In this episode, we talk to Kjell Clarysse, Founder and CEO of Forestbase.

‘If nature was to be wrapped in a stable, legal financial format, would it be worth so much that it can out compete the deforestation economy?’

The answer, according to Kjell, is yes, and this is the founding principle of Forestbase. Forestbase looks to lead the way in reclassing forest according to an infrastructure model, not just accounting for intrinsic value, but also for future cash flow. This has four steps:

1. Acquiring the forest land

2. Developing its conservation and offset-based revenue stream

3. Converting it into a tradable asset with liquidity

4. Letting the market determine the price

In addition to discussing Forestbase’s model, the episode covers topics such as assessing intrinsic value, the future of carbon offsetting, and changes to deforestation rates:

1.    We need to acknowledge and demonstrate the intrinsic value of nature. Outside of Western Europe, intrinsic value of natural assets may not be on par with market value – it may be comparatively low. In emerging markets, valuable assets can be sold off to exploit for relatively little money, due to its unstable format. Kjell cites the example of a South Korean sugar company logging in Papua, where they paid $8 per hectare of pristine forest. Countries still holding a lot of pristine forests also need to see a much higher financial value for this in the national accounting. 

2.    Deforestation doesn't have to be a complex issue; it is a land use crisis. For every single hectare of forest on the planet, there are competing business cases; for agriculture, timber, and so on. Nature is consistently the loser in this competition – unless we look at other infrastructure assets. In order to live, to eat, to have an economy with jobs, we need infrastructure. In the same way we need roads and ports for our supply chain and transport, we also need nature for a breathable atmosphere, humidity cycles, clean water, erosion control, soil health, and pollination - if we don't, we cannot grow our crops. So that means that nature is, in itself, an infrastructure asset in its own right, and needs to be valued as such. With other infrastructure assets, value is determined by assessing future cash flow minus risk. But if we consider the future cash flow of biodiversity, nature can become an asset class of its own.

3. The threat of future logging and exploitative behaviors can be overcome. Local communities are not monoliths. There are some individuals there who log, and there are other individuals who wish to preserve nature. And there is no judging in that. This makes them a normal community. If the benefits that the resident communities receive from the standing forest  are bigger than what they can receive from logging, then the logging threat fades. This destruction is driven by economic incentive, and so the best deterrent against deforestation is just removing the oxygen that drives this behavior. This can only be achieved with continuous dialogue, continuous monitoring, and respecting  that these communities are first-line stakeholders. 

4.    Carbon offsetting and carbon credits are more than just atoning for climate sins – they are paving the way for something new. Kjell predicts that voluntary and mandatory carbon offsetting will, at some point, merge, with the focus eventually steering away from carbon and more toward ecosystem services. He hopes that the NYSE, succeeds in approving the new format, called NACs, which captures the intrinsic value of nature and provides a store of value. This is basically a new accounting form, that could be an important for the entire industry, allowing investors to allocate capital efficiently to meet their sustainability goals.

References: 

https://www.forestbase.io/