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Sustainable forestry 2016: New Forests and Sampoerna Agro

Channels: Carbon, Investors, Markets, Stranded Assets

Companies: New Forests, Hutan Ketapang Industri, Sampoerna Agro

People: David Brand, Marc Louette

It is hoped that New Forests' joint venture in a sustainable rubber plantation in Indonesia will pave the way for further institutional investment in large-scale, sustainable forestry in the country.

David Brand, New ForestsNew Forests in December invested of more than $40 million in Sampoerna Agro-subsidiary Hutan Ketapang Industri (HKI), which manages a 100,150 hectare plantation forestry concession area in Ketapang, West Kalimantan province, much of which has been degraded by the pulp and paper business.

It is the first known timberland investment fund to form a joint-venture on sustainable rubber in Indonesia.

The investment will enable HKI to expand a sustainable rubber plantation on the estate from 9,000 hectares to more than 30,000 hectares.

HKI will employ a 'landscape investment model', which includes areas designated for rubber production, conservation set-asides, community forestry and peatland rehabilitation.

The company says it is committed to conserving all remaining forest cover, including degraded natural forest, and will adhere to the Forest Stewardship Council's principles and criteria, and follow the International Finance Corporation's environmental and social performance standards.

It will introduce additional conservation management areas throughout, to ensure that more than 20% of its concession is allocated as an area of 'high conservation value forest'.

"The area was heavily degraded by past pulp and paper businesses as well as a historical regime of fire, which has impacted large areas," says New Forests CEO David Brand. "Much of the land is now grassland as a result of this history and degradation.

"There are, however, also areas of degraded and remnant forest that maintain significant ecological value, and which will be the focus of conservation set-asides. HKI also intends to conduct some peatland restoration."

The investment was made through the New Forests Tropical Asia Forest Fund (Taff) – a $170 million investment fund backed by institutional investors, including European pension funds, development banks, and European and American funds of funds – which purchased a 35% stake in HKI for IDR263 billion ($20 million) and a loan of IDR325 billion.

Further equity investment is anticipated as the plantation continues to be established over the coming years.

"We are excited to be part of the shift in Indonesia's forest sector towards more productive and responsible operations," David Brand, New Forests

Indonesia has some of the biggest resources of tropical forests in the world, but they have been damaged by illegal logging and the palm oil industry in recent years. The World Resources Institute estimates that some 10 million hectares of Indonesian tropical rainforest have now been lost to "rampant" illegal logging. Further investment is necessary in order for them to be managed sustainably.

"This investment is among the first institutional investments in large-scale, sustainable forestry in Indonesia," adds Brand. "We are excited to be part of the shift in Indonesia's forest sector towards more productive and responsible operations."

Sampoerna Agro is best known as a producer of palm oil, a commodity whose impacts are often condemned by environmentalists. However, Sampoerna Agro is a member of the Roundtable on Sustainable Palm Oil, and its partnership with Australian forestry investment manager New Forests has strong sustainability credentials.

"New Forests and Sampoerna Agro have established a positive working relationship around the environmental, social and governance goals of the investment and how these will be managed throughout the operations at HKI," says a spokesperson for New Forests. "As we work together on issues like forest certification, performance standards, and impact assessments we see a ready willingness to explore how these tools can bring value to the HKI business and are also having discussions about how they could be applied to other operations."

Marc Louette, CEO of Sampoerna Agro, adds: "The joint venture is believed to bring a combination of economic, social and environmental synergies which should be enough to create a world-class estate in a future not too distant." EF

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