Linking Sustainable Forest Product Supply Chains through Asia

PEFC Stakeholder Dialogue 2013 14-15th November, Kuala Lumpur

Timber Certification and the Role of ITTO

Emmanuel ZE MEKA, Executive Director International Tropical Timber Organisation

PEFC Week, Kuala Lumpur, November 2013

State of forestry in the Asia-Pacific Region

Bruno Cammaert
FAO Regional Office for Asia and the Pacific Bangkok

Structure of the presentation

Forest cover change Forest products Forest use and tenure

Drivers of change Progress towards SFM

Forests of Asia and the Pacific - 2010

26%
OF TOTAL LAND AREA

740,000,000 ha
But only 0.2 ha per person

Forest area by sub-region 2010 (million ha)

255
80 214

191

Forest Area Change 1990-2010

800 700

Area (million hectares).

600 500 400 300 200 100 0

1990

2000

2010

East Asia

South Asia

Southeast Asia

Oceania

Asia and the Pacific

Primary forests
19% OF ASIA-PACIFIC
FORESTS

30% OF SOUTH EAST ASIAS FORESTS 34% OF THE WORLDS FORESTS

Other naturally regenerated forests

65% OF ASIA-PACIFIC

FORESTS

63% OF SOUTHEAST ASIAS FOREST 60% OF THE WORLDS FORESTS

Planted forests
16% OF ASIA-PACIFIC
FORESTS

7% OF SOUTHEAST ASIAS FORESTS

7% OF THE WORLDS FORESTS

Wood products industrial round wood

Import & Export of Industrial Roundwood (Asia)
80

70
60 million m3

ASIA
Import Export

50
40

30
20

10
0

Import & Export of Industrial Roundwood (Oceania)

25 20
million m3 15 Import 10 5 0

Export

OCEANIA

Wood products sawn wood, panels, and paper

Sawnwood Production
120 100 million m3 million m3 180 160 140

Wood-based Panel Production

80
60 40

120 100 80
60 40 20

20 0

Paper and Paper Board Production

180 160 140 million tonnes
120 100 80 60 Asia Oceania

40 20 0

Wood products key trends

Significant decline in wood production in some countries

Exhaustion of forest resources Concerns about environmental protection

Regional focus focus

International Value-

Round wood exports added exports

Emergence as a major producer/exporter of wooden furniture

Forest Tenure
Forest ownership in Asia-Pacific
Private sector 4%

Owned or designated for use by communities 28%

Owned or administered by governments 68%

Forest Use

32% primarily for the

production of wood and NWFPs

20% multiple-use
management

14% Conservation of
biodiversity

Key drivers of change

What happens to forests and forestry is determined to a large extent by what happens outside the forestry sector and by larger societal changes.

Key drivers of change: Demographics

Asia-Pacific worlds most

densely populated region

Population increase
3.6 billion (2005) 4.2 billion (2020)

Greatest increases in
densely populated developing countries

Urban population
38% people in urban areas (2005) 47% people in urban areas (2020)

Key drivers of change: Economics

High growth rates increasing the
demand for food, fiber and fuel

Poverty rates will decline, but the

number of poor will remain high

Recent reductions, export orientated

countries hit hardest (e.g., Cambodia, Malaysia, Thailand)

Swelling middle class Structural changes: Declining importance of agriculture in

income and employment Globalization Diminishing importance of the role of governments

Key drivers of change: Agriculture

Agricultural expansion is the

primary reason for forest conversion in many countries

A few agricultural crops

account for a large proportion of deforestation

Rubber plantations are

expanding in forest areas

Oil palm plantations set to

spread significantly

Key drivers of change: Infrastructure

Road network expansion

greatest in more developed countries Impacts greatest in less developed countries

Key drivers of change: Politics and policies

Greater democracy and political accountability Transparency in functioning and accountability
of public institutions and officials rights to information

Forest governance under increased public

scrutiny

Demands for participation in public policy

decision making

Shift from timber-focused management to

multiple-use management

Greater emphasis on ecosystem services and

sustainable development

Potential contributions of forestry to green

economy

Key drivers of change: Societal and Environmental concerns Local and national issues and
actions

Global and regional

environmental drivers:
International

commitments and the outcomes of climate change negotiations Pressure from stakeholders in the global forest resource

Progress toward Sustainable Forest Management

Improved stakeholder participation and

local forest tenure mainstreamed into National Forest Programmes Sustained efforts in REDD+ readiness FLEGT: demand and supply Third party certification of legality, SFM and Chain-of-Custody Payments for ecosystem services (PES)

Thank you

Snapshot of Forest Certification in the Asia region

Ben Gunneberg, Secretary General PEFC Council

25

Forest Certification Globally

10%
28% 40%

60% 72% 90%

26

10% of the world forests are certified (UNECE/FAO 2013) 28% of industrial roundwood production is certified 60% of total certified area is PEFC

Forest Certification in Asia

2% 8%
11%

98%

92%

89%

2% of forests in Asia are certified (UNECE/FAO 2013) 8% of forests in Southeast Asia are certified (WB/Profor 2012) 11% of production forests in Southeast Asia are certified
27

(WB/Profor 2012)

National progress in Asia

6 5

Million Hectares

CFCC SGEC LEI FSC PEFC

28

Source: 2013, Certification systems published data

Markets Chain of Custody

378 775 FSC PEFC SGEC

6609

Total of 7768 CoC certificates in Asia

29

Source: 2013, Certification systems published data

Reasons for optimism?

Legality & Governance issues being addresses at the highest levels FSC actively promoting certification in many countries throughout the region results are evident PEFC working to scale up its Asia Promotions Initiative and expand our presence in the region Number of national certification organizations emerging with the potential to achieve wider uptake in forests & markets Companies continuing to make commitments to sourcing sustainable products driving up demand signals

WBCSD Declaration, Consumer Goods Forum, Unilever, etc

30

THANK YOU

PEFC International
10 Route de lAroport, 1215 Geneva, Switzerland www.pefc.org info@pefc.org
31

Linking Sustainable Forest Product Supply Chains through Asia

PEFC Stakeholder Dialogue 2013 14-15th November, Kuala Lumpur

32

PEFC Stakeholder Dialogue 2013

The EU FLEGT Action Plan lnfluencing Forest Industry Transformation

EFI FLEGT Facility Asia Regional Office Kuala Lumpur, Malaysia 14 November 2013

33

EU FLEGT Action Plan 2003

Objective:

Address the driving forces of illegal logging both on the demand side as well as in the timber producing countries.
Course of Action/Main Instruments Public Procurement Policies (demand) Voluntary Partnership Agreements (supply) EU Timber Regulation (demand and supply)

34

FLEGT Global Historical perspective

G8 Forestry Action Program -1998IL as 1 of 5 areas of action
East Asia FLEG Bali Africa FLEG Yaound Europe & North Asia FLEG St Petersburg
Regional FLEG ministerial meetings

EU FLEGT AP

FLEGT EU Action Plan

FLEGT regulation

FLEGT
implementing regulation

EU Timber regulation

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

US Lacey Act amendment

35

Australian Illegal Logging Prohibition Act

What is a Voluntary Partnership Agreement?

Legally-binding bilateral treaty (not voluntary once agreed) Timber-producing countries agree to licence their timber exports as legal EU agrees to accept only licensed imports Backed by EU trade legislation (2005 FLEGT Regulation) Legality assured through an agreed Timber Legality Assurance System (TLAS)

Supported where necessary with development cooperation

36

37

38

EU Timber Regulation

What products are covered?

1
Covered (almost all):
Solid wood products Flooring Plywood Pulp and paper

Not covered:
Recycled products Musical instruments Printed matter including magazines, newspapers and books Some special products, like wooden toys

Most timber products are covered. The products covered may change in future.

39

40

How do businesses comply with the EU Timber Regulation?

accompanied by FLEGT-license which attests to its legality.

Private sector initiatives :Timber certified under the main forest certification schemes is still subject to due diligence requirements.

Other means of providing information on legality

41

42

FLEGT-related discussions at ASEAN level

43

Promoting specific regional exchange to share lessons and address challenges

44

China's forest products imports from Malaysia

800

700

600

others
500 million US$

veneer
particleboard

400

fiberboard
paper

300

plywood

sawn wood 200

logs

100

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

45

China's forest products imports from Indonesia

2000

1800 1600

others

Million US$

1400

particleboard
fiberboard veneer

1200
1000 800

plywood
wood chips

600
400

paper sawnwood
pulp

200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

46

China's forest products imports from Vietnam

1000

900
800

Million US$

700 600
500

others veneer
wood charcoal

paper
Sawnwood

400
300 200

Furniture

Logs
Wood chips

100
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

47

China's forest products imports from Thailand

1200

1000

800
million US$

others
fiberboard wood pulp

600

particleboard
paper

400

wood chips sawn wood

200

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

48

China's forest products imports from Laos

250

200

150
million US$ Others

Sawn wood
100 Logs

50

10

11

12

49

50

51

52

Thank you
EU FLEGT Facility Tomi Tuomasjukka 00358 50 433 9049 Tomi.tuomasjukka@efi.int www.euflegt.efi.int

53

EU China BCM
Bilateral Cooperation Mechanism on FLEG signed 2009, implementation started in 2010

54

China-Africa FLEGT VPA Information-sharing Workshop, October 2013.

55

56

Thank-you.

57

Linking Sustainable Forest Product Supply Chains through Asia

PEFC Stakeholder Dialogue 2013 14-15th November, Kuala Lumpur

58

FOREST CERTIFICATION & ILO CORE LABOUR CONVENTIONS

BWI BUILDING WOOD WORKERS INTERNATIONAL WHO WE ARE

The BWI (www.bwint.org) :

Global union Federations on Wood, Forestry, Construction and Building Material Sectors; 328 Free and Democratic Trade Unions around the world, 89 of them in Asia-Pacific Region; Representing more than 12 million members around the world; Number of International Framework Agreements (IFAs): Mission: to promote the development of trade unions in our sectors throughout the world and to promote and enforce workers rights in the context of sustainable development.

Pacific Rim Forestry Network

Online
Capacity Building

SUPPORT GROUPS ILO Regional Networks

Solidarity Actions

Pacific
IP-SFM Legal Network Organising Unsustainable Logging

Japan/China
Govt Agreement

SEA
Unsustainable logging Outsourcing FC/MNC Organising

South Asia
Unsustainable logging Self-Help Groups Organising

REGIONAL INITIATIVES

WOOD IS GOOD, CERTIFIED WOOD IS THE BEST!

Promoting Forest Certification Schemes coupled by organising unions in certified companies
Japan Malaysia Indonesia Vietnam Myanmar New Zealand India Nepal Pakistan

REGIONAL COOPERATION POSSIBILITIES

WOOD IS GOOD, CERTIFIED WOOD IS THE BEST!

Pan-ASEAN Timber Certification Initiative Climate Change ASEAN ADB

PILOT PROJECT COOPERATION ON MYANMAR FOREST CERTIFICATION

CERTIFICATION: WHY IS IT IMPORTANT?

Certification:
Ensures legality of the woods and products; Secures a higher priced, highly sought after timber; Adds value to the wood products: Myanmar Timber is $500 per ton vs. Malaysian Timber is $20,000 per ton; Enables unions to organise and promote decent work.

PROPOSED PROGRAMME COOPERATION FRAMEWORK

Evolve the national forestry certification scheme through tripartite mechanism process Confidence and Capacity Building Measures
Strengthening of Technical Assistance in cooperation with MTCC and PEFC Tripartite workshop on promotion of Decent Work Agenda in wood and forestry industry

Training progarmme on ILO Core Conventions

Joint training for auditors Exchange programme

Trade Union Development

FOREST CERTIFICATION & ILO CORE LABOUR CONVENTIONS

CERTIFICATION: WHY IS IT IMPORTANT?

Linking Sustainable Forest Product Supply Chains through Asia

PEFC Stakeholder Dialogue 2013 14-15th November, Kuala Lumpur

69

Responsible Asia Forestry and Trade

A partnership for strengthening capacity and sharing knowledge Chen Hin Keong, Forest Trade Programme Leader, TRAFFIC Andrew Ingles, Chief Technical Adviser, TNC November 2013

RAFT (2012-2015)

Provide capacity building & knowledge sharing services to promote trade in responsibly harvested & manufactured wood products

More verified legal products traded

More forests independently certified sustainably managed. RAFT recognizes the Forest Stewardship Council (FSC) certification scheme as the current premium standard Reduced CO2 emissions from land-use change & forestry

RAFT Partners
Institute for Global Environmental Strategies (IGES)
Analytical inputs on timber legality and sustainable forest management certification Conducted a RAFT study on the potential role of Customs Authorities Produced the first draft of the ASEAN chain of custody guidelines for timber Undertaking a comprehensive review of timber legality issues in PNG

TFT (The Forest Trust)

RAFT work in Indonesia, Vietnam, Lao PDR & China Develops industry guidance documents for producers, processors & exporters on how to meet legality requirements Provides in-person practical training to: improve the level of legality compliance make progress towards credible certification standards in the factory & forest

RAFT Partners
Tropical Forest Foundation (TFF)
RAFT work in Indonesia & Papua New Guinea RIL training for forest concessions & training organisations Facilitates legality & chain-of-custody audits & related trainings for forest industries and concessions Provides certification support in technical & management matters

TRAFFIC, the Wildlife Trade Monitoring Network

RAFT work in China, Indonesia, Lao PDR, Myanmar, and Viet Nam Contributes to awareness raising of forest managers & processors about: specific steps to ensure compliance with relevant forestry legislation where operators can find additional resources & assistance Provides support & capacity building for selected companies & industry associations on legality standards & verification systems

RAFT Partners
WWF Global Forest & Trade Network (GFTN)
Alongside TRAFFIC, developing practical guidance for establishing legality verification systems including: updating GFTNs Guide to Legal and Responsible Sourcing and Exporting in a Shifting Legal Landscape raising awareness and understanding of legality issues

Providing technical assistance to selected tree growers, companies, industry associations & training institutions regarding legal compliance Providing support to forest management companies for mainstreaming legal & responsible forest management using GFTNs existing model, tools and learning

RAFT Partners
The Nature Conservancy (TNC)
Provides strategic coordination for the RAFT Partnership as a whole Implements activities at the regional level and in China, Indonesia & PNG Supports policy and systems development governing land management & spatial planning Provides technical support to national timber legality verification systems in China and Indonesia Pioneering logging practices that reduce carbon emissions Helping roll out community-based natural resource management in PNG

RAFT Support:
Some financial support for selected buyer-supplier dialogues & international knowledge sharing events Mostly provides technical assistance to governments, forest managers, wood processors, & buyers of wood products through its implementing partners

www.responsibleasia.org

Linking Sustainable Forest Product Supply Chains through Asia

PEFC Stakeholder Dialogue 2013 14-15th November, Kuala Lumpur

78

RECOFTCs Regional Experiences with Forest Smallholders

Martin Greijmans 14 November 2013 PEFC Stakeholder Dialogue, Kuala Lumpur

Brief Organizational Background

Mission: Local communities and indigenous people are actively engaged in sustainable management of forest landscapes
Vision: Capacity development for optimum social, economic, and environmental benefits

Engages with various stakeholders, including governments, NGOs, private sector and local communities
Since its foundation in 1987, has trained over 25,000 people from more than 27 countries

3 Guiding Principles

Strong and secure rights

Good governance

Fair benefits

Securing Community Forestry

Enhancing Livelihoods and Markets Transforming Forest Conflicts

People, Forests, and Climate Change

RECOFTCs Functional Approach

Capacity Development Cycle
Training and learning networks

Piloting and demonstrating

RECOFTC Knowledge Hub

Research, analysis and synthesis

Strategic communication

Forest Smallholders

More than 450 million people depend on forests in Asia and the Pacific, earning an income of 20%

Forest-based community enterprises account for 13-70% of all forestry enterprises

ForInfo Project
Teak Collateral
Background: Teak harvested prematurely for immediate cash needs Lack of economic and silvicultural consideration
Issuing Teak Management Certificates: Tree valuation data, Farmer identity, Plot location Information for future planning: thinning plans and thinning products 84

ForInfo Project
Teak Collateral
Outcomes: Smallholders secure clearer tenure rights Longer rotation of teak cultivation, mature trees more valuable Used as collateral for microfinance loans Certification provides stand and financial valuation Improve negotiating power of smallholders

Securing user rights and creating access to microfinance for smallholder teak plantations

FSC Training of Trainers Asia

Aim: Develop pool of local trainers to support and respond to specific needs of smallholders in achieving FSC certification More clearly link certification to livelihoods, value chains, business models, and enhanced market linkages

FSC, PEFC, REDD, FLEGT may exacerbate regulations for communities & smallholders
Different scale of regulatory barriers according to forest type and tenure arrangement

The number of regulations increase along the continuum from plantations to natural forests, while for income per hectare is the opposite (i.e. higher for plantations than for natural forests)
November 25, 2013 87

RAFT and Conflict Transformation

Promote social justice in SFM practices In part by reducing incidence and negative impact of natural resource conflict

RAFT and Conflict Transformation

Approach with RECOFTC: Training of Trainers in Conflict Transformation Build confidence, skills, and connections of practitioners working with timber industry Promoting collaborative management and conflict resolution helping producers attain certification Promoting HCVF as a standard

FLEGT & RECOFTC Thailand

In Thailand FLEGT allows for renewed claim for communities to play a role and become a respected actor in the timber sector RECOFTC is raising awareness of the CF Networks and CSOs about VPA process
Enabling them to participate actively future government-led consultations

Whats Next?
Beyond the forest: Broad landscape approach Link with agriculture and energy policies Improve capacity of small entrepreneurs Business planning & development skills Links to markets, finance, policy processes Ex: Rights and Resources Initiative (RRI) collaboration, Ongoing efforts to engage communities and improve role in forest sector RECOFTC brokering PPP processes: collaboration with private sector with increased understanding, mutual gain Ex: Stora Enso

Asia

Forest Connect Asia

Support smallholder enterprises to connect to each other, policies and markets FCA to build enterprise capacity, facilitating and broker linkages, pilot and document best practices in their specific context

Thank You

For further information, please contact

Martin Greijmans
martin.greijmans@recoftc.org
www.recoftc.org

Linking Sustainable Forest Product Supply Chains through Asia

PEFC Stakeholder Dialogue 2013 14-15th November, Kuala Lumpur

94

Investors supporting transformation towards sustainability in the forestry sector

Adam Grant Manager, Certification and Environmental Markets PEFC Kuala Lumpur, Malaysia November 2013

Important Note
New Forests 2013. This publication is the property of New Forests. This material may not be reproduced or used in any form or medium without express written permission.
The information contained in this publication is of a general nature and is intended for discussion purposes only. The information does not constitute financial product advice or provides a recommendation to enter into any investment. This presentation has been prepared without taking account of any persons objectives, financial situation or needs. This is not an offer to buy or sell, nor a solicitation of an offer to buy or sell any security or other financial instrument. Past performance is not a guide to future performance. Past performance is not a reliable indicator of future performance. You should consider obtaining independent professional advice before making any financial decisions. The terms set forth herein are based on information obtained from sources that New Forests believes to be reliable, but New Forests makes no representations as to, and accepts no responsibility or liability for, the accuracy, reliability or completeness of the information. Except insofar as liability under any statute cannot be excluded, New Forests, including all companies within the New Forests group, and all directors, employees and consultants, do not accept any liability for any loss or damage (whether direct, indirect, consequential or otherwise) arising from the use of this presentation.

The information contained in this publication may include financial and business projections that are based on a large number of assumptions, any of which could prove to be significantly incorrect. New Forests notes that all projections, valuations, and statistical analyses are subjective illustrations based on one or more among many alternative methodologies that may produce different results. Projections, valuations, and statistical analyses included herein should not be viewed as facts, predictions or the only possible outcome. Before considering any investment, potential investors should conduct such enquiries and investigations as the investor deems necessary and consult with its own legal, accounting and tax advisors in order to make an independent determination of the suitability, risk and merits of any investment. New Forests Advisory Pty Limited (ACN 114 545 274) is the holder of AFSL No 301556. New Forests Asset Management Pty Limited (ACN 114 545 283) is registered with the Australian Securities and Investments Commission and is an Authorised Representative of New Forests Advisory Pty Limited (ACN 114 545 274, AFSL 301556). New Forests Inc. has filed as an exempt reporting adviser with the Securities and Exchange Commission.

Slide 96

Overview of New Forests

Founded in 2005 Managing forestry investment for institutional investment clients Currently managing nearly US$2 billion in assets in the Asia-Pacific region Head office in Sydney; 38 employees in Australia, New Zealand, Singapore, and San Francisco
Managing over 420,000 hectares of land and forestry assets across the Asia-Pacific region and United States New Forests has generated excellent returns to our clients over 8 years, and has aimed to operate as a leading sustainable and responsible investor in the forestry sector

Slide 97

What Differentiates New Forests?

Strategically, New Forests is
1. Focused on Asia Pacific opportunities Unique for a TIMO headquartered in Sydney with an office in Singapore Largest forestland owner in Australia and active in markets throughout Australia, New Zealand, and Asia Providing investors with exposure to the integrated Asia Pacific regional timber tradeextensive experience in domestic and export markets 2. A leader in sustainable forest management Investment team experienced in sustainable forest management and environmental markets; company-wide Social and Environmental Management System Member of Forest Stewardship Council (FSC) International and FSC Australia Signatory to United Nations Principles for Responsible Investment (PRI) 3. Forward Thinking Engaged with international NGOs, and participating in global initiatives including World Economic Forum Global Council, Aspen Institute, etc.

Slide 98

New Forests Business

New Forests Pty Ltd (Sydney)
San Francisco
The Eco Products Fund

Sydney
Australia New Zealand Forest Fund Australia New Zealand Forest Fund 2

Singapore
Tropical Asia Forest Fund

Forest Carbon Partners Mitigation Partners*

Back Office, Administration, Risk and Compliance Systems and Governance Financial and Forest Resource Modeling Services Sustainability and Responsible Investment Investor Services

Slide 99

Tropical Asia Forest Fund - TAFF

TAFF is a commingled fund investing in tropical timber plantations in South East Asia with US$171 million in commitments. Clients include pension funds and development banks.
Forestry in Asia is changing:

Originated from logging concessions in natural forests Low cost of timber from these concessions meant attractive returns were possible without operating efficiently or sustainably
Natural forest timber has been largely depleted

Global concern over rainforest logging and a demand for certification and sustainable forest management models are on the rise Fast-growing, high-quality managed timber plantation estates are emerging as the basis for the future of the industry, which will require significant capital Invest in existing forestry enterprises or assets Upgrade and expand those businesses
Help Implement modern forestry systems and practices

TAFF will:

Obtain certification and where possible, access environmental markets Exit after 10-15 years of investment

Slide 100

The Changing Forestry Landscape

1. Shift to plantations and the declining economic frontier of natural forests 2. Global timber demand growing and restructuring to accommodate Asian demand growth 3. Shifts in Pulp & Paper markets and increasing demand for bio-energy, bio-fuels, and other bio-products 4. Rising institutional ownership of high productivity timber plantations 5. Sustainability imperatives and the pricing of ecosystem services
Three-year old Teak Plantation Solomon Islands
Slide 101

Natural Forest Harvest in SE Asia in Decline

Steady Decline in Natural Forest Logging in Malaysia and Indonesia
Malaysian Log Production
40
Annual harvest levels (m3 millions) 35

Indonesian Log Production

25
Natural forests Plantation forests

Log Production (M m3)

30
25

20

15

20 15
10

10

5 0
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

1994 1996 1998 2000 2002 2004 2006 2008

Slide 102

Sources: Malaysia Timber Council and personal communication with Yayasan Sabah; ITTO; Indonesian Forestry Department Annual Report, 2008.

Limited Plantation Investment

Asia has lagged behind other regions in the development of commercial plantations for higher value end uses. Significant plantation areas in Indonesia, South China (approximately 6.0 million hectares) and Vietnam are being grown on short rotations for chip/pulpwood only.

Both China and Vietnam currently import plantation hardwoods from South America, North America, Europe and Africa primarily to fulfill demand for certified timber. There are significant cost advantages to regional sourcing.
Source: New Forests Asia estimates based upon RISI 2011 Pulp and Chip wood Conference, ITTO 2005 Sus tainable Forestry Ma nagement Report, a nd government data s ets. Data does not include rubber estates and i s based on priva te/government commercial scale plantations not small holders (except for Thailand where s ma ll scale priva te growers are fundamental to the industry)

Slide 103

Opportunities for TAFF

Investing in Southeast Asia with priority for Indonesia, Malaysia, and Vietnam Attractive growing conditions, low costs, and close access to growing markets Investment team in financial hub of Singapore Combination of existing and greenfield plantations 4-year old clonal teak in Java Environmental, Social & Governance (ESG) factors and environmental markets offer value-add opportunities

Slide 104

Sustainability as a Stay in Business Issue

Institutional Investors require sustainability policy, labour policy, corruption and bribery standards, use of certification, and monitoring of performance standards Major consumer groups are increasingly demanding certification or product chain of custody documentation Governments are under pressure to create business environment that will encourage investment and support competitiveness of local industry

Slide 105

Sustainability at New Forests

New Forests is a signatory to the UN Principles for Responsible Investment (PRI) and commits to integrating Environment, Society, and Governance (ESG) principles into investment decision making
ESG policies are implemented at the fund level through a Social & Environmental Management System (SEMS) with internal auditing

Responsible Investment SEMS

The SEMS defines third-party certification and responsible management requirements relevant to the asset class and type of investment Sustainability reporting is integrated into funds reporting structure and New Forests publishes an annual Sustainability Report covering responsible investment activities, targets, and progress
Slide 106

Certification & Responsible Management

Sustainability Reporting

TAFF Sustainability Goals

New Forests is committed to sustainable management of TAFF investments
Environmental, social and governance best practice will ensure TAFF contributes to:

Reduced greenhouse gas emissions and other forms of pollution Maintenance or enhancement of high conservation value forests and biodiversity Improvements in local livelihoods and safe working conditions Recognition of indigenous rights Price premiums and better market access for certain products Lower project and political risk through reduced social conflicts Improved asset liquidity and lower risk-adjusted discount rates on exit Lower cost of debt capital and better debt access, especially from development banks Improved access to licences, operating permits or additional assets from host countries Reputational risk reduction for fund investors Opportunities for increasing operating efficiencies through better management Opportunities for environmental market products from areas set aside from production

Third-party verified sustainable forest management will add significant value:

Slide 107

Opportunity Costs in the Landscape

Markets set prices for timber products, but how do we value other benefits?
Forests provide not only timber, but a myriad of other benefits related to freshwater, carbon cycling, biodiversity conservation, human health, and well being These ecosystem services have not been priced and therefore are used wastefully and disregarded in land conversion decisions Leads to plantation and agribusiness industry using more land rather than increasing productivity per hectare Policy in conflict with overwhelming economic fundamentals is difficult to enforce on a sustainable basis
Region
Malaysia

Value of Natural Vegetation

$500 (logging concession after primary harvest)

Value of land converted to Agriculture

$20,000 to $25,000 (oil palm)

Brazil US South
Australia

$155 (Amazon frontier land) $2500 (mixed timberland)

$1900 (woodland properties)

$420 (grazing) $6250 (cropping)

$4850 (mixed cropping and grazing)

Slide 108

Innovating Markets
New Forests established Malua BioBank in 2008 with seed investment from The Eco Products Fund. The project creates an alternative economic value for Borneos rainforests and offers sustainability solutions for oil palm supply chain.

Unlocking Demand for Biodiversity

-Roundtable on Sustainable Palm Oil (RSPO) compensation mechanism for past HCV clearance -Forest Stewardship Council (FSC) compensation mechanism for past downwards conversion

Further Investment Potential

-Carbon value through proven methodology -Impact or CSR investment to catalyze biodiversity market growth and establish sustainable brand value

Slide 109

Environmental Markets Lessons Learned

Price signals work

SO2 market drove changes in fuel from high to low sulphur coal EU Emissions Trading Scheme (ETS) drove $ billions into carbon funds and carbon companies Australian water market restructured agriculture to increased efficiency and more valuable cropping US Mitigation Banking is a $billion+ turnover industry Investment funds sprang up related to the EU ETS, Australian Water market, and Mitigation banking industrycreates liquidity to meet market needs Markets create transparency in pricing; futures and options create stability; water rights as collateral for investment in water use efficiency Meddling by Government killed the SO2 markets Excessive allocations and unexpectedly huge offset supply have made the EU ETS unstable Lack of price premium has hampered most voluntary certification schemes REDD has struggled to have impact because private sector is disengaged and continues to operate on a business as usual basis

The finance and investment sector can facilitate change

Stability is necessary, but fine-tuning is also necessary

It needs to cost more to remain outside rather than inside a scheme

Slide 110

Towards the Future

Can forestry represent a natural infrastructure asset class?
Projections are that global industrial roundwood demand will begin to plateau around 2.3-2.5 billion m3 per annum in 2030. 100 to 150 million hectares of commercial plantation area (2.5-3.75% of world forest cover) could supply most of this timber, while timber production from frontier regions (Canada, Russia, tropical natural forests) will stabilize or decline. Biomass demand may double this. Mechanisms to price ecosystems via REDD, BioBanking, watershed protection, etc. alongside commercial timber plantations could produce the basis for the stabilization of conservation and production functions Large scale deals like NZ, Australia, Indonesia-Norway, Boreal Canada, etc. Ultimately this must be driven by private capital and investment

Canopy view of New Forests Malua Biobank in Sabah, Malaysia.

Slide 111

Key Points & Conclusions

World timber demand will continue to rise, markets will evolve to encompass Asian demand growth Supply increases will primarily come from timber plantations, rather than further expansion of the economic margin in primary forests Increases in plantation area are more difficult to achieve than increases in productivity of existing plantation baseland competition will also rise among food, energy, and fibre crops Institutional portfolios have gone from 5% real assets in 2000 to 15% real assets today, and likely will reach 25-30% by 2025huge inflow of capital for real estate, infrastructure, agriculture, forestry, etc. Need fopr a financing source for conservation as well as production this could include REDD+, biobanking, water rights, no net loss supply chains, etc. Social and community integration via benefit sharing, consultation, and governance models, and respect for traditional and legal rights will be core to sustainable outcomes

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www.newforests.com.au

Appendices

New Forests History

July 2005 Company established in Sydney and receives Australian Financial Service Licence
May 2007 Establishes US office

August 2008 Establishes SE Asian office October 2009 Begins Funds Management Business August 2010 Closes the AU$490 million Australia New Zealand Forest Fund January 2011 Closes AU$415 million acquisition of 270,000 hectares of Australian forest land from the Receivers of Great Southern Plantations 2011-2012 Acquires major softwood plantations and softwood sawmills in Australia June 2013 Final close of the New Forests Tropical Asia Forest Fund, now with commitments of US$171 million, and first close of the New Forests Australia New Zealand Forest Fund 2 with AU$570 in commitments June 2013 Makes first Asian investment, acquiring Hijauan Benkoka plantations in Sabah

Slide 115

Supply from Russia is Declining

Russian softwood exports have hit a wall
60 Roundwood Sawnwood

50

40

Russian log exports have fallen dramatically over the past six years while lumber exports have been flat to slightly increasing.

Millions cubic metres

30

20

10

0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Slide 116

Source: FAOstat

Canadian Supply Falling

Policy Constraints and Mountain Pine Beetle impact will lead to near-term decline in timber supply, leveling off in the medium to long term.
Canadian Timber Supply 2009 & 2050 Forecast (million m3)
90
80 70

60 50
40 30

20 10
0

British Columbia

Alberta

Ontario

Quebec

Softwood Annual Allowable Cut 2009

Estimated 2050

Slide 117

Source: Mark Kennedy, CIBC. Global Perspectives on Forest Products Trade. Presentation to Future Forestry Finance 2012.

Natural Forest Logging Collapse (repeated from main preso)

Regional Collapse in Natural Forest Logging in Malaysia and Indonesia

Slide 118

Sources: Malaysia Timber Council and personal communication with Yayasan Sabah. / Indonesian Forestry Department Annual Report, 2008.

Australian Plantation Harvest Rising

Australian hardwood plantations are steadily replacing a declining supply from native forests
Native and Plantation Hardwood Harvest
12 000

Native
10 000
8 000

Plantation

'000 m3

6 000

4 000
2 000 0

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Source: ABARES, Forest and Wood Product Statistics.

Increasing Importance of Plantations

Global industrial roundwood demand is likely to rise from 1.5 billion m3 in 2013 to 2.5 billion m3 by 2050 Somewhat speculative forecasts suggest biomass energy, biofuels and biomaterials demand could dwarf industrial roundwood demand over next 30 years* Almost all incremental supply will come from timber plantations both productivity enhancement and plantation area will need to increase Investment needed could range between $100 and $500 billion to meet these levels of demand

*WWF, 2013 Living Planet Report

Slide 120 Source: FAO, 2010. Global Forest Resource Assessment.

Plantation Productivity Can Increase

Example of Productivity Gains Softwood in Australia
30 800

Average Growth Rate (m3/ha/yr)

600 25

400

20 200

15 2012 2025 2035 2045 2055 2065

Base Genetics

Management TRV

Nutrition

If industrial wood demand grows at an equivalent rate to global GDP can we meet much of this via productivity enhancement rather than land base expansion Investor strategies focus on silviculture, nutrition, risk management and genetics to increase productivity by 50-100% over the next 50 years

*Source: Timberlands Pacific Pty Ltd

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TRV - Total Recoverable Volume (m3/ha)

What Government Policies are Needed?

A modern forest policy framework needs to address wood supply, forest conservation and sustainability issues

Future wood supply growth will largely be delivered by plantationsthis will be from existing plantations managed more intensively and expansion of plantation areaexpansion is a key policy challenge As timber plantations take on increasing share of wood supply, innovation is needed in financial mechanisms for forest conservationREDD, biobanks, supply chain initiatives Social outcomes need to balance multiple stakeholders and conflicting interests and rights. Innovations around consultation/governance models, sharing in economic benefits, community benefits are needed

Slide 122

TAFF Certification & Sustainability

New Forests is committed to sustainable management of TAFF investments
Third-party verified sustainable forest management will add significant value:

Price premiums and better market access for certain products Lower project and political risk through reduced social conflicts Improved asset liquidity and lower risk-adjusted discount rates on exit Lower cost of debt capital and better debt access, especially from development banks Improved access to licences, operating permits, or additional assets from host countries Reputational risk reduction for fund investors Opportunities for increasing operating efficiencies through better management Opportunities for environmental market products from areas set aside from production Achieve compliance against IFC Performance Standards within three years of acquisition on all assets including plantations, natural forests, and processing facilities Achieve FSC certification on all natural forests within three years of acquisition if the asset meets all FSC eligibility criteria Where plantation assets do not meet all FSC eligibility criteria, engage an FSC-accredited certification body to undertake third-party verification of compliance with all applicable FSC requirements and, depending on market requirements, pursue additional third-party certification against an alternative certification system depending on market demands such as PEFC, LEI, FSC controlled wood, VLO, and/or VLC or other future standard that may be developed

TAFF Certification Policy:

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External Motivations
New Forests designed its Social and Environmental Management System (SEMS) in 2010 and began full implementation in 2011. The SEMS is designed to systematically identify, manage, and report on social and environmental issues and potential impacts.

The SEMS helps us win clients:

English pension fund manager said, Youre the only manager weve seen who can show how they manage assets sustainably. Dutch pension fund manager said, FSC certification is absolutely required for us as a target and your SEMS shows us how you pursue that. Provides a reference point and tool for due diligence Current clients ask to see audit reports Streamlines responses to client inquiries

The SEMS helps us provide client services and meet requests:

Risk management and continual improvement.

Slide 124

Linking Sustainable Forest Product Supply Chains through Asia

PEFC Stakeholder Dialogue 2013 14-15th November, Kuala Lumpur

125