Can Money Grow on Trees?
Written by Sofia Faruqi & Caroline Gagné, Stanford Social Innovation Review
Tevis Howard graduated from Brown University in 2007. While many of his Ivy League classmates headed to Wall Street, he took a different path. He moved to Kilifi, a rural area in coastal Kenya, with the aim of reducing the pressure on African forests. According to a 2013 report, more than 93 percent of the wood supply in Africa comes from natural forests. Deforestation is rampant. Howard decided to try and introduce sustainable timber to the market while improving land quality and supporting smallholder farmers.
It took him years of experimentation to figure out an approach that was both financially and environmentally sustainable. Ultimately, he chose a distributed plantation model, working with smallholder farmers to plant eucalyptus and mukau (a native mahogany tree) on farmers’ land. Today, his business Komaza provides seedlings, tools, and training, while farmers provide the labor and the land. When the trees are ready for harvest, Komaza buys the timber from the farmers at a fair price, providing families that rely on subsistence farming with a new—and significant—source of income. To date, Komaza has planted two million trees in cooperation with around 9,000 farmers. It raised more than $9 million in its Series A investment round in 2017 and expanded from a team of 110 to 450 in two years.
Komaza is part of a broader trend of entrepreneurs and companies aiming to make money by restoring degraded forests and farmland. This matters, because about 25 percent of the world’s land area has been degraded—meaning it’s lost some of its natural function—over the past 50 years. Deforestation and land degradation cost the world up to $6.3 trillion a year in terms of lost “ecosystem service value”—the economic value derived from agricultural products, clean air, fresh water, and fertile soils. They also jeopardize the livelihoods of half a billion people who depend on forests and natural resources.
A new report from the World Resources Institute and The Nature Conservancy profiles 14 businesses in the emerging restoration economy, across four sectors—technology, consumer products, project management, and commercial forestry—and eight countries. The report scratches the surface, as we discovered hundreds of companies have entered the restoration space in recent years. These businesses have the potential to deliver significant environmental and social impact. Research indicates that land restoration and conservation can provide 37 percent of the carbon emissions reduction needed by 2030 to mitigate climate change. Ecological restoration also improves biodiversity by 44 percent, as wildlife habitat and ecosystem services are returned to the land. People also stand to prosper: Every $1 spent on land restoration yields $7-$30 in economic benefits, such as higher food production and soil health.
One of the companies featured in the report, TerViva, is proving that technology can open up new markets. The California-based company plants pongamia, a leguminous oilseed tree, on degraded, unproductive farmland in Florida and Hawaii historically used for citrus and sugar plantations. TerViva has developed a patented process to remove the genetic compounds that make pongamia naturally inedible. The tree’s oil can be used as a sustainable fuel source, and its high protein content makes it a suitable substitute for soy—a leading cause of deforestation—for livestock feed. According to the company, its pongamia cultivars produce 10 times more oil and three times more protein per acre than soybeans in the United States, while using less than half the water. The trees also rehabilitate soil on damaged land and don’t need much fertilizer. The company has raised $20 million in equity and has received grants from the US National Science Foundation and the US Navy.
Across the country in New Hampshire, The Lyme Timber Company is pursuing a different model by purchasing land and increasing its value through operational restructuring and conservation strategies. The company raises capital in private equity funds, which it then uses to acquire and manage planted forests that provide wildlife habitat or other ecosystem services. Lyme made equity investments of approximately $500 million in its first four funds and invested in 37 properties. By conserving large, connected areas of land, the company’s investments are filling holes in important conservation landscapes. For instance, Lyme worked with the Wisconsin Department of Natural Resources to protect—through two investments—more than 70,000 acres of land. The largest conservation effort in Wisconsin’s history, this land will now be available for timber production and remain open to the public for recreation indefinitely. Since 2002, the company has permanently conserved more than 900,000 acres in the United States and Canada.
Canada, home to 9 percent of the world’s forests, is also the home base of Tentree. While companies like Komaza, TerViva, and Lyme Timber take a direct approach to tree planting, Tentree’s approach is indirect. Launched in 2011 by two friends who are passionate about the environment, Tentree is a sustainable apparel brand that—as its name suggests—plants 10 trees for every item it sells. Appealing to the environmental consciousness of Millennials, the company has planted 18 million trees across North America, Southeast Asia, and Africa. Tentree partners with local nonprofits, and its sponsored projects have employed more than 500 people in local communities. The company has designed unique laser-engraved tokens that enable consumers to go online and track where the trees associated with their purchase are being planted. Annual sales have grown to more than 500,000 units per year in the mature and crowded industry of North American apparel. Tentree has been able to grow fast partly by differentiating itself through its tree-centered mission.
Entrepreneurs are responding to the challenge of land degradation with solutions that leave business-as-usual in the dust. As forests and farmland are restored, the environment thrives. Carbon is removed from the atmosphere, biodiversity starts to return, and soil health improves. Businesses and communities benefit as well: investors and entrepreneurs participate in a growing investment opportunity, and the restoration economy creates jobs and raises incomes.
Aspiring entrepreneurs and funders concerned about the future of our planet should invest in a solution that surrounds us all but often goes unnoticed: trees.
Originally published by Stanford Social Innovation Review on Jan. 18, 2018