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The forest companies of the future

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Issue date: 
23 August 2011
Publisher Name: 
Göran Persson and Janet Ranganathan
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Forests could increasingly act as a backbone of sustainable economies. Companies that recognise this can advance their own bottom line, and help ensure that forests thrive

Over the past 150 years, industrialisation has taken its toll. All too often, forests have been sacrificed in the face of expanding business and national interests. In the future, forests could act as a backbone of sustainable economies by providing a multitude of renewable goods and services. The successful forest companies of the future will recognise this opportunity, use it to advance their own bottom line, and help ensure that forests survive and thrive.

Climate change, population growth, and soaring demand for food, energy, water and other resources are changing the way the world sees and values forests. A vision is emerging of a new kind of company – the forest services company.

Our vision is being propelled by new markets that are emerging for forest services such as carbon storage, wildlife preservation, recreational facilities and watershed protection. This trend is creating huge business opportunities for forest companies with the foresight to reinvent themselves and look beyond the traditional equation of forests equal timber.

Forest companies of the future will expand their business model beyond delivering products to providing an array of crucial services to communities. Timber revenue will still be important, but successful companies will have supplemented their income from the fast-growing new markets that emerge from the increasing scarcity of ecosystem services.

Forces of change

Why should forest management companies diverge from a seemingly successful business strategy to follow the services route? For the reason CEOs like best – it makes good business sense. Multiple global forces are converging in a perfect storm, creating a new operating context.

Climate Change: Trees not only capture and store carbon, they also produce fossil fuel substitutes (such as biomass) and provide flood control and water regulation services, helping reduce the impacts of climate change. The transition to a new era in forestry will be underpinned by the climate change imperative.

Rising demand for renewable energy and materials: Limited supply and rising prices of fossil fuels, concerns about energy security and climate change are reviving demand for renewable wood-based energy and materials. The European Union, for one, has pledged to boost biomass energy consumption, stimulating the market.

Restoring nature's fraying services: Many of the services provided by forests have been degraded, including water purification, erosion control and flood control. This can create serious problems downstream as ports and hydro-dam reservoirs become silted up, fresh water supplies become degraded, and flash floods become more frequent. In response, there is a growing need to increase funding for restoring ecosystem services and the public benefits they provide.

Increasingly urban population eager to enjoy nature: With most of the world's population now living in cities, forests fulfil a growing demand for recreational, educational and spiritual escape. At the same time, city planners are increasingly interested in the role urban forests can play in reducing water run-off, improving air quality, curbing noise pollution and providing green space.

At your service: new roles for forest companies

In order to meet these growing demands, forests companies must be able to shift from a narrow commodity focus (trees for timber and paper) to a multiple ecosystem service strategy.

Sveaskog, Sweden's largest forest company, is doing exactly that. Approximately 15% of annual net sales comes from biomass for energy and non-timber services such as windfarm leases and hunting and fishing licences. In addition, Sveaskog is managing one-fifth of its land for conservation and promotion of biodiversity. The company is also experimenting with ways to maximise carbon uptake through different forest management measures and plans to sell the additional uptake to carbon markets. In 20 years, Sveaskog expects its current sales share of 15% from biomass and different kinds of non-timber services to have doubled.

Other major companies are similarly shifting focus to incorporate services. Plum Creek, the largest US private landowner, has about a third of the company's 7m acres of timber lands under revenue-generating conservation and wildlife protection agreements. Mondi, a leading international paper and packaging group, recently identified opportunities to tap into growing markets for biomass and ecotourism through a review of ecosystem services at three of its South African plantations.

The shifting nature of forest companies is a win-win opportunity for governments as well, creating new jobs in struggling rural areas and improving the quality of life for urbanites.

But three interconnected conditions are needed to transform the forest sector as a whole. First, sceptics in the industry need to see more first-movers, who can point to positive balance sheets from non-timber services. Second, the industry needs clear signals from governments that they recognise the role of forests in combating climate change. Third, to truly transform the industry, more countries will need to adopt policies that value ecosystem services and put a price on carbon to mitigate climate change. Sweden, for example, introduced a carbon tax that transformed the country's energy sector, boosting biomass.

We are betting that these three conditions will be met over the next decade, setting the stage for a transformation of the global forestry industry.

Göran Persson is chairman of Sveaskog and a former prime minister of Sweden. Janet Ranganathan is vice president of science and research at the World Resources Institute.

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Extpub | by Dr. Radut