Application of IFC Performance Standards in Forestry and

Implications for REDD

Dave GibsonInternational Finance Corporation

May 12, 2010

Guide

• Forestry & REDD Portfolio• Investment Decisions

IFC Performance Standards

• FSC evolution• Integrated standards

Use in Forest Sector

Investments

• Climate change interests• Limitations and future

Implications for REDD

3

Current Investments in the Forest Sector

• IFC Forest Product portfolio dominated by downstream industries

• 40% of projects in IDA countries

• One forest carbon (CDM) deal

• No tropical forest investment in the last 25 years

• Supported 350,000+ jobs

Portfolio of $1.13 billion…

…across 67 projects

Annu

al C

omm

itmen

ts

No. of projects 11 10 13 11 2 10

Environment & Social Framework

+

+

Standards Core to Appraisal & Supervision

PS 1: Assessment &Management Systems

PS 2: Labor & Working Conditions

PS 3: Pollution Prevention & Abatement

PS 4: Community Health, Safety & Security

PS 5: Land Acquisition & Resettlement

PS 6: Biodiversity & Natural Resource

PS 7: Indigenous Peoples

PS 8: Cultural Heritage

http://ifcnet.ifc.org/ifcint/cesweb.nsf/Content/EnvSocStandards

Project Cycle Performance Standards

Other Environment, Health & Safety Resources

• IFC General EHS Guidelines: Introduction • IFC EHS Guidelines for Board and Particle-Based Products• IFC EHS Guidelines for Forest Harvesting Operations• IFC EHS Guidelines for Plantation Crop Production• IFC EHS Guidelines: Pulp and Paper Mills• IFC EHS Guidelines: Sawmilling & Manufactured Wood Products• IFC EHS Guidelines: Water & Sanitation

www.ifc.org/ifcext/enviro.nsf/Content/EnvironmentalGuidelines

Common FPS Standards

Forest Product Value Chain Segments

AttributesLegal Origin VLO VLC FSC-CW Lacey Act FLEGT/EU DirectivesManagement FSC CertFlor CertFor PEFC FSC/CoC

Safety OHSAS 18001 OSHA BS 880P2/CP/EMS FSC ISO 14001 EMASSocial/Labor ILO SA 8000 ISO 26000

Community VLO FM CoC CoC FairTradeClimate/Carbon

VCS CCBA LEED FICAT

Product Safety

FSC E1 FF ISO

Quality ISO 9001 ASTM

Forest Mgt Harvest Transit Milling Product Retail

IFC and FSC AlignmentIFC Performance Standards (2006)

FSC

Prin

cipl

es &

Crit

eria

(rev

201

0)

1 2 3 4 5 6 7 8

1 XXX

2 XXX

3 XXX

4 XXX XXX

5 XX

6 XXX

7 XX XX

8 X

9 XXX

10 XX XX XX

Forest Carbon Experience

• Green Resources/Tanzania (CDM, R/A)• 20-30 REDD deals reviewed, 1st in progress• Regional Forestry Funds look hopefully for addressing REDD• Energy efficiency across product cycle easiest• Forest carbon lifecycle assessment (FICAT)• Surge in growth in biomass from waste• Advisory Services

– Indonesia – reclamation of degraded areas thru plantations– Brazilian Amazon – combined SFM, renewables, – Mozambique (?) - plantations

Emissions-Driven, Life Cycle Based

www.ficatmodel.org

11

Competing Land Uses and Their Impact

Negative Carbon Impact

Fina

ncia

l Ret

urns

Positive Carbon Impact

Carbon impact: Huge Negative and affects all three forest types

Plantation Management

Sustainable Forest

Management

Preservation of Tropical

Forests

Conversion to

Agriculture

11

Transaction Costs Remain High

ForestCarbon

Project Developer

20-30%

CarbonRegistry

20-50%

StandardBody

1-5%

Certifying/ Accredit

Body

2-5%

Lenders

10-20%

+

+

++

+

Calculus Favors Mature Markets

From: GreenOx Madre de Dios PDD, 2009

Rational Valuation & DistortionsExternal

Verification

Management Plans & Systems

Carbon, Water, Recreation

Biodiversity & Cultural Services

Timber & Non Timber Products

Composite Forest Wealth (incl. Inventory, Maps, Roads, Protection etc.)

REDD Changes Relative ValuesExternal Verification

Management Plans & Systems

Carbon, Water, Recreation

Biodiversity & Cultural Services

Timber /NTFPs Composite Forest Wealth

(incl. Inventory,

Maps, Roads, Protection

etc.)

Mature Land Markets

Secure Rule of Law

Fore

st G

over

nanc

e Sponsors Com

mitm

entLeakage

Permanence

Additionality

Essential Ingredients

Forest Carbon Conclusions

• Standards key to vague business case• Forest management standards fundamental• REDD still dependent on other $ sources• Transaction costs high & value front loaded• REDD will flow to proven carbon markets• Standards and accreditation key now• Integration of standards obvious• Standards for plantations & peat vital

PS Revision Process : We need Your Help

http://www.ifc.org/ifcext/policyreview.nsf/Content/Home

Integrated Management Systems

• Quality - ISO 9001

• Environment -ISO 14001

• OHS - OHSAS 18001

• Forestry – FM & CoC

• Carbon content???