate returns (14)

Ticket Size

Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.

USD 500,000 - USD 1 million

Market Risks & Scale Obstacles

Business - Business Model Unproven

The suitable economic (e.g. calculation of return profile) and agronomic (e.g. identification of sustainable breeding and planting combinations) model hadn't been identified until recently, pioneered by Symbiosis Investimentos

Market - Volatile

Small-scale illegal commercialization remains unchecked (tax evasion, labor rights, sustainable harvesting), driving the emergence of pockets of unfair competition. Market prices lack full transparency, given the floor set by illegal loggers (who represent over half of the market)

Capital - CapEx Intensive

Large amount of start-up capital needed for R&D and species testing farms
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Impact Case

Read about impact metrics and social and environmental risks of the investment opportunity.

Sustainable Development Need

The deforestation rate of the Atlantic Forest in Brazil grew by nearly 60% between 2015-2016 and, though the pace has slowed down, over 11,000 hectares were destroyed between 2017-2018 (22) (8)

Deforestation has also hurt biodiversity: the Atlantic Forest is the Brazilian biome with the highest number of endangered fauna (23)

Gender & Marginalisation

Degraded landscapes damage ecosystems and reduce women's ability to get water, collect fuelwood, and gather food in such areas. Women are strongly involved in agroforestry activities (25)

Expected Development Outcome

Reduce deforestation from timbering activity by introducing a model that intensifies production and shortens the distance between breeding, planting and lumbering

Restore parts of the Atlantic Forest by replanting resilient native species. A benchmark investor, Symbiosis, is able to restore and conserve 2 ha of forest for every 3 ha planted (13)

Capture carbon dioxide at significant scale (24)

Gender & Marginalisation

Increase employment opportunities and the income for the women and the communities living around the Atlantic Forest

Primary SDGs addressed

Life on Land (SDG 15)
15 - Life on Land

15.1.1 Forest area as a proportion of total land area

15.1.2 Proportion of important sites for terrestrial and freshwater biodiversity that are covered by protected areas, by ecosystem type

15.3.1 Proportion of land that is degraded over total land area

15.a.1 (a) Official development assistance on conservation and sustainable use of biodiversity; and (b) revenue generated and finance mobilized from biodiversity-relevant economic instruments

Current Value

59.4% (28)

29.42% (28)

27% (28)

$178.20 million (28)

Secondary SDGs addressed

Responsible Consumption and Production (SDG 12)
12 - Responsible Consumption and Production
Climate Action (SDG 13)
13 - Climate Action

Directly impacted stakeholders

Planet

The Atlantic Forest- While benchmark investor Symbiosis manages 560 ha and plans on purchasing an additional 3.5K ha of degraded Atlantic Forest over the next five years, 11K ha were destroyed just in 2018, added to 12K in 2017. (21)

Indirectly impacted stakeholders

People

Native populations and timber consumers

Outcome Risks

Given the commercial viability of this model, recent decree allowing environmental fines to be replaced by environmental recovery and conservation actions may disincentivize environmental protection

Gender inequality and/or marginalization risk: This IOA may impact the livelihoods of the local communities living around the Atlantic Forest

Impact Risks

Unexpected impact risk: Potential for virgin forests to be exploited over already degraded forests

Gender inequality and/or marginalization risk: Stakeholder participation risk- if the experience & expectations of the local communities living around the Atlantic Forest are not taken into account

Impact Classification

A—Act to Avoid Harm

What

The outcome is likely to be positive, important and largely intended because this investment could reforest and help preserve biodiversity

Who

The Atlantic Forest and its biodiversity is underserved due to sustained deforestation over past years

Risk

External factors such as longer investment horizons or unfair competition from illegal timbering may affect the ability of this opportunity to deliver the expected impact

Impact Thesis

Contribute to reforestation and reduce CO2 emissions

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Enabling Environment

Explore policy, regulatory and financial factors relevant for the investment opportunity.

Policy Environment

(National Plan for Commercial Forestry): Approval in June 2019 of the National Plan for Commercial Forestry, seeking to increase the country's tree planting area by 20% up to 2030 (15)

(Brazilian National Energy Plan PNE 2030): To deliver on the PNE 2030 and meet 2030 NDC aspirations, Brazil intends to restore and reforest 12 million hectares of forests by 2030

There is a growing public sector interest in ensuring the sustainability of domestic paper & pulp manufacturers, and desire to attract foreign investment into the sector

Financial Environment

Financial incentives: Programa ABC, Pronamp and Pronaf Eco are BNDES loans to investors in reforestation or forestry protection businesses (10) BNDES Climate Fund Facility lends at below-market rates (11)

Fiscal incentives: Fiscal compensation exists in four states (Paráná, Minas Gerais, São Paulo and Rio de Janeiro) for municipalities in which Protected Areas are located (14)

Regulatory Environment

(National System for Environment): Brazil has an active National System for Environment (Sisnama), which focuses on guaranteeing balance between socioeconomic development and environmental protection (16)

Current administration is weakening environmental agencies (e.g. Ibama) and has signed decrees allowing environmental fines to be replaced by environmental recovery actions (17)

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Marketplace Participants

Discover examples of public and private stakeholders active in this investment opportunity that were identified through secondary research and consultations.

Private Sector

Suzano and Fibria active in timber, paper and pulp production, as is Votorantim Group. MOV Investimentos has invested in the vertical (e.g., in Biofilica)

Non-Profit

Brazilian Coalition on Climate, Forests and Agriculture is already combating illegal timber trade. Projeto VERENA does valuations of native reforestation projects, supported by WRI Brazil. Children's Investment Fund Foundation is VERENA's main funder (18)

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Target Locations

See what country regions are most suitable for the investment opportunity. All references to Kosovo shall be understood to be in the context of the Security Council Resolution 1244 (1999)
country static map

Brazil: Minas Gerais

> These are the only regions where the Atlantic Forest is still being deforested (15) (17), and have some of the highest concentrations of Atlantic Forest in the country (16) > The Atlantic Forest provides a more attractive commercial opportunity because you can use up to 80% of the land you own for commercial purposes, vs. 20% in the Amazon rainforest (21)

Brazil: Piauí

> These are the only regions where the Atlantic Forest is still being deforested (15) (17), and have some of the highest concentrations of Atlantic Forest in the country (16) > The Atlantic Forest provides a more attractive commercial opportunity because you can use up to 80% of the land you own for commercial purposes, vs. 20% in the Amazon rainforest (21)

Brazil: Bahia

> These are the only regions where the Atlantic Forest is still being deforested (15) (17), and have some of the highest concentrations of Atlantic Forest in the country (16) > The Atlantic Forest provides a more attractive commercial opportunity because you can use up to 80% of the land you own for commercial purposes, vs. 20% in the Amazon rainforest (21)

Brazil: Santa Catarina

> These are the only regions where the Atlantic Forest is still being deforested (15) (17), and have some of the highest concentrations of Atlantic Forest in the country (16) > The Atlantic Forest provides a more attractive commercial opportunity because you can use up to 80% of the land you own for commercial purposes, vs. 20% in the Amazon rainforest (21)
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References

See what sources were used to establish the investment opportunity’s data and find resources that could be consulted to explore more.
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