One of the main challenges countries face in their efforts to reduce forest degradation and deforestation is the need to make good forest management more commercially competitive and make forests themselves more economically attractive. Promotion of investment in management and in payment for the goods and services produced by forests, and also ensuring that total earnings are a fair reflection of the real costs and benefits of their sustainable production is key.

The problems hampering adequate financing of forest management are complex. Chief among them is the failure to appreciate the multifunctional nature of forests - with the sole focus being on timber as the source of income -, inequity in the distribution of costs and benefits along the production chain, the long time-frame of the forest management and production cycle, low cost-effectiveness and the high perceived risk.

Forest management practices tend to be implemented without clear criteria of sustainability, using obsolete approaches and little technology, with consequent low productivity and efficiency. The difficulty in gaining access to existing financing mechanisms under reasonable conditions, combined with the defective and unstable political, legal and institutional environment of the forest sector, hampers governance and hence worsens the general image of the sector. All this helps to create a fairly unfavorable climate for forest investment and business.

At the same time, there are opportunities and challenges that can help to improve the situation. There is a growing awareness that traditional views, policies, sources and amounts of forest financing have been insufficient and inefficient in achieving SFM. The potential role of innovative market arrangements is the object of growing attention, and a range of promising new financing sources, instruments and mechanisms (especially regarding payment for environmental forest services) and capital market instruments is now appearing, and these can help to generate additional financial resources. It is also increasingly being realized that stand-alone financing mechanisms are less effective and sustainable than those set within a broader and more reliable institutional and policy and political framework

It is concluded that comprehensive National Forest Financing Strategies (NFFS) could be adopted, encompassing the financing of investments (including incentives), payment for goods and services, and risk mitigation mechanisms.  Criteria of conditionality (incorporation of criteria of sustainability and responsible business operations), additionality (creation of additional revenue and improved access to financing for investments and risk mitigation systems), functionality (effectiveness and impact of the mechanisms for the various target groups) and equity (a fair distribution of the costs and benefits of sustainable forest management along value chains and among the various actors in the sector) both nationally and internationally should be applied.

Forest financing is one of TBI’s thematic priorities on which it has developed a collaborative work with several partners.

Products:

In 2008 TBI with FAO and partners published a synthesis study of the current state and prospects for forest management financing "Hacia Estrategias Nacionales de financiamiento para el Manejo Forestal Sostenible en América Latina” by Kees van Dijk (Tropenbos International) and Herman Savenije (Netherlands Ministry of Agriculture, Nature and Food Quality). -Read more about the publication

Additionally in 2008 TBI with ETFRN co-published an ETFRN News on Financing Sustainable Forest Management was published. This publication provides information on current research and policy relevant to financing mechanisms for sustainable forest management. - Read more about ETFRN news 49

In November 2009, at the World Forestry Congress in Argentina,TBI co-organised with FAO a session on forest financing  during which experiences and lessons learned from different regions and countries on possibilities for a better financing of sustainable forest management,  were presented. - Read more on the World forestry Congress session