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Co-Chairs’ Summary Report
06 November 2008 / 11:32

Country-Led Initiative on Financing for Sustainable Forest Management
in Support of the UN Forum on Forests

08-12 September 2008
Paramaribo, Suriname
Co-Chairs’ Summary Report


TABLE OF CONTENTS

I. Introduction 1

II. Financing Sustainable Forest Management

2.1. Financing sustainable forest management; Producer, Consumer and Community Perspectives
Introduction 3

Main elements of the discussions in the breakout groups 6
Conclusions and recommendations 7

2.2. Financing from Forest Ecosystem Services
Introduction 9

Main elements of the discussions in the breakout groups 11
Conclusions and recommendations 14

2.3. Increasing financing for sustainable forest management: Institutional and Governance Strategies at the National Level
Introduction 17

Main elements of the discussions in the breakout groups 19
Conclusions and recommendations 21

2.4. Increasing financing for sustainable forest management: Institutional and Governance Strategies at the International Level
Introduction 22

Main elements of the discussions in the breakout groups 23

C. Conclusions and recommendations 24

III. Summary of Conclusions and Recommendations 27


ANNEX I CLI welcome addresses by host and co-hosts
ANNEX II CLI Program

LIST OF ACRONYMS

ACTO Amazon Cooperation Treaty Organization

ARPA Amazon Region Protected Areas Program

ASEAN Association of Southeast Asian Nations

CBD United Nations Convention on Biological Diversity

CCS Climate, Community and Biodiversity Standard
CI Conservation International
CLI Country-Led Initiative

CPF Collaborative Partnership on Forests
FAO UnitedNations Food and Agriculture Organization

FCPF Forest Carbon Partnership Fund (World Bank)
FFM Forest Financing Mechanism
FIP Forest Investment Program (World Bank)
GEF Global Environment Facility

HFLD High Forest Cover with Low Rates of Deforestation
IDB Inter American Development Bank

ITTO International Tropical Timber Organization

MYPOW Multi-Year Program of Work
NFP National Forest Program
NGO Non Governmental Organization

NLBI Non Legally Binding Instrument on All Types of Forests
NTFP Non-Timber Forest Products
ODA Official Development Assistance
PES Payments for Ecosystem Services
PROFOR World Bank Program on Forests
PRSPs PovertyReduction Strategic Papers

REDD Reduced Emissions from Deforestation and Degradation

SFM Sustainable Forest Management
UNFCCC UN Framework Convention on Climate Change
UNFF United Nations Forum on Forests

VIDS Association of Indigenous Village leaders
WWF World Wildlife Fund

International Expert Meeting on

“Financing for Sustainable Forest Management: The Paramaribo Dialogue”

A Country –Led Initiative in support of the United Nations Forum on Forests

Co-Chairs’ Summary Report

INTRODUCTION

This report presents a summary of discussions at the international expert meeting “Financing for Sustainable Forest Management: The Paramaribo Dialogue”, hosted by Suriname as a Country-Led Initiative (CLI) in support of the United Nations Forum on Forests (UNFF). The CLI was co-organized by the Republic of Suriname, the Kingdom of The Netherlands and the United States of America, and was supported by the Government of the United Kingdom, the International Tropical Timber Organization (ITTO), the World Bank, the Inter-American Development Bank, Conservation International and WWF-Guianas.

The seventh session of the UNFF successfully concluded a Non Legally Binding Instrument (NLBI) on All Types of Forests, which was adopted by the General Assembly of the United Nations in December 2007. The seventh session of UNFF also decided “to develop and consider, with a view to adopting at the eighth session of the Forum, a voluntary global financial mechanism/portfolio approach/forest financing framework for all types of forests, aiming at mobilizing significantly increased, new and additional resources from all sources, based on existing and emerging innovative approaches, also taking into account assessments and reviews of current financial mechanisms, to support the implementation of sustainable forest management, the achievement of the global objectives on forests and the implementation of the non-legally binding instrument on all types of forests”.

Against this background and in support of the UNFF process, the objective of the Paramaribo Dialogue was to identify opportunities to significantly enhance financing for sustainable forest management. To that end, the meeting brought together finance and forest experts from around the world, shared experiences on mobilizing forest funding and generating revenues, identified existing and emerging public and private financing sources, and examined the relationship between forest financing and forest-related governance and enabling environments for investment. The meeting also explored models, strategies and institutional arrangements for increased financing through such means as bilateral and multilateral public funding mechanisms, debt reduction, payments for ecosystem services (such as water and carbon), private sector commercial investment and private philanthropy.

1. The meeting was attended by 227 participants including international experts from all regions of the world, representatives from the Republic of Suriname, from regional and international organizations, non-governmental organizations, private sector, philanthropic organizations and major group organizations.

2. The preparation for the CLI was guided by an Advisory Committee chaired by Ambassador Henry Mac Donald, Permanent Representative of Suriname to the UN, and consisting of The Netherlands, United States of America, Germany, Norway, United Kingdom, South Africa, Suriname, FAO, ITTO, the World Bank, the UNFF Secretariat, Conservation International and Forest Trends. UNFF Bureau members were consulted during the development of the CLI programme. A CLI Suriname Conference Management Team was formed by the President of the Republic of Suriname to coordinate and organize the meeting.

3. The CLI was officially opened by H.E. Runaldo Ronald Venetiaan, President of the Republic of Suriname. Welcome addresses were delivered by Ambassador Ewald Limon, Chair Presidential Task Force “National CLI Preparations”, on behalf of the Republic of Suriname; Mr. Hans Hoogeveen, Chair UNFF-7/Director-General of the Ministry of Agriculture, Nature and Food Quality, on behalf of the Government of the Netherlands, Ms. Stephanie Caswell, Director of the Office of Ecosystems and Natural Resources Conservation U.S. Department of State, on behalf of the Government of the United States of America and Mr. Boen M. Purnama, Chair UNFF-8/Secretary-General of the Ministry of Forestry, Republic of Indonesia. A summary of the opening addresses during the morning session is attached in Annex I.

4. The plenary sessions of the CLI were co-chaired by Mr. Cornelis Pigot and Ms. Annette Tjon Sie Fat on behalf of Suriname; Mr. Hans Hoogeveen on behalf of the Netherlands; and Ms. Stephanie Caswell on behalf of the United States. Breakout groups were co-chaired by Mr. Glen Kile (Australia) and Ms. Elise Haber (South-Africa), Mr. Carlos Gonzalez (Mexico) and Ms. Stefanie von Scheliha (Germany), Mr. S.P. Yadav (India) and Mr. John Hudson (United Kingdom). The breakout groups were facilitated by Mr. Carlos Manuel Rodriguez, Mr. Rezal Kusumaatmadja and Mr. Jag Maini. Rapporteurs were Ms. Kim van Seeters, Mr. Charles Barber and Amb. Henry Mac Donald.

5. The experts at the CLI discussed the issues raised in plenary sessions in three concurrent, interactive breakout groups which met three times over the course of the meeting. The breakout groups were facilitated, and all discussed a common set of questions that were put to them by the meeting co-chairs. Breakout session co-chairs prepared a summary of key points raised in their groups for presentation to plenary.

The following issues were discussed:

- Financing sustainable forest management: Producer, Consumer and Community perspectives;

- Financing from forest ecosystem services;

- Institutional and governance strategies at the national level;

- Institutional and governance strategies at the international level.

6. This summary report is a compilation of views discussed during the meeting and does not necessarily reflect a consensus among the experts, participating in their personal capacity. Some of the items summarized under the breakout groups are cross-cutting in nature. Therefore, for a full understanding of the discussion, the complete report should be considered in its entirety.


II. Financing Sustainable Forest Management

2.1. Financing for Sustainable Forest Management: Producer, Consumer and Community Perspectives

A. Introduction

10. The meeting began with an overview of various current and emerging arrangements and mechanisms for financing sustainable forest management, introduced by a range of speakers.

11. Dr. Russell Mittermeier, President of Conservation International (CI), provided an overview of issues and opportunities concerning financing of sustainable forest management (SFM). He outlined examples of new opportunities for SFM financing and investment, including protected areas, ecotourism, sustainable timber and non-timber forest products (NTFP) extraction, payments for ecosystem services (PES) and forest carbon. Taken together, he argued, these emerging opportunities for generating forest financing can equal or surpass economic gains from deforestation. He particularly stressed the significant opportunities – as well as the challenges – presented by the increasing attention being paid to the role of reducing emissions from deforestation and forest degradation (REDD) in the global climate change debate, and the growth of emerging forest-related carbon funds and investments. However, Mittermeier also underscored the unique and crucial position of the “high forest cover / low deforestation rate” (HFLD) countries in the debate over the role of forests in mitigating climate change. The 12-13 HFLD countries (including Suriname and neighbouring Guyana), he noted, account for at least 30% of the world’s remaining tropical rainforest – and nearly 50% if one includes the HFLD states or provinces within Brazil (Amazonas and Amapa) and Indonesia (Papua). The current direction of REDD discussions, he said, penalizes HFLD states with historically low deforestation rates, and may create perverse incentives for them to deforest. HFLD countries, he concluded, need to be fully integrated into the emerging REDD architecture, perhaps through a combination of “carbon stock” accounting and payments for ecosystem services (PES) mechanisms, or through the addition of “HFLD credits” to REDD system calculations.

12. The President and CEO of Forest Trends, Mr. Michael Jenkins, described the change in forest threats and opportunities over time, and noted that forests present a nexus between climate, communities and conservation. He provided an overview of potential new funding sources, including PES. PES includes, he said, the following types: (1) Self-organized private deals (private entities pay for private services); (2) public payments to private land and forest owners (public agency pay for services); (3) “Cap and Trade” systems under which environmental credits are traded under a mandatory cap (landowners either comply directly with regulations, or buy compliancecredits from others); and (4) “Eco-labelling” of agricultural and forest products (consumers prefer certified sustainable supplies, increasing their market value.) Jenkins highlighted forest-related carbon, which represents 20% of the voluntary carbon market, yet only one percent of the regulated market. Noting that the 2006 Stern Review identified deforestation as the source for one-fifth of global CO2 emissions, he underscored that avoided deforestation should be one of four key elements of global agreements on climate change. Jenkins warned that while REDD has the potential to generate significant new forest financing, and to also provide co-benefits for biodiversity conservation and water resources management,there are major challenges associated with REDD as well. He highlighted, among other issues, the equity and perverse incentive issues that will arise if REDD schemes do not incorporate the interests of the HFLD countries, and instead reward only the “bad guys” with high current deforestation rates and, in many cases, poor forest governance records. He also drew attention to the importance of ensuring that those who provide and safeguard ecosystem services actually receive compensation at the local level, particularly indigenous and local forest-dependent communities.

13. A background analysis of financing for the implementation of the NLBI was given by Ms. Tiina Vahanen, Forestry Officer of the UN Food and Agricultural Organisation (FAO), who also introduced other ongoing work of the Collaborative Partnership on Forests (CPF). The CPF is a partnership among 14 international forest-focussed organizations, agreements and processes, formed to support priority UNFF actions and chaired by the head of FAO’s Forestry Department. Vahanen highlighted, among other work, a soon-to-be-published report on external financial flows for SFM in developing countries. She also pointed to the important work by CPF in developing a comparison of national measures that will contribute to the implementation of the NLBI.

14. Mr. Markku Simula, consultant to the Advisory Group on Finance of the CPF presented the preliminary results of a study on the external flows for SFM in developing countries. The study found that: There is relatively weak country demand for forest-related official development assistance (ODA); bilateral and multilateral financial flows for forests come from a relatively small number of countries; and foreign private investment in the forestry sector is generally quite profitable. Simula identified several geographic and thematic gaps in forests financing. He highlighted SFM outside of protected areas; management of natural tropical forests for production and upfront investment in SFM generally. He highlighted the low percentage of coherent forest strategies in the Poverty Reduction Strategic Papers (PRSPs) of countries with such PRSPs (25%) and an amazing low 53% which mention forests at all. He noted the potentially important role of the emerging Forest Investment Program (FIP) that is slated to be established by the end of 2008 under the World Bank’s Strategic Climate Fund.

15. Mr. Gerard Dieterle, World Bank Forest Advisor, gave an overview of the existing sources of funding for forests available through the World Bank and significant new and emerging Bank forest finance mechanisms. The most significant new funding opportunities are those being developed as part of the Bank’s climate change agenda, including the Forest Carbon Partnership Facility (FCPF) with current pledges of $150 million, with a target of $300 million. Dieterle underscored the importance of a recent UNFCCC study of investment needs which identified that the current financial flows into the forest sector are inadequate for meeting the investment needs to address forest-related aspects of climate change. Recognizing the urgent need, and seeking to provide immediate financing and that can act as a bridge for pilot actions and learning while UNFCCC negotiations take place, the design of the Strategic Climate Fund (SCF) calls for the elaboration of a Forest Investment Program (FIP) as one of the targeted programs under the SCF. The FIP is to be established by the end of 2008 with a view to mobilizing significantly increased funds to accelerate efforts in developing countries to reduce deforestation and degradation, promote improved sustainable forest management as a means to reduce deforestation and degradation, and protect carbon reservoirs. Inclusiveness and broad stakeholder participation will be key features of the FIP, both in its design and implementation. Dieterle highlighted the importance of interagency and donor coordination, and the important role of the CPF and UNFF in that regard.

16. Opportunities for forest financing in Latin America and the Caribbean were the focus of remarks by Ms. Dora Currea, General Manager of the Caribbean Country Department of the Inter-American Development Bank. She noted in particular that increased carbon emissions in the region were largely from forest degradation due to increased land competition. She underscored opportunities available to mitigate emissions, including forest fire reduction, decreasing illegal logging and promoting SFM, including the establishment of forest plantations.

17. The President of Guyana, H.E. Bharrat Jagdeo, attended two days of the CLI and was provided the opportunity to address the plenary. President Jagdeo forcefully pointed to the urgent need for financing of standing forests in Guyana and the rest of the Guiana Shield ecosystem. He noted that HFLD countries must be a focus of any financing for forests in the climate change context, and expressed concern about the current narrow REDD focus. Forest must, he said, be part of any development strategy and ultimately, “forests will be cut down as long as it is more profitable than keeping them standing.”

18. Mr. Amha Bin Buang, International Tropical Timber Organization (ITTO), gave an overview of ITTO’s financing of sustainable tropical forest management, noting that between 1987 and 2007, US$314 million was granted to various projects in member countries. He described the financial provisions under the International Tropical Timber Agreement, 2006, including the specific funding of Thematic Programmes. He noted that ITTO’s funding base is narrow, with Japan, Switzerland and USA together accounting for 90% of contributions. He added that the funding of projects is similarly concentrated, with eight recipients accounting for 50% of funding awarded. The ITTO is a CPF member, active in particular on timber trade statistics, trade policy and finance.

19. Ms. Linda Mossop-Rousseau, South African Forestry Company Limited and a member of the African Forest Forum, spoke on the financial challenges facing forest products producers in South Africa. She reviewed the effects of the Apartheid era on South Africa’s forestry sector, including social, political and economic exclusion that has left forests in some regions under extreme pressure because of overpopulation and lack of funding. She stressed that the duality of economies in the forest sector continues despite policy reforms, and that although large corporations dominate the forest sector, noted that small producers are making inroads.

20. On community forestry and financing, Mr. Yati Bun, Foundation for People and Community Development, Papua New Guinea, stressed that capacity building at the community level was a large challenge for SFM in his country, and was greatly under-funded. He noted that SFM has the potential to provide significant benefits to communities, including direct receipt of timber export revenues, support for building permanent housing; planting and improvement of forest-related crops; and establishment of community funds to meet the daily needs of households. He stressed, however, that a number of challenges remained, including: The impracticality of long-term subsidization for community forestry initiatives; the need to assist traditional communities in improving their participation in markets; and the need for all SFM interventions to be based on a better understanding of local situations, and to be flexible.

21. Mr. Erik Albrechtsen, DLH Group, Denmark, said that corporate social responsibility requirements for wood products coming from “high-risk” countries (including many in the tropics) are greater, yet no price premium exists for forest products from certified or “verified legal origin” forest products from these markets. He stated that this is because sustainably produced products are forced to compete on an uneven playing field with wood from “dubious” origins (i.e. presumed or suspected to be illegal and/or unsustainably harvested). He said that public funding is required to support SFM efforts in many countries, as market mechanisms alone are insufficient in providing an incentive for producers to shift to sustainable practices.

22. Prof. Adil Najam, Boston University, spoke on governance reforms necessary for the implementation of a portfolio approach. Noting that the complexities of forest governance have to be managed, not simplified, he highlighted that a “portfolio approach” is necessary to address diverse realities and interests.

23. Najam stated that a portfolio approach suggeststhat instead of selecting a single set of funding instruments, such as public funding, a portfolio of complementary financial products and services should be employed to mobilize financing from a variety of public and private sources. This approach will need to include innovative mechanisms, and requires new modes of operating with multiple stakeholders and adaptive governance structures in order to be flexible. In designing an innovative financing mechanism, Najam called for, inter alia: focusing on key interests; capitalizing on diverse capacities of governments, markets and civil society, and encouraging partnerships among them; building strength through flexibility; and operating at multiple levels. He noted that governance challenges in a portfolio approach include financial coherence within public sector funding and appropriate governance mechanisms to broker private initiatives.


B. Main elements of the discussions in the breakout groups

24.The Co-Chairs set the scene for discussion by reminding participants of the presentations which described a changing world of new threats and new opportunities and asking them if they were in agreement with the trends described, including trends in the financing of SFM, and what kind of opportunities and threats they see in their own countries.

25. The proliferation of forest-related processes (UNFCC, UNFF, CBD), funds and initiatives was noted by many participants. Some participants emphasized the need to bring more coherence into this “system” and to translate it into a workable policy framework at the national level.

26. Many participants noted a mismatch between the urgency of calls for sustainable forest management and the financial support available from the international community. The need for new and additional financing for SFM from all sources was noted.

27. Some participants indicated that forests are not always prioritized within national development plans reflecting competition with other, more politically potent needs and interests. A number of participants expressed the need to explore alternative forms of financial flows to the forest sector beyond official development assistance (ODA). ODA will remain important, but its major function, they noted, is as a catalyst for mobilizing a broader spectrum of forest financing.

28. Some participants noted that existing financial mechanisms such as the Global Environment Facility (GEF), the National Forest Programme (NFP) Facility hosted by FAO, and the Program on Forests (PROFOR) hosted by the World Bank are important but by themselves are not sufficient to provide new and additional resources for SFM at the scale needed to achieve the UNFF’s NLBI Global Objectives on Forests. Demand for support from these mechanisms, it was noted, far exceeds their current levels of funding.

29. Participants recognized that forests are diverse in character and subject to widely varying pressures. Most participants remarked that the context of forests and forest policies are more often than not country-, sub-region-, or ecosystem-specific (e.g. mangroves versus boreal forests or tropical rainforests). As a consequence some participants suggested that forest governance at the international and national level should also take account of the challenges it attempts to address at the local level. Participants highlighted the need to tackle the main drivers of deforestation, which in large part lie outside the forest sector.


30. Several participants recognized that it is difficult for those working at the local level to be aware of, understand and influence national and global threats and opportunities. They emphasized the importance of linking global-regional-national-local processes and suggested that there is a role for UNFF in doing so.


31. Participants noted that forest-related options hold considerable promise for reducing emissions, but also cautioned that there are uncertainties about the cost-effectiveness of such measures. Many participants recognized the importance of REDD in attracting political attention to forests and in mobilizing significant new funding.


32. Some participants stated that a narrow focus on REDD at the expense of multiple forest values is unlikely to succeed in achieving SFM and the NLBI’s Global Objectives on Forests. Several participants stated that the current climate change negotiations are failing to take these multiple values into account and that there is a role for UNFF in bridging the gap between REDD and SFM. The corollary importance of recognizing the carbon stock of standing forests was emphasized by some participants.


33. Some participants expressed concern about how an international market for forest carbon will develop; about who provides the ecosystem services being traded, who will benefit and how decisions about the distribution of benefits will be made.


34. Many participants stressed that forest tenure and the rights of local and indigenous communities are often poorly defined and insecure. They remarked on the need for mapping and securing the tenure, property, and use rights of these groups as well as those of small forest owners.


C. Conclusions and recommendations

35. The main conclusions and recommendations of the three breakouts groups were:

* The UNFF is entering a new and mature era, having agreed in 2007 to a Multi-Year Program of Work (MYPOW) through 2015 and to the Non-Legally Binding Instrument on All Types of Forests (NLBI), which the UN General Assembly adopted in December 2007.
* The NLBI is a landmark global agreement achieved after years of negotiation. The agreement builds on the Forest Principles adopted at Rio in 1992, as well as the Johannesburg Plan of Action of 2002, and provides an enhanced framework for national action and international cooperation to achieve sustainable forest management (SFM).
* The UNFF 7 agreed, among other things, to develop and consider, with a view to adopting, a “Voluntary global financial mechanism/portfolio approach/forest financing framework aimed at mobilizing significantly increased new and additional resources from all sources, based on existing and emerging innovative approaches, also taking into account assessments and reviews of current financial mechanisms, to support the objectives on forests and the implementation of the non-legally binding instrument aon all types of forests.”
* There is an urgent need for financing for sustainable forest management from all sources.
* Forests are diverse in character and subject to widely varying pressures. The context of forests and forest policies are often country-, Sub region- or ecosystem-specific (e.g. mangroves versus boreal forests or tropical rainforests).
* There is a critical need to tackle the main drivers of deforestation, which in large part lie outside the forest sector.
* Less than half of countries’ Poverty Reduction Strategic Papers (PRSPs) even mention forests, and less than a quarter include a coherent cross-sectoral strategy incorporating forests and SFM. Countries should develop coordinated development strategies that address all actions having an impact on forests, and include SFM as a basis for sustainable development.
* A country’s investment climate is critical to attracting private sector investment.
* Although ODA will remain important for SFM financing, existing and projected ODA flows will be insufficient in themselves. ODA therefore needs to play a catalytic role in mobilizing a broader spectrum of SFM financing.
* It is often difficult for those at the local level to be aware of, understand, and influence national and global threats to forests, or the opportunities to reduce those threats. Forest governance at the international and national level should therefore take these local realities into account.
* Among other priorities, SFM financing should focus on building an enabling policy, legal and institutional environment at the national and sub-national level, in order to more effectively attract sustainable financing for SFM.
* Forest-related options hold considerable promise for reducing greenhouse gas emissions, but uncertainties remain about the relative cost-effectiveness of forest-related measures in different countries and contexts. The Forest Carbon Partnership Facility (FCPF) will be making substantial funding available for capacity building and carbon payments at the country-level. Countries are urged to actively engage through their representatives in shaping the implementation of the FCPF.
* A narrow focus on REDD at the expense of multiple forest values is unlikely to result in the full achievement of SFM in all countries. The current climate change financing focus does not fully address these multiple values.
* The emerging World Bank Forest Investment Program (FIP) has significant potential to mobilize increased funds to support efforts in developing countries to reduce deforestation and forest degradation, strengthen SFM capacities, and protect carbon reservoirs.
* The rapid proliferation of forest-related processes, funds and initiatives is leading to incoherence and causing considerable confusion. Stronger coordination and better complementarities are needed to bring more coherence and simplicity to this emerging global forest finance “system”. Countries can support this goal by speaking with one voice (i.e. delivering consistent messages and positions) in their roles as members of various institutions’ governing bodies and as Parties to various multilateral agreements, which together constitute the emerging public international architecture for forest policy and SFM finance.
* Actions to clarify forest tenure and property rights are crucial to achieving SFM, and include mapping and securing the tenure, property, and use rights of local communities and indigenous peoples, as well as those of small and family forest owners.
* Increasing recognition of sustainably-produced timber as a climate-friendly substitute, in some circumstances, for steel, concrete and plastic may help expand markets for sustainably-produced forest products and thereby increase financing for SFM.



2.2 Financing from Forest Ecosystem Services
A. Introduction

36. Mr. Carlos Manuel Rodriguez, Conservation International, presented on creating an enabling policy environment to mobilize financing from forest ecosystem services. He stressed two overarching goals, namely, bridging the gap between the affluent and the poor and reducing the gap between man and nature, and emphasized four challenges to addressing these: stabilizing climate change; stabilizing population growth; decreasing poverty; and restoring, conserving and preserving existing ecosystems. He highlighted steps that Costa Rica has taken to create an effective policy environment for forest conservation and restoration, including: legislation to stabilize and increase forest cover, establish a system of protected areas, and create a payment for ecosystem services (PES) system. He noted that the Costa Rican PES system gives tangible value to a variety of ecosystem services including water, carbon, and ecotourism values. He also underscored the importance of sectoral coordination within countries, and noted that the differing – and sometimes conflicting – policy agendas of various government agencies (e.g. forestry, agriculture, and mining) are sometimes a barrier to mainstreaming forests on the development agenda and establishing coherent, unified national policies.

37. Mr. Simon Petley, Enviromarket, UK, provided an overview of capital markets available for forest financing. He said that at US$1000 billion per annum, international private capital flows to developing countries represents ten times the amount of official development assistance (ODA). He noted, however, that 60% of this private capital flow is concentrated within only five countries (Brazil, Russia, India, China and South Africa), and that ODA is still greater than private investment in 60% of developing countries. He emphasized the role of local capital markets, which provide 90% of forest financing in tropical countries. He cautioned that few lenders have yet to express much interest or confidence in investing in ecosystem services. He examined differences in expectations held by borrowers and lenders regarding capital for SFM, with the latter being primarily concerned with certainty of repayment and risk management. Lenders view many developing countries as high-risk borrowers, due, inter alia, to: civil, political or economic unrest; weak forest governance or enforcement; weak or non-existent capital markets; and insufficient instruments and mechanisms by which third parties might mitigate risks to lenders. In addition, lenders may not be comfortable with the forestry sector, and may lack knowledge about ecosystem services as an investment opportunity. Risk can be reduced, he suggested, by strengthening forest governance, ensuring secure and enforceable property rights, and developing bundled and third-party instruments and mechanisms to reduce perceptions of risk in the eyes of lenders.

38. Mr. Claudio Maretti, WWF-Brazil, presented on Brazilian perspectives of carbon compensation for the protection of the Amazon rainforest. He listed the objectives of the multi-partner Amazon Region Protected Areas Program (ARPA), highlighting partnerships with local communities and non-governmental organizations, the federal government, and several international donors. He reviewed the increase in strict protected areas and sustainable use reserves in Brazil over the past two decades, noting that almost half of the Brazilian Amazon is legally protected in some form. He highlighted that deforestation rates have decreased within and around these areas, resulting in a large projected reduction of carbon emissions. He listed keys to ARPA’s success, including: strong commitment and support from state and federal governments; a broad vision that includes strict nature protection and sustainable development; and strong partnerships. He underscored the importance of developing PES systems for forest carbon and other values in order to give standing forests a tangible value that can compete with the value forest lands have when converted to other uses such as agriculture and pastoralism.

39. Mr. Rezal Kusumaatmadja, Starling Resources, presented on an innovative 225,000 ha concession for ecosystem restoration and conservation in the peat forests of Indonesian Borneo. Stressing the importance of peat forests as a carbon sink, he lamented that due to land use change these forests are being lost and consequently carbon emissions are increasing. He highlighted that a new policy in Indonesia allows for long-term concessions to restore and conserve ecosystems on state forest lands, and grants concession-holders the right to benefit from payments for the ecosystem’s services. Given the uniquely high carbon value of Borneo’s peat forests, there is a very good opportunity to finance the area’s management by selling credits on the rapidly growing voluntary carbon market. The long term nature of the concession (60 years, extendable for an additional 35 years) satisfies the market’s demand for “permanence”, while the fact that the concession will actively reduce deforestation and restore forest in an area that would almost surely be converted to non-forest uses satisfies the market’s demand for “additionally”. He noted that generating tangible financial benefits for local communities is an essential part of the business model, and that the project represents a fortuitous confluence of an innovative new government policy, market demand, local support and benefits, and measurable environmental benefits that include not only emissions reductions but also conservation of a key forest ecosystem and its wildlife.

40. Ms. Doris Cordero, IUCN, discussed lessons learned regarding PES in the Northern Andes, emphasizing the importance of considering differences in social, legal and institutional contexts. She lamented that there is an overall lack of understanding regarding the impacts of land use change on local water quantity and quality. She noted that PES watershed projects in that region have been primarily funded by local communities, and run by municipalities with support from NGOs. Regarding carbon sequestration and avoided deforestation, projects have been funded by the voluntary market, and government involvement has been low. She said that while biodiversity conservation is a difficult ecosystem service to measure and give tangible value, it can be bundled with other services such as watershed protection. She warned against starting with a particular financial instrument and then deciding what to apply it to. Rather, she noted, one must begin with the local or national context and the specific SFM objectives, and then choose or design the financing instruments to serve those objectives. She also stressed the importance of clearly defining what, specifically is being bought and sold in a PES system, and what its tangible, commoditized value is. Institutions that can serve as intermediaries between buyers and sellers are essential, she said. Such intermediary institutions, however, much have the technical capacity to play their role, and must be trusted by both buyers and sellers.


B. Main elements of the discussions in the breakout groups

41.The three working groups held rich and wide-ranging discussion on the topic of payment for ecosystem services (PES), drawing on the presentations given on this topic in the previous plenary session, and offering a number of observations, conclusions and recommendations.

42. Great progress has been made over the past decade in increasing understanding of the immense economic values of forest ecosystems for human societies. These values include protection of water and soil, biodiversity values including ecotourism, and the crucial role of forests in the global carbon cycle. Perhaps even more importantly, there has been considerable progress in developing instruments and markets for payments for ecosystem services (PES) as a way to generate concrete financial resources for SFM.

43. That said, PES markets are new, immature, and, to some eyes, chaotic. PES instruments and opportunities are very complex, and often require specialized knowledge and vocabulary that few in the forest policy world possess. At the same time, the very newness and immaturity of PES markets offers an opportunity for governments and other stakeholders to shape those markets.

44. Given the diversity of national and local political, economic and cultural contexts, as well as the very different forest situations across countries, it is clear that PES initiatives will need to be flexible and adapted to particular contexts: One size does not fit all!

45. Establishing an enabling policy environment for SFM at the national level is perhaps the most crucial step that countries need to take in order to mobilize and take advantage of emerging PES instruments and opportunities. While the specifics will vary among countries, the elements of an enabling policy environment for SFM include:

* Mainstreaming SFM as a core element of development planning and investment discussions and priorities;
* Strengthening policy coherence among government sectors in order to “speak with one voice” on forest issues in different international fora (e.g. UNFF and UNFCCC);
* Clarify and secure land tenure – i.e. allocation, ownership and control over forest lands and resources;
* Improve the environment for doing business – particularly for small and medium enterprises – by combating corruption and reducing bureaucratic barriers (i.e. “red tape”) to private sector business activity;
* Create the conditions that encourage community-based forest management to flourish, and empower local and indigenous communities to participate in decision-making about forests and forest policy;
* Strengthen forest law enforcement;
* Reduce perverse incentives that encourage unsustainable forest uses and forest conversion, and develop positive economic incentives (e.g. tax breaks) for SFM.

46. In addition to establishing these general enabling conditions for SFM, governments may need to make specific policy and legal adjustments to accommodate PES instruments and initiatives. These will vary from country to country. Countries may find it useful to conduct or commission analytical studies that can identify where legal and regulatory changes may be necessary to support PES initiatives.

47. In addition, governments have a strong role to play in creating the information base for SFM, and thus, for catalyzing PES and other forest investments. Forest inventory, forest land use planning, mapping and carbon accounting are all key building blocks for PES, and SFM financing in general. Many developing countries require considerable technical and financial assistance in these areas, and this is an obvious role for donors and for NGOs.

48. Given the critical importance of the legal and governance basis for PES, and that current legislation is often constraining (e.g. lack of clarity on carbon property rights for different stakeholders on state land), it may be useful to hold regional or national workshops, building on preparatory research and stakeholder consultation, to identify key legal and governance obstacles and develop recommendations and strategies to overcome these obstacles.

49. In developing countries in particular, there is a pressing need for more information on the theory and practice of PES, examples of PES best practices and success stories from around the world, market access (for both buyers and sellers) and capacity building to strengthen local knowledge and ability to take advantage of PES opportunities within government, the private sector and civil society. Pilot projects are an important catalytic tool in this regard, allowing for “learning by doing.” Capacity building needs can be reduced when PES program administrative requirements are as simple and practical as possible, particularly for indigenous and local communities and small and family forest owners.

50. Getting PES systems and projects off the ground requires considerable “up-front” investment in developing capacity, basic information (e.g. maps), and the like. Providing this up-front investment is an important catalytic that ODA agencies can provide, and may be an appropriate role for the Forest Investment Program that is emerging under the World Bank-led Strategic Climate Fund.

51. It is clear that there is a large communication and understanding gap between the world of forest stakeholders and policymakers on the one hand, and the world of financial markets and institutions on the other.

52. Participants highlighted that while PES is a potentially important element of a “portfolio approach” to SFM financing, it is not a panacea, and cannot stand on its own. And, as the prominence of PES grows, it also raises a variety of political and practical concerns:

* Some fear that an undue emphasis on PES as “the” solution to the SFM financing problem may lead donors to see PES as a substitute, rather than a complement to ODA and more traditional private sector investment in the forestry sector. It must be viewed as one tool in the toolbox, not the primary or only one.
* There are significant political differences between PES in the national or local context versus international context. Trans-boundary PES initiatives may face greater political barriers than efforts within the national context. On the other hand, there are numerous examples of transboundary cooperation, including protected areas and water management, in shared ecosystems, and these may in some cases form a basis for transboundary PES arrangements.
* Every country will need to strike the balance between market-driven voluntary transactions versus state-controlled regulatory approaches to PES, depending on their own political culture and regulatory environment.
* Many view ecosystem services as free “public goods”, and are resistant to the idea of paying for them. Others object on ethical grounds to the commoditization of nature. Political and social acceptance of PES is therefore a challenge, along with technical and policy challenges.
* There is considerable uncertainty about how various PES systems would distribute burdens and benefits. Indigenous and local communities in particular, are very concerned that they may not be compensated for their longtime efforts to conserve and sustainably use forests, and may even lose access to their lands and resources in a “PES goldrush” by outsiders.
* More broadly, it is important – and often difficult – to ensure that those who provide particular ecosystem services (i.e. those who actually engage in SFM on the ground) are the ones who are actually compensated for doing so. Similarly, identifying the users who should pay for those services – and devising practical and politically feasible ways to get them to pay – is a challenge.

53. Establishing investor confidence that forest carbon PES projects are delivering what they promise is a key challenge. Independent, voluntary certification standards and systems are one important method for boosting investor confidence, but such systems are still in an early stage of development. While some new standards, such as the Voluntary Carbon Standard, include clear methodological guidance for verification of carbon benefits, there is not yet a standard which also incorporates the social and biodiversity outcomes that many investors demand from forest carbon PES projects. The market-leading Climate, Community and Biodiversity (CCB) Standard is in the process of developing a verification standard that takes multiple carbon, biodiversity and social benefits into account. Development, testing and application of a holistic standard of this kind will help to build investor confidence.

54.The rapidly growing market for carbon stored in both standing forests and reforested areas is a key emerging area for PES investments, instruments and projects. The voluntary market for forest carbon is growing rapidly, while at the same time the international community is engaged in intensive negotiations under the UN Framework Convention on Climate Change (UNFCCC) to develop an internationally-agreed system to compensate reductions in emissions from deforestation and forest degradation (REDD). While participants generally welcomed the increased political attention to forests that the REDD debate has triggered, and were cautiously optimistic that this increased attention can catalyze new funding for SFM, they also voiced many questions, concerns and doubts:

· The intense focus on REDD, the current “flavor of the month” as one group put it, may be creating extremely inflated expectations about the financial resources that are likely to be generated for SFM from current voluntary markets and any future internationally-agreed scheme;


· The focus on forests’ carbon ecosystem services may overshadow and crowd out attention to other important forest ecosystem services, such as biodiversity and water. As one group put it, “PES is not only REDD, it is also green and blue”.


· The compressed negotiating schedule under UNFCCC, and the pressure to agree on a REDD system by the end of 2009 raises doubts for some countries. They do not feel they sufficiently understand the issues – or the possible implications of different options for countries with varying forest cover conditions and trends – and are reluctant to commit too rapidly to a system that may then be in place for decades.


· The nature of “forest carbon” – what is being sold – is unclear to many. Is carbon a commodity, like oil or coal, or is carbon just a unit of measure to value a service that is being provided by those who take actions to reduce deforestation or carry out reforestation?


· How one answers this question influences one’s answer to the question “who owns carbon and who should be compensated for reducing forest carbon emissions?” If carbon is a commodity, the State has a strong claim to its ownership. If, however, carbon is just a unit of measure to value efforts to reduce deforestation and degradation, then whoever provides that service has a claim on compensation. This could be the State, local governments, the private sector, NGOs, or local communities. It depends on who provides the actual service of reducing deforestation.


· Countries and other stakeholders can immediately take advantage of carbon-based PES systems, using the growing voluntary market, while the proposed REDD mechanism under the UNFCCC regime is developed.


C. Conclusions and recommendations


55. The main conclusions and recommendations of the three breakout groups were:

· Economic values of forest ecosystems are increasingly recognized, including protection of water, soil, biodiversity, and carbon. Emerging systems for payments for ecosystem services (PES) present important new opportunities for mobilizing SFM financing.


· PES markets are still evolving and not generally well-understood by the forestry community. Improving this communications gap is a key task for mobilizing PES as part of SFM financing.

· PES initiatives will need to be flexible and adapted to diverse national contexts: One size does not fit all.


· Establishing an enabling policy environment for SFM at the national level is a crucial step for countries to take, in order to mobilize and take advantage of emerging PES instruments and opportunities. Key elements of an enabling environment include:


* Mainstreaming SFM as a core element of development planning and investment discussions and priorities;
* Strengthening policy coherence among government sectors in order to “speak with one voice” on forest issues in different international fora (e.g. UNFF and UNFCCC);
* Clarify and secure land tenure – i.e. allocation, ownership and control over forest lands and resources;
* Improve the environment for doing business – particularly for small and medium enterprises – by combating corruption and reducing bureaucratic barriers (i.e. “red tape”) to private sector business activity;
* Create the conditions that allow community-based forest management to flourish, and empower local and indigenous communities to participate in decision-making about forests and forest policy;
* Strengthen forest law enforcement;
* Reduce perverse incentives that encourage unsustainable forest uses and forest conversion, and develop positive economic incentives (e.g. tax breaks) for SFM.
* Establish specific provisions to enable PES systems to be established and flourish.



· Forest inventory, forest land use planning, mapping and carbon accounting are all key building blocks for PES, and SFM financing in general.


· Given the critical importance of the legal and governance basis for PES, it may be useful to hold regional or national workshops, building on preparatory research and stakeholder consultation, to identify key legal and governance obstacles and develop recommendations and strategies to overcome these obstacles.


· In developing countries in particular, there is a pressing need for more information on the theory and practice of PES, including examples of PES best practices and success stories.


· Implementing PES requires “up-front” investment in developing capacity, basic information (e.g. maps), etc. ODA can play a catalytic role in this regard.


· PES is a potentially fundamental element of the “portfolio approach”, but it may not be applicable to all countries and situations.


· There are significant differences between PES in the national or local context versus international context. Trans-boundary PES initiatives may be more difficult to develop and implement.


· Strategies for PES may include a combination of market-driven voluntary transactions and regulatory approaches.


· In some cases, ecosystem services are viewed as free “public goods”, and some are resistant to the idea of paying for them. Others object on ethical grounds to the commoditization of nature. Political and social acceptance of PES is therefore a challenge, along with technical and policy challenges.

· There is considerable uncertainty about how various PES systems would distribute burdens and benefits. Indigenous and local communities in particular, are very concerned that they may not be compensated for their longtime efforts to conserve and sustainably use forests, and may even lose access to their lands and resources in a “PES gold rush” by outsiders.


· It is often difficult to ensure that those who provide particular ecosystem services are the ones who are actually compensated for doing so. Similarly, identifying the users who should pay for those services – and devising practical and feasible ways to get them to pay – is a challenge.


· Independent, voluntary certification standards and systems are one important method for boosting investor confidence in PES projects, but such systems are still in an early stage of development. Many potential investors seek a transparent standard that can verify not only carbon performance, but also performance in meeting biodiversity and social objectives. The market-leading Climate, Community and Biodiversity (CCB) Standard is in the process of developing a verification standard that takes multiple carbon, biodiversity and social benefits into account. Development, testing and application of a holistic standard of this kind will help to build investor confidence.


· The U.S. Lacey Act amendments (May 2008), which make it illegal under U.S. law to import timber and forest products that are were illegally sourced in their country of origin, may drive support for certification.


· The growing focus on reductions in emissions from deforestation and forest degradation (REDD) and the renewed concern for forests as a result may provide an important boost for SFM financing efforts, but there are also concerns, for example:


o The intense focus on REDD may be creating inflated expectations about the financial resources that are likely to be generated for SFM.


o The focus on forests’ carbon ecosystem services may overshadow and crowd out attention to other important forest ecosystem services, such as biodiversity and water.


o The compressed negotiating schedule under UNFCCC, and the pressure to agree on a REDD system by the end of 2009, before the issues are fully understood, raises concerns for some.


o The nature of “forest carbon” – whether it is a commodity or a unit of measure to value a service is unclear and has implications for determining who are the providers/owners of carbon.


· Countries and other stakeholders can immediately take advantage of carbon-based PES systems, using the growing voluntary market, while the proposed REDD mechanism under the UNFCCC regime is developed.



2.3. Increasing Financing for SFM: Institutional and Governance Strategies at the National Level
A. Introduction

56. Ms. Sheila Bhairo, Suriname Case Study Team, presented Suriname’s experiences and recommendations concerning financing for SFM. She began by explaining Suriname’s unique position as a country with 90% forest cover, only 500,000 people (50,000 on forest lands), and negligible deforestation. 13% of the forest estate is protected, 30% is designated for production, while the remainder is not yet allocated to a specific use. She noted that forest financing in Suriname consists of formal (public, ODA, commercial loans, NGO contributions and equity capital) and informal (household savings, private lending and donations from abroad) sources. Internationally, Suriname obtains forest-related financing from various bilateral sources (principally the Netherlands) and the Inter American Development Bank (IDB), but has never borrowed from the World Bank, due to specific historical and economic circumstances. Countries in the Amazon Cooperation Treaty Organization (ACTO) are discussing establishment of a regional forest fund, but this has not yet been agreed.

57. Suriname, she explained, requires three distinct types of forest financing and investment: (a) investments by the domestic public sector, particularly in the basic physical and human infrastructure for SFM; (b) domestic and foreign private sector investment in for-profit SFM activities, as well as investment risk-guarantee mechanisms; and (c) financial support and investment of a non-profit nature to support the SFM capacities and activities of indigenous and local communities. Ms. Bhairo then provided recommendations that arise from Suriname’s SFM financing experience. At the national level, Suriname needs to:

* Improve the enabling environment for private sector investment in SFM;
* Establish a national forest fund;
* Mobilize a loan guarantee fund and create a special “forest window” within that fund;
* Acknowledge and provide legal security for the property rights of indigenous and Maroon communities on state forest lands;
* Invest in building the capacity necessary for both public and private sector forestry activities in areas such as forest planning, research, forest management, and negotiation;
* Estimate the relative values of alternate forest land uses to provide a sound economic basis for forest policy and investment decisions;
* Establish a dedicated mechanism for financing the development of NTFPs;
* Study the feasibility of levying taxes on mining companies for conversion of forests to mining uses;
* Explore, develop and utilize financial mechanisms for ecosystem services such as carbon credits;
* Consider charging tourism fees to support forest conservation;
* Develop common positions with other HFLD countries to strengthen Suriname’s influence in international forest and climate change policy negotiation processes.



58. Recommendations to the international forest policy community arising from the Suriname Case Study include:

* Recognition that Suriname’s past and present stewardship and conservation of the vast majority of its forests has yet to be financially rewarded by the international community, despite the increasingly recognized global environmental values of Suriname’s forests;
* Take action to change the current situation under which HFLD countries such as Suriname are unlikely to benefit under REDD proposals currently being discussed under the UNFCCC, and cannot benefit from reforestation credits under present Kyoto Protocol arrangements;
* Consider incorporating “preventive credits” against future deforestation for HFLD countries into the emerging global climate change regime – along the lines of the new concept of “Terrestrial Carbon Credits” (www.terrestrialcarbon.org).



59. Mr. Michael Richards, Forest Trends, presented case studies from Uganda and Peru demonstrating a “portfolio approach” to forest financing. This approach is based on recognition that SFM requires combining a spectrum of different financing instruments and sources, including domestic public finance, ODA, domestic and international private investment, payments for forest ecosystem services, and philanthropic sources. He explained that good governance, secure property rights and other elements of an enabling policy environment are important preconditions for mobilizing this “portfolio”, and that provision of good information, partnerships, and networking are also important for its success. Outlining conditions in Uganda, he noted that 70% of forests are under private or customary ownership. Participatory processes for natural resources management are relatively well-developed, and Uganda has recently gone through important governance reforms. Uganda is also a pioneer in Africa in developing the potentials of carbon finance. Challenges, however, include a high deforestation rate and growing population, livelihood and development pressures. He stressed that a portfolio approach should decrease Uganda’s dependence on official development assistance and increase opportunities for forest industries.

60. In Peru – a high-biodiversity country that is very vulnerable to the impacts of climate change – reducing emissions from deforestation and forest degradation (REDD) is a priority, and focuses on supporting indigenous communities’ livelihoods and roles in SFM. He underscored the importance of capacity building, and increased participation of civil society and local communities for a “bottom-up” approach. REDD, he noted, implies a portfolio approach, since it requires public sector investments in developing data, forest baselines, carbon accounting and monitoring; capacity development for both public and private institutions to design and develop a national REDD program and REDD demonstration projects; attracting international REDD investors and carbon buyers; strengthening national negotiating capacities in the UNFCCC process; and support for indigenous and other local actors to ensure that they benefit from REDD policies and projects.

61. Based on these case studies, Richards presented some conclusions and questions:

* These studies represent only the first stage in these countries. High level national discussions, with broader stakeholder involvement are the next step, but this requires a stronger commitment from senior policymakers, who in turn want to see tangible results ahead in return for that commitment;
* Institutional coordination is vital, and it is unclear whether more “networking” and “dialogue” are sufficient to provide this “institutional glue.” Coordination between the forestry sector and other key sectors, such as agriculture, is an important condition for implementing the portfolio approach, and specific strategies such as REDD;
* Who should promote the portfolio approach in-country? UN agencies and other international institutions have a role, but will that be sufficient to engender strong national and local ownership over the concept?
* Forest financing discussions, including about REDD, have been very “top-down”. Better strategies are needed to obtain civil society and grass roots participation;
* Is it better to start the Portfolio Approach at the project rather than at the sector-wide level from the start?



62. Mr. Dorjee Sun, Carbon Conservation, Australia, presented on enabling policies for investment in forest carbon from the perspective of the private sector. He described examples of SFM projects based on private investment and selling carbon credits on the growing voluntary carbon market. These include a $3 million deal that resulted in conserving 13,000 hectares of forest under a 100-year contract in Australia, and a $9 million investment by Merrill Lynch in a project in Aceh, Indonesia, with strong support from the Aceh Provincial government. He noted that this involved the coordination of government and NGO efforts, and establishing the baseline deforestation rate that would have occurred in the absence of intervention. He emphasized that policies must be supported by local people, and called for an action-oriented approach. He cautioned against becoming lost in technical details regarding forest carbon valuation.


B. Main elements of the discussions in the breakout groups

63. Participants in breakout groups on institutional and governance issues at the national level raised the following issues and made many recommendations:

64. High-level political commitment to SFM is essential for both mobilizing financing and for ensuring the inter-sectoral coordination required to actually implement SFM.

65. A key first step that countries need to take in to conduct an inventory of their forest resources, including at least a preliminary assessment of their current and potential values.

66. Based on an inventory, countries need to develop a long-term vision for the sustainable development of their forests and forest lands, including land-use planning for both forest and non-forest lands. This needs to be a participatory and inter-sectoral process involving, for example, agriculture ministries and actors, finance and development agencies, and other relevant agencies and stakeholders.

67. In many countries with federal or decentralized political institutions, provinces, states and local government units play a key role in forest management decisions. In those cases, it is essential to both strengthen the capacity of local government units to mobilize forest financing, and ensure both good “vertical” and “horizontal” coordination between national and subsidiary levels of government.

68. Establishment of an enabling policy, legal and institutional environment for financing SFM at the country level is one of the most important steps that countries can take. Key elements include, inter alia: securing and clarifying tenure – i.e. ownership, access and control over forest lands and resources; simplifying the rules and regulations for private sector investors (i.e. reducing bureaucratic regulations, combating corruption); reducing “perverse incentives” that encourage unsustainable forest conversion and establishing positive incentives for SFM investments and activities; strengthening forest law enforcement to reduce illegal logging and land conversion; enabling and empowering community-based forest management approaches; and making specific policy and legal changes that enable the development of payments for ecosystem services systems and initiatives.

69. Processes for stakeholder participation are an important basis for financing and implementing SFM. Stakeholders must feel, however, that their participation is meaningful, and not just a charade, after which governments make all decisions without taking others’ rights and interests into account. This is more likely where the rights and interests of stakeholders (e.g. indigenous communities, private sector investors) are legally-guaranteed and enforceable, improving the chances for government accountability and responsiveness. In the case of indigenous and other rural communities, it is important to ensure that participatory processes are sensitive to local cultural differences, language capacities, and the rhythms of daily and seasonal life (e.g. harvest seasons.)

70. Indigenous peoples with longstanding territorial claims and cultural connections to forest areas are, in many countries, a special class of stakeholders, who are in fact “rights-holders” under both national and international law. Diverse experiences from around the world indicate that where the rights and interests of indigenous peoples are trampled or ignored, it can be very difficult to achieve SFM, and social and political conflicts are likely to arise. Recognizing the rights and interests of indigenous peoples with respect to forests and SFM activities and investments is, therefore, in line with predominant legal and ethical standards, and is also a practical necessity for achieving SFM on the ground. The situation with respect to indigenous peoples of course varies greatly between countries, and national governments must balance the rights and interests of indigenous peoples with broader responsibilities to other segments of the population and concerns about national environmental and economic interests.

71. Partnerships among different stakeholders are key building blocks for mobilizing SFM finance and implementing SFM. Stakeholders, however, have very different levels of capacity and power. There is an important role for government in legally establishing “the rules of engagement” for SFM partnerships to ensure that weaker stakeholders’ interests are equitably represented. This will often require specific capacity-building, advocacy and representation for some weaker stakeholders, such as small and family forest owners, indigenous and local communities, and small business enterprises. NGOs can often play an important supportive role in this regard.

72. A significant constraint on SFM investment is the lack of information on financial instruments and opportunities, and poor market access (e.g. for timber, NTFPs and particularly ecosystem services.) Making information of this kind available, and facilitating market access, is therefore a key step that needs to be taken at the country level. Providing local producers in rural areas with this kind of information requires specialized approaches to which NGOs may be particularly suited. Improving information on international markets and SFM finance instruments will, of course, require enhanced cooperation with international actors such as technical assistance agencies, international business associations, and international NGOs.

73. Many countries have greatly expanded their forest protected areas systems in recent years, but have not yet secured sustainable financing for these systems. SFM financing efforts therefore need to consider and accommodate the specific needs and characteristics of protected area financing. These may include: generating funding from ecotourism; establishing endowment funds; and developing payments for ecosystem services provided by protected areas, such as protection of watersheds and carbon stocks.


C. Conclusions and Recommendations

74. The main conclusions and recommendations of the three breakout groups were:

· High-level national political commitment to SFM is essential for both mobilizing financing and for ensuring the inter-sectoral coordination required to actually implement SFM.


· A key first step that countries can take is to conduct an inventory of their forest resources, including a preliminary assessment of their value.


· Countries can greatly benefit from development of a long-term vision for the sustainable development of their forests and forest lands through a participatory and inter-sectoral process.


· National Forest Programmes and other similar national forest policy frameworks are key vehicles to implement the NLBI, and to catalyze integrated national financing strategies to mobilize and increase financial resources for SFM.


· Good “vertical” as well as “horizontal” coordination among levels of government is also important, especially in countries with federal or decentralized government institutions.


· Establishment of an enabling policy, legal and institutional environment for financing SFM is of critical importance. Key elements of an enabling environment include: securing and clarifying tenure; improving the environment for business start-up and operation; reducing “perverse incentives” and establishing positive incentives for SFM investments; strengthening forest law enforcement; community-based forest management approaches; and creating conditions to allow for payments for ecosystem services.


· Processes for meaningful stakeholder participation are an important basis for financing and implementing SFM. Participation of indigenous and local communities requires attention to their particular cultural and linguistic situations.


· Indigenous peoples often have a special relationship with forests and in many cases have legal rights of ownership and use. Respecting these rights is an important aspect of developing partnerships for financing SFM at the local level.


· Partnerships among different stakeholders are key building blocks for mobilizing SFM finance and implementing SFM. Some stakeholders need assistance and capacity-building support to effectively engage in SFM partnerships.


· Information on SFM financial instruments and opportunities, and better market information need to be available to current and potential producers and investors.


· As protected areas systems have expanded, financing for long-term management has not kept pace. Greater attention should be given to developing sustainable protected area financing plans, drawing on all relevant sources of finance.

· Effective national strategies may also include:


o National trust or endowment funds to finance non-commercial forest conservation and management activities


o Access to credit by local communities and small forest-based enterprises


o Risk management and reduction for investors, including through loan guarantees and ease of movement of capital


· The CPF has a key role in supporting the internationally agreed NLBI, working at all levels from local to multilateral to supportive these actions. UNFF can be pivotal in catalyzing action to address these issues.



2.4. Increasing Financing for SFM: Institutional and Governance Strategies at the International Level
A. Introduction

75. Ms. Andrea Kutter, Global Environment Facility, described the changing international architecture for environmental financing and its implications for forests. She noted that over 20 new funding mechanisms have emerged in the past year. She highlighted the move towards catalytic and results-based financing, stating that the proliferation of funding calls for the coordination of mandates. One of the clear challenges she highlighted is the unnecessary duplication of funding mandates. She noted the compelling need for identifying and acting on the comparative advantages of these instruments. Kutter stressed that the main threat to forest ecosystems comes from conversion of forests to various types of agriculture, and noted that the recent rise in food prices and heightened concern for food security intensifies pressures for agricultural expansion into forest lands.

76. The cross-cutting nature of the forest sector said Kutter, requires not only recognition of the multiple benefits of forests and but also addressing the multiple threats to forest ecosystems when tapping into the new SFM financing streams. She presented the example of the Congo Basin, where SFM efforts are financed by a diversity of funding sources that together exceed $670 million.

77. Mr. Letchumanan Ramatha, on behalf of the Association of Southeast Asian Nations (ASEAN), presented ASEAN’s perspectives on SFM financing. He highlighted current instruments, including: public sector revenues from forests and development funds; private sector revenues from plantations and forest certification; and payments for ecosystem services. He added that some financial flows occur informally and are therefore difficult to document or tap for public purposes. He stressed that constraints to SFM and its financing include: policy failure that promote or perpetuate unsustainable practices; market failures that skew valuation and pricing of forest goods and services; and lack of clarity and understanding concerning the current and potential contributions of SFM to poverty reduction. With respect to PES, Ramatha noted the conclusions of a recent regional workshop in Thailand which concluded that “while many of the mechanisms on payment for environmental services are interesting and innovative, the extent to which they have been successfully adopted and applied is very limited.” He emphasized that market-based forest and timber certification has been adopted in some countries in Asia and in particular that a substantive work programme for strengthening forest law enforcement and governance has been initiated by the ASEAN countries.

78. Max Ooft, Association of Indigenous Village leaders (VIDS), Suriname, gave a comprehensive presentation on issues of significant concern to indigenous forest-dependent peoples. He emphasized that indigenous perspectives on forest financing have not been included in multilateral negotiations, and called for the direct involvement of indigenous peoples in shaping any future multilateral arrangements for financing SFM. He cautioned that the REDD debate “commodifies” forests, and encouraged a human rights-based approach to developing REDD mechanisms. In particular he said, new instruments should include safeguard policies respecting the rights of indigenous peoples. He called for the integration of indigenous peoples within financial decision-making as “rights-holders” and not just as “stakeholders,” and said policies must consider non-monetary values of forests. He challenged the misuse of the concept of national sovereignty, saying that it is often used to avoid addressing the underlying causes of deforestation and the rights of indigenous peoples.


B. Main elements of discussions in breakout groups

79. There was agreement that there are a significant number of existing and emerging international mechanisms and institutions related to SFM finance, particularly taking into account new and emerging sources related to climate change. This institutional proliferation, however, has not yet translated into tangible increases in SFM financing for many countries and stakeholders. Many participants noted that ODA has a critical role to play as a catalyst for other types of funding.

80. An important message was the need to focus special attention on the High Forest Cover / Low Deforestation Rate (HFLD) countries in the design and operation of international forest financing mechanisms and institutions. Current international discussions on REDD has not as yet included adequate consideration of the position of the HFLD countries, according to many. Some participants urged donors to pay particular attention to the unique situation and the needs of the HFLD countries and to provide financing to develop mechanisms to compensate them at a scale commensurate with their key role in the global forest and climate mitigation picture. The World Bank’s emerging Forest Investment Program (FIP) could be strategically placed as a major financer for HFLD countries and for other SFM activities mutually supportive with climate change objectives.

81. While still in a formative stage, the FIP will likely focus on a broad framework of actions at all levels to reduce deforestation and forest degradation, promote SFM as a means to reducing carbon emissions, and protect existing forest carbon reservoirs. Participants noted that the FIP may well become a significant source of multilateral funding to address these needs in developing countries. In addition, the FIP may serve to “prime the pump” for further investment from other sources. Discussion on this subject will and should continue until the terms of the fund are decided in early 2009. Countries and stakeholders will have an opportunity to contribute their views on how the FIP should be shaped, governed and operated through a series of consultative processes during the latter part of 2008 and early 2009.

82. Participants stressed that there is much room to improve the interface between users and providers of financing for SFM. They called for financing criteria to be mutually supportive of multiple forest benefits, including the conservation of biodiversity and combating climate change and land degradation, noting once again the absolute importance of a coherent plan and strategy at the country-level as the necessary foundation for catalyzing new international SFM financing.

83. A major theme of the discussions was a call for a more comprehensive vision by all players of the current and emerging international financing mechanisms for forests, which are fragmented, duplicative and confusing for actors at all levels.

84. Communication at all levels was identified as a critical need, including effective coordination and strategic planning between sectors of government at the national level. Participants called for the UNFF and CPF members to play a major and strategic role in this regard at the international level, including identification of key linkages and major gaps. Participants suggested that implementation of the NLBI can be used as a vehicle to help ensure that SFM financing is addressed in a comprehensive manner.

85. A number of participants noted that the CPF’s on-line Sourcebook on Funding for Sustainable Forest Management, managed by the FAO, can become an important tool for navigating various SFM funding sources and application processes, and to that end it should be strengthened with dedicated human and other resources.

86. Participants stressed the need for international funding to reach communities and grassroots level organizations, with some suggesting that the efficacy of current funding activities be analyzed to improve funding for these local initiatives.

87. Participants highlighted difficulties in accessing international funding, as well as challenges associated with delivery on past promises from financial institutions. They highlighted the importance of implementing the principles of the Paris Declaration on Aid Effectiveness in this regard.

C. Conclusions and Recommendations

88. The main conclusions and recommendations of the three breakout groups were:

· There are a significant number of existing and emerging mechanisms and institutions related to SFM finance, particularly taking into account new and emerging sources related to climate change. This institutional proliferation, however, has not yet translated into tangible increases in SFM financing for many countries and stakeholders. Many participants noted that ODA plays a critical role as a catalyst for other funding.

· Improving the interface between users and providers of financing for SFM is a major priority. A coherent approach at the country-level is a necessary foundation for mobilizing international SFM financing.

· A comprehensive vision by all players of the current and emerging international financing mechanisms and approaches for forests is critical. The current reality is an increasingly fragmented and duplicative picture of international financing opportunities for actors at all levels. Greater policy coherence is needed among existing and new and emerging forest-related funding mechanisms.

· International funding needs to reach communities and grassroots-level organizations. Current and prospective SFM funding mechanisms and initiatives should be adjusted to improve funding for these locally-based programmes.

· The complexities of accessing international SFM financing mechanisms can be reduced through streamlining institutional processes. More active and consistent application of the Paris Declaration on Aid Effectiveness can help in this regard.

· The emerging World Bank Forest Investment Program (FIP) holds great potential to mobilize significant new funding for forest finance. Countries and stakeholders should actively engage in the FIP design process ongoing in 2008-2009.

· There is a compelling need to focus special attention on HFLD countries in the design of REDD financing principles and mechanisms.. Although REDD discussions are advancing rapidly, they have not yet taken the position and interests of the HFLD countries in any significant way. The FIP may be well-placed to serve as a financer for HFLD countries, complementing other funds such as the FCPF.

· Communication at all levels was identified as a critical need, with effective coordination and strategic planning between sectors of government at the national level a key component. The UNFF and CPF can play an important role in this regard at the international level, with a focus on implementation of the NLBI.

· CPF’s on-line Sourcebook on Funding for Sustainable Forest Management can become an important tool for navigating various SFM funding sources and application processes, and to that end it should be strengthened with dedicated human and other resources.

· Forests should not be viewed only as a source of commodities or as units of accounting in carbon finance schemes; rather, their multiple values, goods and services should be taken into account.

· In many regions, the livelihoods, cultures and well-being of forest-dependent peoples are directly and inseparably linked to the integrity of forests.

· A holistic approach to forest sustainability and related financing aspects requires recognition of human rights.

· Indigenous people participation in the UNFF continues to be limited and needs to be strengthened.

· Collective ownership of forest lands and resources by local communities and indigenous people can contribute to SFM.

· The establishment of PES schemes should not result in making the traditional practices of indigenous peoples illegal, or in their forced relocation.

· Indigenous peoples should be active participants in forest-related policy decisions that affect them.

· Financing for SFM should reflect a holistic approach that takes into account the needs, right and contributions of all stakeholders, including indigenous and other forest-dependent peoples.

· UNFF policies and principles for financing SFM should take into account the UN Declaration on the Rights of Indigenous Peoples.

· Direct access to funding and credit by indigenous and local communities should be an element of an international portfolio approach to SFM financing.


III SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS

86. The conclusions and recommendations discussed by participants at the CLI, which are more fully addressed in the main body of the CLI report, are presented below. They have been reordered and clustered under sub-headings for the benefit of the reader, but their substantive text remains unchanged.

These conclusions and recommendations are offered as input to the UNFF discussions and negotiations on financing for SFM. They reflect a compilation by the CLI Co-Chairs of views and recommendations offered during the meeting and does not necessarily reflect consensus among participants, who participated in the CLI their personal capacity as experts..

A. Current and Emerging Initiatives and Mechanisms for Financing SFM

· The UNFF is entering a new and mature era, having agreed in 2007 to a Multi-Year Program through 2015 and to the Non-Legally Binding Instrument on All Types of Forests (NLBI), which the UN General Assembly adopted in December 2007.

· The NLBI is a landmark global agreement achieved after years of negotiation. The agreement builds on the Forest Principles adopted at Rio in 1992, as well as the Johannesburg Plan of Action of 2002, and provides an enhanced framework for national action and international cooperation to achieve sustainable forest management (SFM).

· The UNFF 7 agreed, among other things, to develop and consider, with a view to adopting, a “voluntary global financial mechanism/portfolio approach/forest financing framework aimed at mobilizing significantly increased new and additional resources from all sources, based on existing and emerging innovative approaches, also taking into account assessments and reviews of current financial mechanisms, to support the objectives on forests and the implementation of the non-legally binding instrument aon all types of forests.” There is an urgent need for financing for sustainable forest management from all sources.

· Forests are diverse in character and subject to widely varying pressures. The context of forests and forest policies are often country-, Subregion- or ecosystem-specific (e.g. mangroves versus boreal forests or tropical rainforests).


· There is a critical need to tackle the main drivers of deforestation, which in large part lie outside the forest sector.


· Less than half of countries’ Poverty Reduction Strategic Papers (PRSPs) even mention forests, and less than a quarter include a coherent cross-sectoral strategy incorporating forests and SFM. Countries should develop coordinated development strategies that address all actions having an impact on forests, and include SFM as a basis for sustainable development.


· A country’s investment climate is critical to attracting private sector investment.



· Although ODA will remain important for SFM financing, existing and projected ODA flows will be insufficient in themselves. ODA therefore needs to play a catalytic role in mobilizing a broader spectrum of SFM financing.


· It is often difficult for those at the local level to be aware of, understand, and influence national and global threats to forests, or the opportunities to reduce those threats. Forest governance at the international and national level should therefore take these local realities into account.


· Among other priorities, SFM financing should focus on building an enabling policy, legal and institutional environment at the national and sub-national level, in order to more effectively attract sustainable financing for SFM.

· Forest-related options hold considerable promise for reducing greenhouse gas emissions, but uncertainties remain about the relative cost-effectiveness of forest-related measures in different countries and contexts. The Forest Carbon Partnership Facility (FCPF) has made substantial funding available for capacity building and carbon payments at the country-level. Countries are urged to actively engage through their representatives in shaping the implementation of the FCPF.

· A narrow focus on REDD at the expense of multiple forest values is unlikely to result in the full achievement of SFM in all countries. The current climate change financing focus does not fully address these multiple values.

· The emerging World Bank Forest Investment Program (FIP) has significant potential to mobilize increased funds to support efforts in developing countries to reduce deforestation and forest degradation, strengthen SFM capacities, and protect carbon reservoirs, as well as addressing HFLD countries which might otherwise not receive support for standing forests.

· The rapid proliferation of forest-related processes, funds and initiatives is leading to incoherence and causing considerable confusion. Stronger coordination and better complementarity are needed to bring more coherence and simplicity to this emerging global forest finance “system”. Countries can support this goal by speaking with one voice (i.e. delivering consistent messages and positions) in their roles as members of various institutions’ governing bodies and as Parties to various multilateral agreements, which together constitute the emerging public international architecture for forest policy and SFM finance.


· Actions to clarify forest tenure and property rights are crucial to achieving SFM, and include mapping and securing the tenure, property, and use rights of local communities and indigenous peoples, as well as those of small and family forest owners.


· Increasing recognition of sustainably-produced timber as a climate-friendly substitute, in some circumstances, for steel, concrete and plastic may help expand markets for sustainably-produced forest products and thereby increase financing for SFM.

· Economic values of forest ecosystems are increasingly recognized, including protection of water, soil, biodiversity, and carbon. Emerging systems for payments for ecosystem services (PES) present important new opportunities for mobilizing SFM financing.


· PES markets are still evolving and not generally well-understood by the forestry community. Improving this communications gap is a key task for mobilizing PES as part of SFM financing.


· PES initiatives will need to be flexible and adapted to diverse national contexts: One size does not fit all.


· Establishing an enabling policy environment for SFM at the national level is a crucial step for countries to take, in order to mobilize and take advantage of emerging PES instruments and opportunities. Key elements of an enabling environment include:


* Mainstreaming SFM as a core element of development planning and investment discussions and priorities;
* Strengthening policy coherence among government sectors in order to “speak with one voice” on forest issues in different international fora (e.g. UNFF and UNFCCC);
* Clarifying and securing land tenure – i.e. allocation, ownership and control over forest lands and resources;
* Improving the environment for doing business – particularly for small and medium enterprises – by combating corruption and reducing bureaucratic barriers (i.e. “red tape”) to private sector business activity;
* Creating the conditions that allow community-based forest management to flourish, and empowering local and indigenous communities to participate in decision-making about forests and forest policy;
* Strengthening forest law enforcement;
* Reducing perverse incentives that encourage unsustainable forest uses and forest conversion, and develop positive economic incentives (e.g. tax breaks) for SFM.
* Establishing specific provisions to enable PES systems to be established and flourish.



· Forest inventory, forest land use planning, mapping and carbon accounting are all key building blocks for PES, and SFM financing in general.


· Given the critical importance of the legal and governance basis for PES, it may be useful to hold regional or national workshops, building on preparatory research and stakeholder consultation, to identify key legal and governance obstacles and develop recommendations and strategies to overcome these obstacles.


· In developing countries in particular, there is a pressing need for more information on the theory and practice of PES, including examples of PES best practices and success stories.


· Implementing PES requires “up-front” investment in developing capacity, basic information (e.g. maps), etc. ODA can play a catalytic role in this regard.


· PES is a potentially fundamental element of the “portfolio approach”, but it may not be applicable to all countries and situations.


· There are significant differences between PES in the national or local context versus international context. Trans-boundary PES initiatives may be more difficult to develop and implement.


· Strategies for PES may include a combination of market-driven voluntary transactions and regulatory approaches.


· In some cases, ecosystem services are viewed as free “public goods”, and some are resistant to the idea of paying for them. Others object on ethical grounds to the commoditization of nature. Political and social acceptance of PES is therefore a challenge, along with technical and policy challenges.


· There is considerable uncertainty about how various PES systems would distribute burdens and benefits. Indigenous and local communities in particular, are very concerned that they may not be compensated for their longtime efforts to conserve and sustainably use forests, and may even lose access to their lands and resources in a “PES gold rush” by outsiders.


· It is often difficult to ensure that those who provide particular ecosystem services are the ones who are actually compensated for doing so. Similarly, identifying the users who should pay for those services – and devising practical and feasible ways to get them to pay – is a challenge.


· Independent, voluntary certification standards and systems are one important method for boosting investor confidence in PES projects, but such systems are still in an early stage of development. Many potential investors seek a transparent standard that can verify not only carbon performance, but also performance in meeting biodiversity and social objectives. The market-leading Climate, Community and Biodiversity (CCB) Standard is in the process of developing a verification standard that takes multiple carbon, biodiversity and social benefits into account. Development, testing and application of a holistic standard of this kind will help to build investor confidence.


· The growing focus on reductions in emissions from deforestation and forest degradation (REDD) and the renewed concern for forests as a result may provide an important boost for SFM financing efforts, but there are also concerns, for example:


o The intense focus on REDD may be creating inflated expectations about the financial resources that are likely to be generated for SFM.


o The focus on forests’ carbon ecosystem services may overshadow and crowd out attention to other important forest ecosystem services, such as biodiversity and water.


o The compressed negotiating schedule under UNFCCC, and the pressure to agree on a REDD system by the end of 2009, before the issues are fully understood, raises concerns for some.


o The nature of “forest carbon” – whether it is a commodity or a unit of measure to value a service is unclear and has implications for determining who are the providers/owners of carbon.


· Countries and other stakeholders can immediately take advantage of carbon-based PES systems, using the growing voluntary market, while the proposed REDD mechanism under the UNFCCC regime is developed.



B. Institutional and governance strategies at national and international levels for financing for SFM

· High-level national political commitment to SFM is essential for both mobilizing financing and for ensuring the inter-sectoral coordination required to actually implement SFM.


· A key first step that countries can take is to conduct an inventory of their forest resources, including a preliminary assessment of their value.


· Countries can greatly benefit from development of a long-term vision for the sustainable development of their forests and forest lands through a participatory and inter-sectoral process.


· National Forest Programmes and other similar national forest policy frameworks are key vehicles to implement the NLBI, and to catalyze integrated national financing strategies to mobilize and increase financial resources for SFM.


· Good “vertical” as well as “horizontal” coordination among levels of government is also important, especially in countries with federal or decentralized government institutions.


· Establishment of an enabling policy, legal and institutional environment for financing SFM is of critical importance. Key elements of an enabling environment include: securing and clarifying tenure; improving the environment for business start-up and operation; reducing “perverse incentives” and establishing positive incentives for SFM investments; strengthening forest law enforcement; community-based forest management approaches; and creating conditions to allow for payments for ecosystem services.


· Processes for meaningful stakeholder participation are an important basis for financing and implementing SFM. Participation of indigenous and local communities requires attention to their particular cultural and linguistic situations.


· Indigenous peoples often have a special relationship with forests and in many cases have legal rights of ownership and use. Respecting these rights is an important aspect of developing partnerships for financing SFM at the local level.


· Partnerships among different stakeholders are key building blocks for mobilizing SFM finance and implementing SFM. Some stakeholders need assistance and capacity-building support to effectively engage in SFM partnerships.


· Information on SFM financial instruments and opportunities, and better market information need to be available to current and potential producers and investors.


· As protected areas systems have expanded, financing for long-term management has not kept pace. Greater attention should be given to developing sustainable protected area financing plans, drawing on all relevant sources of finance.


· Effective national strategies may also include:


o National trust or endowment funds to finance non-commercial forest conservation and management activities


o Access to credit by local communities and small forest-based enterprises


o Risk management and reduction for investors, including through loan guarantees and ease of movement of capital


· There are a significant number of existing and emerging mechanisms and institutions related to SFM finance, particularly taking into account new and emerging sources related to climate change. This institutional proliferation, however, has not yet translated into tangible increases in SFM financing for many countries and stakeholders. Many participants noted that ODA plays a critical role as a catalyst for other funding.

· Improving the interface between users and providers of financing for SFM is a major priority. A coherent approach at the country-level is a necessary foundation for mobilizing international SFM financing.

· The UNFF and the CPF are urged to increase cooperation to address these opportunities and gaps.

· A comprehensive vision by all players of the current and emerging international financing mechanisms and approaches for forests is critical. The current reality is an increasingly fragmented and duplicative picture of international financing opportunities for actors at all levels. Greater policy coherence is needed among existing and new and emerging forest-related funding mechanisms.

· International funding needs to reach communities and grassroots-level organizations. Current and prospective SFM funding mechanisms and initiatives should be adjusted to improve funding for these locally-based programmes.

· The complexities of accessing international SFM financing mechanisms can be reduced through streamlining institutional processes. More active and consistent application of the Paris Declaration on Aid Effectiveness can help in this regard.

· The emerging World Bank Forest Investment Program (FIP) holds great potential to mobilize significant new funding for forest finance. Countries and stakeholders should actively engage in the FIP design process ongoing in 2008-2009.

· There is a compelling need to focus special attention on HFLD countries in the design of REDD financing principles and mechanisms.. Although REDD discussions are advancing rapidly, they have not yet taken the position and interests of the HFLD countries in any significant way. The FIP may be well-placed to serve as a financer for HFLD countries, complementing other funds such as the FCPF.

· Communication at all levels was identified as a critical need, with effective coordination and strategic planning between sectors of government at the national level a key component. The UNFF and CPF can play an important role in this regard at the international level, with a focus on implementation of the NLBI.

· CPF’s on-line Sourcebook on Funding for Sustainable Forest Management can become an important tool for navigating various SFM funding sources and application processes, and to that end it should be strengthened with dedicated human and other resources.

· Forests should not be viewed only as a source of commodities or as units of accounting in carbon finance schemes; rather, their multiple values, goods and services should be taken into account.

· In many regions, the livelihoods, cultures and well-being of forest-dependent peoples are directly and inseparably linked to the integrity of forests.

· A holistic approach to forest sustainability and related financing aspects requires recognition of human rights.

· Indigenous people participation in the UNFF continues to be limited and needs to be strengthened.

· Collective ownership of forest lands and resources by local communities and indigenous people can contribute to SFM.

· The establishment of PES schemes should not result in making the traditional practices of indigenous peoples illegal, or in their forced relocation.

· Indigenous peoples should be active participants in forest-related policy decisions that affect them.

· Financing for SFM should reflect a holistic approach that takes into account the needs, right and contributions of all stakeholders, including indigenous and other forest-dependent peoples.

· UNFF policies and principles for financing SFM should take into account the UN Declaration on the Rights of Indigenous Peoples.

· Direct access to funding and credit by indigenous and local communities should be an element of an international portfolio approach to SFM financing.






ANNEX I

Text of Opening Plenary Welcoming Addresses

Address by the President Of The Republic Of Suriname, H.E. Runaldo Ronald Venetiaan


At the Opening of the Country – Led Initiative (CLI) on Financing for Sustainable Forest Management in Support of the United Nations Forum On Forests

Monday 8 September 2008


Excellencies, Ladies and Gentlemen,

It is a pleasure for me to welcome you all to the Republic of Suriname. For many of you, it has not been easy to get here, and we thus appreciate it even more to have you’re here as a participant in this important meeting. I do hope that in spite of the busy meeting schedule, you will find the time to enjoy the beauty of the country and the hospitality of our people.


In keeping with our status as real children of a tropical rainforest nation, we endorse the goals of the United Nations Forum on Forests. We therefore express sincere appreciation to those who have recognized the government of Suriname as a suitable partner, and our country as a suitable site, for a meeting of such magnitude and importance. Suriname hosts this Country-Led Initiative conference on Financing Mechanisms for the Sustainable Management of Forests, in close cooperation with the Governments of the United States of America and the Kingdom of the Netherlands.

Aware of the value of our forests, we have a long history of nature conservation. In the past fifty years, we have managed to develop legislation on protected areas and on sustainable forestry. Indeed, with 90 percent forest cover and negligible deforestation, Suriname prides itself on being one of the few countries on this Earth with an abundance of pristine standing forests.

Our commitment to conserve our biodiversity culminated in 1996 with the ratification of the United Nations Convention on Biological Diversity (CBD), and through the formulation of a National Biodiversity Strategy, which is an instrument for the overall policy to conserve, protect and sustainably develop biodiversity as an economic tool. In accordance with this strategy and in the framework of the Amazon Cooperation Treaty Organization (ACTO), Suriname has now started to look into the potential to develop and increase trade in non-timber forest and other products.

While on a national scale we have been prudent in protecting our biodiversity these past fifty years, there have been dramatic environmental disturbances in the world. Climate change, growing populations and increasing urban sprawl have caused serious losses of wetlands, forests, river floodplains, and marine ecosystems. And with these losses, resources – which were thought to be plentiful – are now being depleted at alarming rates. As famines and poverty increase, the world has finally recognized the organic link between people and nature; that a sustainable environment is also vital for sustainable economic development.

As a country with large tracts of forests still intact, we have become even more aware of the enormous value and great potential of what we have, and of the challenges to find the balance we seek between meeting the immediate material needs of our people and sustaining an environment that is indispensable for healthy, long-term economic growth and human well-being.

Suriname is already protecting about 13 percent of its territory. This includes the 1.6 million hectare Central Suriname Nature Reserve, one of the largest stretches of the most pristine tropical rainforests left on Earth. There are initiatives to bring even more land under official protection. These vast undisturbed areas, covered by dense forest, are at the very heart of the Guayana Shield, which accounts for over 25 percent of the world’s remaining tropical rainforests.

The Government of Suriname believes that our forests are among our most important assets and should be utilized to the fullest possible extent to boost national development and contribute to enhancing human well-being. At the same time, we are a member of the international community, and as such we are aware that our national resources are part of the Earth’s resources, and that adverse global developments will always affect us here in Suriname as well.

Sometimes we can hardly keep up with the fast pace of new international trends in ideas and ideologies on the importance of tropical rainforests for the global environment. However, even when we make choices in favor of our own economic development, we always address the concerns which our priorities may raise about their long-term global impact.

Excellencies, Ladies and Gentlemen,

There is a strange paradox in the international community. Everyone sings our praise for having managed to retain our forests, and there is increasing pressure on us to conserve even more of our territory and to refrain from economic activities that threaten or harm our forests. Yet, there does not seem to be any means available to help us invest in developing a sustainable economy for the benefit of our own people, while retaining the important function as lungs of the world. The global panic about the effects of climate change is not translated into comparable international efforts to provide the resources to support rainforest nations. It is, therefore, time – and no more than fair – that a global payment system be devised to compensate us, forested countries, for the ecological services being provided to the international community by the forests we have so prudently maintained throughout the years.

Excellencies, Ladies and Gentlemen,

On a national scale as well, the time has come for us to face challenges that may prevent us from having a sustainable economy in a sustainable environment. A national land use planning and management system is indispensable, if we are to further utilize our natural resources for the benefit of our own sustainable development. Suriname is convinced that within our own borders, this will help us to deal with competing claims for land, to foster dialogue and decision-making on the land rights issue, and to discuss and resolve sustainable forest management.

It is also an important tool in discussions we will have with our neighbours, since ecosystems and landscapes hardly ever coincide with political borders. The Republic of Suriname believes in the importance of friendly and effective working relationships with all neighboring countries, in the protection and management of our respective territories to sustain our biological resources for ourselves and for our planet.

Thus, it is with much interest that we noted the initiative taken by the President of Brazil to establish a special fund to ensure sustainable financing of its forests. Suriname has had a similar financing mechanism since 2000, namely the Suriname Conservation Foundation (scf), which was set up with technical and financial assistance from the Global Environment Facility, The Suriname—Netherlands Development Cooperation, Conservation International, and UN organizations like UNDP and the UN Fund. The Government of Suriname will make every effort to facilitate effective cooperation between the Suriname Conservation Foundation and comparable funds in the region.

Excellencies, Ladies and Gentlemen,

The financing of sustainable forest management continues to be a prominent issue on the international agenda and a central element of the international dialogue on forests and sustainable development. With the adoption of the landmark “Non-Legally Binding Instrument on All Types of Forests (NLBI)” in 2007, discussions have entered a new dimension. Our challenge now is to develop financial mechanisms to deliver new and additional resources needed for a successful implementation of the Instrument, to achieve the agreed Global Objectives on Forests by 2015.

A structure must be put in place for the protection of forests through the generation of funds that can contribute to the development of forested countries.

We therefore support the specific request by the Economic and Social Council (ECOSOC) that the United Nations Forum on Forests consider developing a financing mechanism based on the portfolio approach, which involves mobilizing funds from diverse sources to enhance the contribution of forests to human well-being world-wide.

We also urge the international community not only to recognize the importance of pristine forests as a carbon sink, but also to facilitate a system of payment for ecosystem services rendered by forested countries. The Government of Suriname believes that such financing mechanisms would be most effective if they provided incentives to governments for continued implementation of a sustainable forest management policy, and facilitated groups with special forest-related interests.

Excellencies, Ladies and Gentlemen,

As we commence this meeting, I wish you all fruitful deliberations. I do hope that this meeting of experts will be the last CLI conference discussing the importance of forests and creating alternative funding for forests. I look forward to strong conclusions and recommendations, which will inform the UNFF and other world fora. The decision to save our planet is simple. In chorus with the interest of the world community, and in their best tradition, countries like the Republic of Suriname have made the decision to deliver their part in the process of sustainable forest management.

Therefore, confident that I speak on behalf of the forested nations, I call upon the institutions of the world community not to be daunted by the complexities of procedures and calculations, but to make the simple decision to provide sustainable financing for sustainable forest policy.

Thank you.

Welcoming address by

Mr. Hans Hoogeveen, Chair UNFF-7 and Director-General of the Ministry of Agriculture, Nature and Food Quality, on behalf of the Government of the Netherlands
Monday 8 September 2008

Your Excellency President Venetiaan, Excellencies,
Distinguished Experts, Ladies and Gentlemen, Dear Friends,

13 million hectares of forests worldwide are lost every year. This is almost the size of Suriname and four times The Netherlands.

The climate is changing rapidly with unbelievable consequences. Think about the tragic losses in Myanmar and Haiti. Consider the impacts of the hurricanes Gustav, Hanna and Ike.

Over a billion of people are living in extreme poverty and depend on forests for their livelihoods. Their daily struggling through life is not getting any better due to continued deforestation and degradation.

It took us 15 years to arrive at a landmark agreement within the United Nations for sustainable forest management. We cannot afford another 15 years to implement it, because it would result in the loss of a third of our worldwide forests since Rio.

However, we are also living today in times of challenges and opportunities for forests: opportunities for change. If we will implement sustainable forest management on the ground, we will be able helping to sustain and improve the rural livelihoods of more than one billion people: we will improve equity, conserve biodiversity, reverse climate change and meet expanding demands for forest products.
President Venetiaan, Excellencies, Ladies and Gentlemen,

This in a nutshell is why we are here in Paramaribo.

This is also why on behalf of the government of The Netherlands it is my honor to welcome you to the Country Led Initiative in Paramaribo.

I would like to compliment the Republic of Suriname for hosting this country-led initiative on forest finance. I am confident that the relentless efforts of Suriname will make this meeting a great success.

The seventh session of the United Nations Forum on Forests changed the landscape for sustainable forest management. After 15 years of discussions and negotiations we decided upon a landmark international agreement on forest policy, implementation, and cooperation. The Non-Legally Binding Instrument on Sustainable Forest Management sets a new standard in sustainable forest management. Now it is up to us to successfully implement this international agreement. We have to act. And we have to act now. Words should be translated into concrete action.

And let us be honest to ourselves. We can only do it if we are able to mobilize significantly increased, new and additional resources. It is my strong belief that this can only be achieved via new and innovative approaches.

This would require coordinated efforts, action and effective partnerships between government agencies, non-governmental and civil society organizations, international organizations, private sector actors, and other stakeholders like the indigenous people and local communities. Partnerships should be formed at all levels.

Public funding, especially ODA, will stretch only so far in support of these efforts. The private sector and philanthropic foundations should also be called upon and engaged to work in innovative ways on forest afforestation, reforestation, and restoration issues. That is why I am convinced that the portfolio approach is the way forward.

The UN General Assembly has provided a clear roadmap for deciding on forest finance at UNFF-8.
Ladies and Gentlemen,

However, we have to do more. And we have to do it in a different way. Fragmentation within the UN system with regard to forest-related issues leads to incoherence and duplication.

We have to ensure more coherence within the UN system with regard to forests. More than ever, Member States have to convey consistent and coherent messages when they operate in the different governing bodies. For example this should be the case for the upcoming negotiations on a new regime for climate change.
Excellencies, Distinguished Experts,

Let me conclude.

In the end, it will take new thinking and new relationships, both inside and outside of the forest sector and at all levels to achieve our shared vision of sustainable forest management. Sustainable solutions are shared responsibilities. Sustainable solutions require joint action.

I congratulate you for your relentless commitment for many years. I commend you for your dedication. I count on you for your leadership. Together we can assure that our shared aspirations for the implementation of sustainable forest management can become a reality for the benefit of our children and our grand children.

Let us not forget, that we have only one planet to share, and we must ensure its health and sustainability. Forests are a critical element for that.

Welcoming address by


Ms. Stephanie Caswell, State Department,

on behalf of the Government of the United States of America

Monday 8 September 2008


Mr. President, Excellencies, friends and colleagues,


The United States is pleased to co-sponsor the “Paramaribo Dialogue” on Financing for SFM. – And we warmly thank the Government of Suriname for inviting and welcoming us to Suriname.


The concept and practice of “country led initiatives” is an innovation of the UN Forum on Forests and its forerunners – and one that has helped inform the international forest policy dialogue for many years.


The UNFF is entering a new and mature era -- having agreed in 2007 to a Multi-Year Program of Work through 2015 and to the Non-Legally Binding Instrument on All Types of Forests, which the UN General Assembly formally adopted in December. The NLBIis a landmark global agreement achieved after years of negotiation. It builds on the Forest Principles adopted at Rio in 1992, as well as the Johannesburg Plan of Action of 10 years later.


The NLBI provides a framework for national action and international cooperation to achieve sustainable forest management... It also enshrines for the first time the recognition that sustainable forest management depends on two equally important and closely interrelated factors: (1) increased financial resources from all sources; and (2) good governance at all levels.


The 8th session of the Forum next aims to adopt a “voluntary global financial mechanism/portfolio approach/forest financing framework to mobilize significant new and additional resources from all sources” to implement the NLBI. While the words “mechanism”, “approach” and “framework” may have different interpretations, it is clear they reflect a common interest in generating more money for forests from public, private, domestic and international sources.


Since UNFF 7 we have seen an explosion of new forest-related public funds, primarily in the climate context:


The World Bank Forest Carbon Partnership Facility has already attracted 110 million US dollars in donor pledges to create enabling environments in developing countries to reduce deforestation and forest degradation, while conserving water resources, protecting biodiversity and reducing poverty.


The Bank also has plans to establish a Forest Investment Fund within the framework of its projected 5 billion dollar Climate Investment Funds, specifically to mobilize significantly increased financing to reduce deforestation and improve forest management.


We have seen major announcements from individual countries. For example, Norway has stated its willingness to pledge 600 million dollars each year to help partner countries address deforestation and improve forest-related governance.


The United Kingdom, Norway and the Africa Development Bank have launched the Congo Basin Forest Fund to help protect the region’s forests and promote livelihoods. Over 200 million dollars has been pledged so far. This is in addition to funds being generated through the Congo Basin Forest Partnership – which since 2002 has mobilized 85 million dollars from the US alone.


These and other new and emerging funds represent a significant increase in the future flow of financial resources to developing countries – And we will learn more about them this week.


However, the reality is that public financing generated from taxpayers in donor countries will never be sufficient to support all the efforts of all countries to improve their forest management and governance.

What this new influx of public money can and should do is provide a catalyst for leveraging much greater funding from private and other non-government sources. The question is how?


For example, commercial timber harvesting and processing is worth billions of dollars a year. How can countries create an enabling environment that makes investing in sustainable forest management attractive to domestic and foreign companies?


Many countries are developing innovative ways at local and national levels to value forest ecosystem services, such as water, soil, carbon and biodiversity, to generate revenue from and for forests. What can governments do to institutionalize payments for ecosystem services and how can the international community assist?


In the last decade, we have seen the enormous funding power of philanthropic foundations and celebrity causes that arefocused on poverty alleviation, food security, community development and the environment? How can we tap into this funding for forests?


We hope to work together this week to begin to answer some of these questions and identify what could be a tremendous portfolio of opportunities to generate financing for forests. We will hear from some wonderful speakers on this “portfolio” of opportunities.


While there have been many meetings on forest financing over the years, this meeting may be the first to bring together not only forest experts, but also financial experts – people who know how to raise money and generate revenue.


Our goal is to educate ourselves and each other on what is already happening around the world and what is possible. We want all of you to tell us about the tools you are using – and that others could also use – to give economic value to forests locally, nationally and globally.


This is not a negotiation. It’s not a dry run for the UNFF Experts Group which will meet in Vienna in November. While we hope our interaction here will help inform that discussion, we are not seeking to force a consensus.


So I encourage all of you to listen. Participate. Share your knowledge and experiences. And help us identify practical ways to conserve the economic, social and environmental benefits provided by forests.








ANNEX II
Program of CLI

Agenda

The Paramaribo Dialogue
A Country-Led Initiative on Financing for Sustainable Forest Management,
In Support of the United Nations Forum on Forests


September 8-12, 2008, Paramaribo, Suriname
Royal Ball Room & Conference Hall Torarica


Organized by the Governments of the Republic of Suriname, Kingdom of The Netherlands
and United States of America


Co-Sponsors: Government of the United Kingdom; International Tropical Timber Organization (ITTO)); The World Bank; WWF Guyanas; Inter-American Development Bank; Conservation International

Monday, September 8

07.30 Registration and Coffee/Tea
08.45 Opening of the Meeting

· National Anthem of Suriname

· Welcoming address : Ambassador Ewald Limon, Chair Presidential Taskforce ‘National CLI preparations’, Suriname

· Welcoming address: Ms. Stephanie Caswell, CLI Co-Organizer, United States

· Welcoming address: Mr. Hans Hoogeveen , Chair UNFF 7 and CLI Co-Organizer, the Netherlands

· Welcoming address: Dr. Boen Purnama, Chair UNFF-8, Indonesia

· Opening of the Meeting by H.E. Runaldo Ronald Venetiaan, President, Republic of Suriname

·
10.00 Coffee/Tea Break

10.30 Plenary I - Overview (Co-Chairs)

· “Financing the world’s forests: Overview of issues and opportunities” – Dr. Russell Mittermeier, President, Conservation International

· “Financing sustainable forest management: New opportunities and instruments” – Mr. Michael Jenkins, President and CEO, Forest Trends

· “Financing for the implementation of the Non-Legally Binding Instrument on Forests: A background analysis” – Ms. Tiina Vahanen, Forestry Officer, UN Food and Agricultural Organization (FAO), on behalf of the Collaborative Partnership on Forests (CPF)

· “External financial flows for sustainable forest management in developing countries” Mr. Markku Simula, Consultant to the Advisory Group on Finance of the Collaborative Partnership on Forests (CPF)

· “New and emerging World Bank initiatives on forest finance” – Mr. Gerhard Dieterle, Forests Advisor, The World Bank

· “Issues and opportunities for forestry financing in Latin America and the Caribbean: The Role of the Inter American Development Bank” – Ms. Dora Currea, General Manager, Caribbean Country Department, Inter-American Development Bank

Questions from participants
12.30 Lunch

13.45 Plenary II - Financing Sustainable Forest Management: Producer, Consumer and Community Perspectives (Co-Chairs)

· Mr. Amha Bin Buang, Assistant Director, Economic Information and Market Intelligence, International Tropical Timber Association (ITTO)

· “Financial challenges facing forest products producers in South Africa” – Ms. Linda Mossop-Rousseau, South African Forestry Company, Ltd.

· “Community forestry and forest financing: The Papua New Guinea experience” - Mr. Yati Bun, Executive Director, Foundation for People and Community Development, Papua New Guinea

· “The role of markets for facilitating sustainable forest management” -Mr. Erik Albrechtsen, Head, Environment Department, DLH Group, Denmark

Questions from participants

14.45 Plenary II continued:

* “Forest Finance, Institutions and Governance: Strategies for international cooperation”, Professor Adil Najam, Boston University


Questions from participants
15.45 Coffee/Tea Break

16.00 Breakout groups
Each of the three breakout groups will discuss the input from plenary sessions I and II
17.45 Adjourn
18.30 Opening Reception Hosted by Suriname
Tuesday, September 9

08.45 Plenary III (Co-Chairs)
Part I: Reports from breakout groups

Part II: Financing from Forest Ecosystem Services

· “Mobilizing financing from forest ecosystem services: Getting the policy environment right” – Mr. Carlos Manuel Rodriguez, Regional Vice President for Central America, Conservation International

· “Roots to Capital for Natural Infrastructure’” – Mr. Simon Petley, CEO, Enviromarket, UK

· Brazilian Perspectives of Carbon Compensation for the Protection of the Amazon Rainforest; a Case of Payment for Environmental Services” – Mr. Claudio Maretti, Conservation Director, WWF-Brazil

10.15 Coffee/Tea Break

10.45 Financing from Forest Ecosystem Services (Continued)

· “An ecosystem services concession in the peat forests of Indonesian Borneo” – Mr. Rezal Kusumaatmadja, Starling Resources, Indonesia

· “Payments for forest ecosystem services in South America: Examples and lessons learned” – Ms. Doris Cordero, IUCN-South America
Questions from Participants
12.15 Lunch
13.30 Breakout Groups

Three breakout groups will discuss the input from plenary session III
15.00 Coffee/Tea Break
15.30 Breakout Groups Continue
16.45 Plenary IV (Co-Chairs)

· Reports from Breakout Groups

· Questions and Comments from Participants

· Reflections on Days 1 and 2 by Co-Chairs
18.00 Adjourn
19.30 Reception hosted by The Netherlands and The United States

Wednesday, September 10
Field Trip Day


Thursday, September 11

08.45 Plenary Session V – Increasing Financing for SFM: Institutional and Governance Strategies at the National Level (Co-Chairs)

· “Financing sustainable forest management in Suriname: A case study” – Ms. Sheila Bhairo, Suriname Case Study Team

· “Implementing a ‘portfolio approach’ to forest financing at the national level: Approaches and case studies” – Mr. Michael Richards, Forest Trends

· “Encouraging private sector investment in sustainable forest management: What countries can do” – Mr. Dorjee Sun, The Carbon Pool, Australia


Questions from participants
10.15 Coffee/Tea Break
10.45 Break out Groups

Three breakout groups will discuss the input from plenary session V
12.15 Lunch

13.30 Plenary Session VI – Increasing Financing for SFM: Institutional and Governance Strategies at the International Level (Co-Chairs)

· “The changing international architecture for environmental finance and its implications for forests” – Ms. Andrea Kutter, Senior Natural Resources Management Specialist, Global Environment Facility (GEF)

· “Financing for sustainable forest management: Perspectives from the ASEAN region” – Mr. Letchumanan Ramatha, Undersecretary, Forestry Development Division, Ministry of Natural Resources and Environment, Malaysia

· “Indigenous Peoples are Rights-Holders, not only Stakeholder: A regional and international perspective” – Mr. Max Ooft, Policy Officer, Bureau of the Association of Indigenous Village Leaders in Suriname (Bureau VIDS)


Questions from Participants
15.00 Coffee/Tea Break
15.30 Break out Groups

Three break out groups will discuss the input from plenary session VI

17.15 Plenary Session VII (Co-Chairs)

· Reports from break out groups

Questions from participants
18.00 Adjourn
Friday, September 12

Draft CLI summary distributed at 12.00, at Plenary Hall, for participants to read; session begins at 13.15
12.00 LUNCH
13.15 Plenary Session VIII (Co-Chairs)

· Presentation of CLI Co-Chairs Summary draft to participants by Co-Chairs

· Questions and comments from participants

14.30 Final plenary Session IX (Co-Chairs)

· Closing address – H.E. Michael Jong Tjien Fa, Minister of Physical

Planning, Land and Forest Management, Suriname

18.00 Cocktail party hosted by the Minister of Physical Planning, Land and Forest
Management of Suriname