FAO has a strong focus on increasing knowledge through evidence and responsible innovation to accelerate agrifood systems transformation, thereby serving the interests of countries and societies, including the most marginalized people, and contributing to livelihoods and food security. Forest conservation, restoration and sustainable use will benefit from emerging innovations across the full spectrum of innovation types (Table 3). The contributions of each innovation type are explored below.
Technological innovation
There has been a surge of technological innovations driving improvements in forest management to support climate and biodiversity action and the development of sustainable forest value chains. Three subtypes of technological innovation are examined here: digital, product/processt and biotechnological.
Digital technologies.u Advances in remote-sensing technologies and data management and dissemination are helping deliver and communicate forest and land-use data in a transparent way to decision-makers and other stakeholders, thus increasing understanding of the benefits of forests and the need for their conservation, restoration and sustainable use. Open access to remote-sensing data and the facilitated use of powerful cloud-computing platforms have enabled development of methodologies for generating high-quality data to support MRV with environmental integrity under the Paris Agreement and for supply-chain verification, among other purposes (Box 6). The emergence of artificial intelligence brings the promise of greatly increased capacity to analyse huge volumes of remotely sensed data (Box 7).
Box 6Innovation driving progress in measurement, reporting and verification
The use of remote sensing to assess forest-area change has advanced significantly in recent years, with increases in the quality, availability and abundance of remote-sensing data (particularly because of free access to the Landsat archive and Sentinel satellite data). The capacity of countries to access and analyse satellite imagery to create land-cover (change) maps and collect sample data has improved greatly due to technical innovations and newly developed open-source digital public goods.73–75 Over 90 percent of forest reference level (FRL) submissions to the United Nations Framework Convention on Climate Change (UNFCCC) have used FAO’s Open Foris76 and platforms such as System for Earth Observation Data Access, Processing and Analysis for Land Monitoring (SEPAL)77 to measure, monitor and report on forests and land use.78
The science supporting remote-sensing-based estimations of forest area (change) has also advanced,79–82 leading to, for example, the use of sample-based estimates rather than pixel counts (map area statistics).*,80, 82–84 The significance of this improvement is illustrated by Sandker et al. (2021),85 who provided two examples in which pixel-count estimates overestimated deforestation areas by a factor of 3 and 15, respectively. The risk of inaccurate area estimates is especially high where change maps are created through post-classification, an approach prone to error escalation.86 Although pixel counts were the predominant method for assessing deforestation areas in the early years (i.e. 2014–2016) of FRL reporting to the UNFCCC, countries have gradually shifted towards the use of sample-based area estimates.87, 88 In 2022, all FRLs submitted to the UNFCCC used sample-based assessments for estimating deforestation, providing a strong indication of improvements in data quality.89
The increased availability of satellite imagery, coupled with technical and scientific innovation, has enabled systematic land monitoring at different scales. Globally, this has resulted in freely available global maps of tree cover – such as global forest change90 and tropical moist forests. Several countries have made use of these global products, especially the global forest-change product,90 as interim steps in their forest-area-change assessments.85, 91
Huge leaps forward have been made in the use of space data by countries for measurement, reporting and verification (MRV). All 84 FRL submissions made by 60 forest countries used Landsat as a primary input and 36 also used data from the Copernicus programme. Moreover, many countries are now using high-resolution imagery from Norway’s International Climate and Forests Initiative Satellite Data Programme, particularly for collecting reference data. Twenty-one countries have submitted REDD+ results to the UNFCCC, totalling 13.7 GtCO2 for results achieved between 2006 and 2021 (or, on average, about 0.85 GtCO2 per year). This climate action has been driven by technical and scientific innovation enabling sound MRV. Nevertheless, key challenges remain, such as the sustainability of country capacity to use space data and innovative technical and scientific approaches for MRV and to meet emerging MRV accounting standards such as the Architecture for REDD+ Transactions/REDD+ Environmental Excellence Standard.92 Some of these challenges will be addressed through the new United Kingdom of Great Britain and Northern Ireland-funded Accelerating Innovative Monitoring for Forests programme.
* Pixel counting is the reporting of area statistics directly from maps (regardless of classification errors). Most maps carry errors and biases at all scales, especially for smaller area-change classes, and pixel counts are therefore unreliable. Sample unit observations through visual interpretations of remotely sensed data such as aerial imagery and satellite imagery are typically considered of higher quality than map data and can be used not only to provide information on map accuracy but also to correct map area estimates for classification errors and to calculate the associated confidence intervals around estimates.
Box 7Remote sensing and artificial intelligence
The National Aeronautics and Space Administration of the United States of America and the European Space Agency revolutionized access to satellite imagery through their Landsat and Copernicus programmes by opening their archives and data fully to the public from 2008. This resulted in a rapid increase in data use, catalysed considerable innovation and research, especially in the field of time-series analysis, and facilitated operational solutions for global challenges such as climate change and food insecurity.
More spatial and analytic instruments are expected to become operational in the coming years, increasing the volume of digital information available for near-real-time monitoring of the Earth and its resources. Google Earth Engine is a pivotal example of an integrated technology solution that enabled a paradigm shift over the last decade from desktop to cloud computing.98
Recent developments have increased the potential of artificial intelligence (AI) for the analysis of remotely sensed data, and its possible applications in forest monitoring are vast. AI will facilitate the automated analysis of a huge volume of existing and future optical, radar and lidar data collected daily by drones, satellites and space stations. It will also enable unprecedented capability for characterizing and monitoring land-surface changes in near real time, attributing causes to these changes, and producing actionable results with more speed and potential impact than ever before.99
The mainstreaming of AI large-language models has transformed the way in which software and other digital tools are developed. Deep-learning algorithms can translate, summarize and correct syntax errors in human-generated programming code, leading to significant improvements in the quality and efficiency of automated processing chains and condensing months of human work into days and even hours.100
AI can support efforts to halt and reverse deforestation and degradation. For example, zero-deforestation regulations require traceability to the farm or field scale.101 Conducting due diligence at such a granular level – that is, delineating individual farms, tracking changes in their borders, and characterizing land cover and even land use – becomes feasible only through the automated processing of vast amounts of data. This level of detail and adaptability can be achieved through the capabilities of AI. AI also has huge potential for the control of invasive mammals, plants and invertebrates.
Many concerns exist about the increased use of AI, such as the potential for it to be used to falsify due-diligence evidence. In general, the use of AI should be based on ethical, transparent and inclusive practices that avoid the risk of generating undesirable outcomes.
Other digital innovations have emerged to monitor and protect endangered species, map biodiversity hotspots and assess the health of forest- and tree-based ecosystems. For example, the TreeGOER (“Tree Globally Observed Environmental Ranges”) database72 offers information on the environmental ranges of most known tree species across 38 bioclimatic, eight soil, and three topographic variables. Where ample representative observations exist, the ranges offer preliminary estimates of suitable conditions, which may be especially valuable for lesser-known tree species facing the impacts of climate change.72
Technology can facilitate monitoring led by individuals or communities and help bring expertise and diverse intercultural knowledge systems together. For example, the RSS16 was based on data analysed by more than 800 experts from 126 countries. The Forest Data Partnership (Case study 3) – the aim of which is to improve the traceability of commodities – is characterized by accessibility and inclusivity: it provides a free public registry for farm/field boundaries and a data pipeline that can use public data, enabling anyone with a smart phone to submit and access georeferenced data associated with the value chain of a given commodity. Technological innovations paired with social innovations are bolstering the engagement of local communities and Indigenous Peoples in forest monitoring and MRV (Case study 5) and fire management (Case study 6).
International collaboration and governance around the coordination of forest data collection and sharing among countries can be complex because of differing interests and policies.93 Regional organizations such as the Amazon Cooperation Treaty Organization94 and the Congo Basin Forest Partnership95 foster collaboration and data-sharing among countries, promoting the exchange of vital environmental data. Determining who owns and controls the data can be contentious, however, with debates on whether it should be the government or the private sector and whether such data should be accessible publicly or treated as proprietary information.96, 97 Privacy and security concerns also arise, and balancing transparency with the need to safeguard sensitive data – such as the location of endangered species – is challenging.
In all cases, it is important to close the digital gender gap and the rural–urban divide by setting clear targets for the inclusion of women, youth, Indigenous Peoples and rural communities related to, for example, increased access to smartphones and information and communication technologies, digital literacy, and the use of e-commerce and public services.46 The links between technological and other innovation types (i.e. social/policy/institutional and financial) are further explored in those sections.
Product/process. Various technologies used to manufacture forest products show promise for helping a shift towards a bioeconomy and the development of sustainable value chains for wood products. Almost anything that can be made from crude oil can also be made from lignocellulosic raw materials such as trees, and NWFPs also have huge potential (Box 8).
Box 8Innovative wood and non-wood forest products that could contribute to the bioeconomy
Wood in the built environment. Wood in construction constitutes an option for long-term carbon storage, thus helping mitigate climate change.102 It is gaining momentum as a preferred material in the built environment, in part because of technological innovations such as mass timber and wood-derived coatings that can replace fossil-based products.103 Thermally modified, furfurylated and acetylated wood104 are examples of technological improvements designed to create long-lasting wood products without the use of toxic treating chemicals. Stranding and veneer technologies are enabling the use of fast-grown timber resources such as eucalypt and poplar plantations for mass timber products.105
Significant testing has taken place to understand and manage the fire risk posed by the use of mass timber in buildings. Consequently, good models and understanding of the predictable char rate now exist, and policy standards and regulations, such as Eurocode 5 in the European Union and PRG320 in North America, take fire performance into account. A review of large-scale fire tests on cross-laminated timber indicated that, when adequately protected, the use of this material does not contribute significantly to fire risk, although the review also highlighted the need for more research.106
Wood biomass for biorefineries. Biorefineries – manufacturing plants that convert raw biomass into raw materials and end products107 – typically separate the three primary polymers of biomass into cellulose, hemicellulose and lignin. They are increasingly being used as platforms to produce innovative materials and products that can replace fossil-derived resources.
Wood-based textiles. The manufacture of textiles using wood cellulose fibres grew by 6.3 percent annually between 2000 and 2018 (a significantly higher growth rate than for cotton and synthetic fibres), with wood-based textile fibres accounting for 7 percent of the global market in 2019.108, 109 The next generation of textile fibres will start incorporating recycled textile fibres, thus supporting greater circularity of materials.
Cellulose-based plastics. Cellulose-based plastics are a type of bioplastic manufactured using cellulose or derivatives of cellulose. They are manufactured using softwood as the dominant raw material, although they can also be obtained from agricultural residues such as corn stover and sugarcane bagasse.
Energy storage. Forestry companies are joining forces with battery producers to replace fossil-derived raw materials such as graphite with carbonized hard lignin extracted from wood.110 Nanocellulose manufactured from biomass is also being used increasingly in electrochemical energy systems – being porous, lightweight and strong, nanocellulose can enable better ion and electron transfer and therefore increase system efficiency.111
Platform chemicals. Significant progress has been made in refining wood polymers into platform chemicals using chemical, hydrolytic and biological conversion for diverse applications, from pharmaceuticals to biobased coatings and adhesives. Novel adhesives, coatings and foams are being commercialized to replace fossil materials such as phenol and polyurethane with lignin and nanocellulose.112–114 This has significant environmental advantages: for example, the use of birch wood at a biogenic technology biorefinery in Sweden to produce wood-based butanediol, a solvent used in chemical industries, emits 52 percent less carbon dioxide than its fossil-based alternative.115
Non-wood forest products. Many wild forest-based foods, including fish, are rich in micronutrients and have high nutritional content.116, 117 New and existing technologies such as multi-elemental analysis, isotopic ratio mass spectrometry, infrared spectroscopy and nanotechnologies are increasingly being used to explore the nutritional value of forest foods for healthy diets.118 Growing interest among consumers in healthy and sustainable lifestyles has led to the exploration of bioactive compounds and nutritional attributes in non-wood forest products to produce “nutraceuticals” as functional foods and alternative sources of ingredients.116, 119, 120 Innovative microfiltration techniques have enabled the increased use of natural wax in food, cosmetics, medicine and packaging.121–123 Forests also contain a huge diversity of insects with potential for use in the rapidly growing edible-insect industry.124, 125
Advances in technologies are increasing efficiency in forest value chains (Box 9). Collaborative platforms and digital logistics hubs have redefined supply-chain dynamics, with significant benefits for harvesters, forest contractors and companies (Case study 16). They can help optimize material flow, reduce costs, enhance efficiency through real-time supply-chain visibility, improve communication, reduce the likelihood of errors and delays, and enable timely decision-making. For example, an app developed in Guatemala is increasing the efficiency and accuracy of volume estimates of logs and other wood products, thus enabling wood processors to better control inventories and supporting legal and sustainable supply chains (Case study 15).
Box 9Technological innovation in value chains
Technological innovation has brought considerable change to many industrial wood value chains, often increasing their efficiency. For example, digitalization has enabled the development of automated wood-harvesting operations, in which machines use sensors and artificial intelligence to navigate through forests, identify optimal trees for harvesting, and execute the cutting process with precision. This boosts machine productivity and enhances working conditions for machine operators.
Machine vision is also a key technology in sawmills for wood grading and yield optimization. It enables the detection of surface defects in sawnwood such as knots and cracks and thus facilitates automated lumber grading. It also assists edging and trimming processes to eliminate major defects, thereby increasing lumber value. Laser scanning and computed tomography scanning are used in log breakdown optimization to maximize recovery and yield higher-grade lumber. Machine vision technology, therefore, can play a key role in sustainable wood production by reducing waste and maximizing overall yields, with tangible cost savings and a more rapid return on investment for sawmills.
Technological advances have enabled the design and development of “smart” clothes for monitoring the health and safety status of forest workers (e.g. in wood harvesting and processing). These systems provide real-time monitoring of vital signs such as heart rate, body temperature and physical exertion levels and track environmental factors like air quality and temperature. The collected data are then analysed to identify potential health risks and unsafe working conditions. When anomalies are detected, smart clothing systems generate alerts and feedback to workers, enabling them to promptly address and avoid unsafe practices.126
Such innovations have been adopted unevenly, both geographically and along forest value chains. For example, the so-called Fourth Industrial Revolution, or Industry 4.0 – that is, the heralded era of connectivity, advanced analytics, automation and advanced-manufacturing technology – is not widespread in the primary wood-processing industry in the United States of America.127 In Sweden, research published in 2016 showed that, compared with the high automation existing in forest harvesting, automation adoption was low among Swedish wood processors.128 The equitable deployment of technological innovations in the forest sector globally will require multistakeholder approaches, transparent partnerships and an enabling policy environment, among other things.
There is minimal research on the adoption of technological innovation in the forest sector in the Global South. Opportunities exist for greater uptake to improve sustainable forest management practices and increase the efficiency of value chains, although more research is required to better understand where most effort should be invested to achieve the greatest impact. It is likely that investment in and adoption of relatively low-tech innovations used by some forest managers and processors for many years could reap significant rewards in other locations. Examples include improved grading, logistics, next-level sawmilling equipment, solar-driven dryers and a transition from traditional woodfuel to modern bioenergy.
Biotechnologies. Innovative technologies are being applied to genetic research and tree improvement to increase yields, resistance to disease and adaptation to climate change.129 Typically, tree breeding is carried out using recurrent selection involving repetitive cycles of breeding, testing and selection. Forest trees exhibit high genetic diversity, are long-lived, and have late sexual maturity and long regeneration cycles, posing unique challenges for breeders.69 They are also largely undomesticated, and tree-breeders must often work with wild populations rather than known varieties. Conventional tree-breeding, therefore, is a costly and time-consuming process. Advances in genomics and other genetic technologies, however, have enabled a shortening of the tree-breeding cycle from several decades to less than a decade. “Breeding-without-breeding” is based on the identification of superior trees using DNA markers and advanced pedigree reconstruction methods.130 In addition, selected genotypes can be tested as a routine part of forest management rather than in dedicated field trials.131 Breeding-without-breeding offers a rapid, low-cost alternative to conventional tree-breeding. Wildlife management is also drawing on innovations in genetic research to understand and protect populations of (especially endangered) species.132
Social, policy and institutional innovation
The relationship between social, policy and institutional innovation in the forest sector is dynamic, and the three types are treated together here.
Social innovations emerge from interactions among stakeholders to construct solutions to social needs and problems;133 a key feature is that they involve participation and enhance inclusion.134 The early involvement of stakeholders from diverse backgrounds in a multidisciplinary approach fosters ownership and generates innovations that reflect their diverse needs and perspectives.
Social innovations can be bolstered by policy and institutional innovations. Policies set the overarching goals and guidelines, which institutions operationalize by adapting, building capacity, monitoring compliance and providing feedback. Institutions can play pivotal roles in aligning policy mandates, cultivating expertise, developing and enforcing regulations, and serving as platforms for stakeholder engagement, collaboration and knowledge-sharing. Feedback loops between institutions and policies enable adaptive management and continuous improvement.135 Novel methods to encourage co-creation among stakeholders have helped ensure that social innovations fit well with existing political structures, policy frameworks and local users. They include mechanisms for incorporating Indigenous and customary laws into national regulations, participatory approaches to land-use planning, and community-based wildlife conservation. This is of paramount importance to Indigenous Peoples because it is crucial that the rights to their lands, territories and resources are acknowledged and respected.
Achieving global targets such as those related to climate change and biodiversity requires local action,136, 137 thus encouraging attention to decentralized, locally controlled and contextually tailored solutions. Innovations in the territorial dimensions of forest-sector policies and institutions have focused on enhancing local governance mechanisms, empowering communities, and promoting sustainable forest management practices in specific landscapes and territories. Institutions also have a vital role to play in guaranteeing inclusion in innovation by engaging marginalized groups such as women, Indigenous Peoples, and small-scale farmers and enterprises.
Various landscape and jurisdictional approaches and related underlying tools – such as the Stakeholder Approach to Risk Informed and Evidence-based Decision-making138 – have been developed in the last decade to support local multistakeholder processes. As attention increases on local knowledge and the legitimacy of the land- and resource-rights claims of local and Indigenous communities, innovations related to managing Indigenous and community-conserved areas and processes for integrating traditional ecological knowledge are emerging. In the Mondulkiri Forest Venture in Cambodia, for example, 13 NTFP collector groups have registered 13 community forest agreements, which have helped the groups avoid conflicts with forest harvesting concessions.139
Working together, local actors – including people of different genders, age groups and socioeconomic status – can build institutional capacity, social capital and skills (e.g. through producer cooperatives) that support advances in sustainability.134 In the planning and implementation of the Great Green Wall (GGW) initiative in the Sahel (Case study 8), innovations such as women-led restoration committees and new mechanisms for consultative and participatory processes have enabled the co-design of more-effective interventions. In Morocco, the government has put in place a programme of financial incentives to encourage forest users organized in grazing associations to respect the exclusion of grazing from restoration sites, with the communities accountable for the protection of their lands; this has helped restore more than 100 000 ha of degraded land (Case study 11). In Paraguay, the government is providing vulnerable forest communities with income support for reforestation under the FAO-assisted Poverty, Reforestation, Energy and Climate Change project.140
Hybrid institutions are emerging in the forest sector with innovative models of governance that combine elements of public, private and community-based management structures.141 Such institutions have greater capacity to integrate diverse stakeholders and foster multistakeholder partnerships, thus promoting more inclusive decision-making.142 This is observable in collaborative reforestation projects in Costa Rica, where the government provides incentives for private landowners to participate in reforestation efforts and environmental organizations assist with project implementation and monitoring.143 Some analyses indicate that the forest governance standards created by voluntary non-governmental certification programmes such as those of the Forest Stewardship Council and the Programme for the Endorsement of Forest Certification have influenced certain government policies, laws and enforcement practices.144
Other innovations are designed to encourage cross-sectoral, holistic approaches to land-use policies and planning (see, for example, Case study 7) based on increasing awareness of the interconnectedness of land-use sectors and the importance of integrated approaches for sustainable forest management in landscapes.145 Such innovations include integrated landscape approaches that consider entire ecosystems; ecosystem-based adaptation to climate change; climate-smart agriculture, combining sustainable farming practices with forest conservation; biodiversity offsetting aimed at achieving net gains in biodiversity; and decoupling agricultural supply chains from deforestation. The OECD–FAO Business Handbook on Deforestation and Due Diligence in Agricultural Supply Chains takes the innovative approach of introducing forest-related concepts to the agribusiness domain to help companies define and implement comprehensive policies for addressing the risks of commodity-driven deforestation to benefit their businesses.146
Various organizational innovations are helping increase smallholder engagement in forest management and decision-making.147 Some involve pooling small producers in larger groups to benefit from larger economies of scale. Organizational setups comprising several levels or tiers of participation or decision-making can optimize the value of smallholder-producer goods by improving market terms. Tiered organizational structures enable different functions to be performed at different levels – such as boosting production capabilities and tenure rights locally, adding value and providing services subnationally, and advocating for policy changes at the national and international levels.148 In the Plurinational State of Bolivia, El Ceibo, a first-tier producer group representing 1 300 cocoa-producing forest farmers,149 belongs, in turn, to a second-tier association, COPRACAO, which negotiated with the government for the introduction of a USD 37 million incentive programme that is now benefiting smallholders. In Viet Nam, local cooperatives have formed larger subnational umbrella organizations to boost value-adding, incomes and employment; for example, cinnamon-grower groups such as the Viet Nam Cinnamon and Star Anise Cooperative belong to the Viet Nam Farmers’ Union, which has helped improve market access, decision-making and sustainable resource management for smallholder cinnamon producers nationally.150
Innovations can increase the access of small producers to markets and larger processing companies. For example, apps for mobile phones can enable producers to make direct connections with buyers and provide market insights and transaction support. Aggregator models such as cooperatives enable small producers to achieve larger product volumes to meet market demand, helping them bypass intermediaries and secure better prices. Digital registries can enhance access to social protection and formalized employment. For example, the Forest and Farm Facility (FFF) facilitated the integration of information from 450 impoverished charcoal producers in Kenya into the Enhanced Single Registry by the National Social Protection Secretariat, thus enabling them to access a monthly USD 30 cash transfer per family through the National Drought Management Authority’s emergency drought response programme.151, 152
Collective groups of smallholder producers have implemented new benefit-distribution mechanisms and financial oversight to help ensure reinvestment in local priorities. In Brazil, the COOMFLONA cooperative allocates profits from wood and NWFPs towards various funds, including those for healthcare and education, which mostly benefit COOMFLONA members.153 In Ethiopia, the Aburo Forest Managing and Utilizing Cooperative sells frankincense and maintains transparent financial management through an audit committee.154 Innovations are also emerging in conflict resolution, justice and tenure security. For example, the La Myang Community Forest Rattan and Bamboo Group Business in Myanmar is resolving conflicts over natural resource use through the legal registration of community forests and the subsequent development of businesses.155
Promoting gender-responsive policies, gender-balanced employment opportunities and the implementation of gender-sensitive monitoring and evaluation mechanisms are policy and institutional innovations to ensure the integration of gender considerations. Forest management committees in India’s Joint Forest Management programme mandate a minimum female representation of at least one-third of committee members to ensure representation in decision-making processes.156 In Nepal, it is mandatory for community forest user groups to have strategies for achieving a 50 percent gender balance in their executive committees.157 Organizational innovations to increase youth engagement include tailored capacity-development programmes, using technology and social media platforms, ensuring youth representation in decision-making forums, conducting educational campaigns and offering internships.
Innovative tools and approaches for forest monitoring are strengthening relationships among local communities, Indigenous Peoples, civil-society organizations and policymakers. ForestLink158 and Global Mangrove Watch159 use mobile-phone technology and satellite communications to enable communities to report illegal logging activities in real time. The LandMark160 platform equips Indigenous and community groups with tools for mapping and documenting their lands (Case study 5), helping reinforce customary claims in forest-rich regions. In China, the “ecological forest ranger” policy provides job opportunities and social protection for poor farmers, complemented by training and skills development; when trained, these rangers patrol at-risk forests, report on forest disasters, and prevent potential damage and destruction of forest resources. The policy highlights important linkages between the five innovation types and has had the dual benefit of alleviating poverty and improving environmental outcomes.138, 161
Financial innovation
Financial innovations in the forest sector are increasing, largely to address the need to leverage more finance than currently allocated to forestry; incentivize the transition towards a greener economy; make finance more accessible to small producers; and recognize the value of ecosystem services. Investors view forestry projects as risky, mainly because of factors such as the extended production cycle required to yield high-quality timber and, particularly in the Global South, the informal nature of many forest-related activities.129, 162–164 A recent review165 identified the following means for increasing finance in tropical landscapes: an enabling institutional environment; technical assistance; and bringing together diverse funding sources through financial instruments managed by fund managers or project coordinators and using strategies to address scale, risk and investor expectations of returns.
Public (both domestic and international) finance is still the main source of finance for forests and other nature-based solutions.162 Innovations to leverage more finance from national sources include fiscal reforms, incentives, and sustainable financing schemes with local financial institutions.
New transfer mechanisms for public finance have been developed. In Burkina Faso and the Niger, an innovative investment scheme in FLR and sustainable land management projects is transferring green finance directly to local authorities – in contrast to traditional funding schemes, which tend to pass through project-implementing agencies and non-governmental organizations.166
Engaging the private sector in general and private finance in particular can increase the finance available for sustainable forest development and conservation. Such engagement has led to the development of blended-finance models involving, for example, guarantees, green bonds and venture capital and various debt and equity instruments. Innovative developments in pension funds have helped integrate sustainable forest management and conservation principles into investment practices. Pension funds increasingly consider environmental, social and governance factors, engage in impact investing, and support green bonds and sustainable investments focused on the forest sector.
Other innovations are aimed at making finance more environmentally and socially responsible by incentivizing measures to reduce the environmental footprint of investments. Innovations in impact investment in the forest sector are channelling capital towards conservation and sustainability while also generating financial returns. An example is forest resilience bonds, which provide finance for restoration projects and generate returns based on achieved environmental outcomes.
Investors increasingly recognize that financial returns alone are insufficient to evaluate the true sustainability of businesses, especially given heightened environmental risks (as outlined, for example, in the World Economic Forum’s Global Risks Report167). Sustainability and climate considerations are becoming key criteria for many financial institutions and companies and are increasingly included in their decision-making and reporting. Innovations such as SCRIPT (Soft Commodity Risk Platform), the Task Force on Nature-Related Financial Disclosure, and Trase Finance are designed to increase transparency and mitigate risks associated with environmental impacts and deforestation in soft-commodity supply chains and investments. In collaboration with Global Canopy, FAO is pursuing common rules or standards for “deforestation-free” and “forest-positive” finance.168, 169
There have also been innovations in sustainability-related financial reporting standards: for example, the International Sustainability Standards Board has issued the first two IFRS® Sustainability Disclosure Standards (more than 100 countries require companies operating in their territories to use IFRS standards). Australia plans to implement mandatory climate-related financial disclosure requirements, and the European Union has established the Sustainable Finance Disclosure Regulation to promote informed investment choices. The European Union Taxonomy provides a framework for identifying environmentally sustainable economic activities, influencing a transition towards sustainability.170 Platforms such as FinanceMap and accountability frameworks such as the Accountability Framework Initiative are designed to foster transparency and adherence to sustainable practices in the financial sector.
Finance is being mobilized to reach and help develop the “missing middle”,171 such as small and medium-sized forest enterprises and forest-dependent communities (including Indigenous Peoples), through the development of last-mile financial infrastructure and innovative products better suited to individuals and communities in remote areas.163, 164, 172 These include tailored financial products, microfinance initiatives and community investment models. Mobile banking has improved financial inclusion significantly. Cooperative models, village savings-and-loan associations and alternative collateral models are being piloted among forest and farm producers and their organizations, with promising results.173 In Viet Nam, the FFF has facilitated the development of “green funds”, an innovative microfinance mechanism that does not require collateral and increases finance availability for small-scale producers (Case study 13).
Traditional financing mechanisms often fail to address market failures related to environmental externalities and the public goods provided by forests. The United Nations Environment Programme (UNEP) estimated that nature-negative financial flows to agriculture in the form of price incentives and fiscal transfers amounted to USD 500 billion in 2022, more than three times the finance for nature-based solutions (nature-positive flows) (USD 154 billion).162 Innovations aimed at incentivizing the financial sector through better public policies include re-allocating nature-negative subsidies and accounting for and incorporating the social and environmental costs associated with products and activities that negatively affect forests. Innovations in natural capital accounting (which assigns economic values to ecosystem services provided by forests) are emphasizing the integration of ecosystem services valuation and spatial analysis techniques and attempting to integrate social and cultural values associated with forests and mainstream natural capital accounting into policy processes.
Many ecosystem services lack established markets. Operators in forest-based value chains therefore face challenges accessing private finance because their contributions to essential public goods such as ecosystem services go unrewarded, creating an uneven playing field. Innovations have arisen to leverage finance based on markets for ecosystem services (e.g. environmental-performance-based models associated with carbon, water and biodiversity, sometimes called payments for environmental services). In Mozambique, a long-term project is underway to incentivize agroforestry through new carbon trading opportunities (Case study 12); in Uganda, the Sawlog Production Grant Scheme is providing landholders with incentives for reforestation applied through carbon credits.
REDD+ has spurred several financial innovations to incentivize forest conservation and associated greenhouse-gas emission reductions. A key component of REDD+ finance is results-based payments, in which countries receive payments based on verified emissions reductions. The Green Climate Fund was the first source of REDD+ results-based payments under a USD 500 million pilot programme, which approved results from Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Indonesia and Paraguay. Related innovations include the establishment of carbon markets for buying and selling carbon credits generated from REDD+ projects and programmes; finance mechanisms such as green bonds and impact investment funds; jurisdictional and nested REDD+ approaches that link and aggregate projects at different scales and distribute financial benefits to subnational governments, local communities and project implementers; and private-sector engagement through partnerships and corporate investments in REDD+. Innovations in MRV systems, as described earlier, are crucial for verifying results and ensuring transparency in REDD+ finance.
