Facilitating private forestry investments: a practical approach to risk assessment

Severity and propability during for risk assessment

This is the announcement of an article by Stefan Haas, Alexander Watson and Fabian Schmidt, which has been published by © 2012 ETFRN and Tropenbos International, Wageningen, the Netherlands in the Issue No. 54, December 2012: “Good Business Making Private Investments Work for Tropical Forests”,

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Risk assessment methodology for forest investments

Forest investments in emerging markets are at an early stage and standardized risk assessment methodologies are rarely available. A best-practice guideline is needed to tackle the complexity of multiple risk factors. Although Pricewaterhouse-Coopers has developed toolkits and Zurich Insurance Company offers global risk assessments, these approaches were too broad to serve as precise and project-specific riskassessment strategies (see also Glauner et al. 2012).

A risk assessment approach

The presented risk-assessment approach has been developed based on practical experience with forest investments in tropical regions. It covers topics ranging from project scouting and feasibility analysis to implementation. The aim of the toolkit is to support decision-making during the entire investment process, from project screening and investment decision to implementation. It is designed to minimize risks by guiding the management of information and resource allocation in an optimized and cost-efficient way. This clearly structured and practical toolkit is a framework that can also be used by investment groups who do not have extensive forest investment expertise.

Article overview

Risk assessment is an integrated component of all three phases: pre-selection, due-diligence and project monitoring. Identifying, mitigating and managing all major forestry-related risks require a systematic and comprehensive risk assessment. The following three figures give an overview of each stage.

Pre-selection

Pre-selection method to screen the market for high-quality forest projects

Pre-selection method to screen the market for high-quality forest projects

Due-diligence

Overview of the due diligence process

Overview of the due diligence process

Project monitoring

A forest information system as a monitoring and risk assessment tool

A forest information system as a monitoring and risk assessment tool

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Alexander Watson
alexander.watson@openforests.com