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VERENA Investment Tool: Valuing Reforestation with Native Tree Species and Agroforestry Systems

Is reforestation with native tree species and agroforestry systems a viable business? The VERENA Investment Tool will help to answer this question. The tool consists of a technical note and an economic model. It allows to transform investments with risk-adjusted returns into commercial restoration and reforestation projects with native tree species. The economic model evaluates the returns of any type of biological assets, such as reforestation with one or multiple native species and agroforestry systems with different combinations of tree species and permanent and/or annual plantations. Developed by WRI Brasil in a partnership with IUCN, the VERENA Investment Tool analyzed 12 business cases located in the Amazon, the Cerrado and the Atlantic Rainforest.


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TUTORIAL

Learn how to use the Economic Model in five videos:

  1. General Information
  2. Costs and Revenues
  3. Externalities
  4. Simulation
  5. Reports

Executive Summary

Is reforestation with native tree species and Agroforestry Systems a viable business? The great challenge faced by reforestation with native Brazilian tree species, agroforestry systems and restoration lies in moving from the pilot project phase to a larger scale, and then to mainstreaming. To answer this question, we turn to the global capital market. There is a risk and return track record of more than 100 years for several asset classes and publicly traded companies. Moreover, it is possible to find and produce information on how these various asset classes correlate with each other, with economy and inflation, that is, the level of information is large enough for investment decision making given its profile risk and return. Although native Brazilian tree species have existed for thousands of years, and despite some good commercial experience with them, we have no history of this asset class from the capital market standpoint. In this way, building the ongoing business cases in Brazil with native trees and agroforestry systems is fundamental to create this track record and make it possible for reforestation with native species and agroforestry systems to gain scale and reduce risk perception.

This technical note presents the Economic Valuation of Reforestation with Native Species (VERENA) tool, a model framework based on 12 investment cases developed by WRI Brasil in partnership with UICN Brazil and contribution of several organizations and colleagues. The goal of the VERENA Project is to fill the gap of knowledge on reforestation and agroforestry systems and assess returns on investments and other relevant information, in order to better inform investors, policy makers and analysts interested in using native species and agroforestry systems for economic use. The VERENA tool was developed with the support of several partners and audited by Amplix apps for business. The use of this tool may help to mainstream risk-adjusted returns investments into forest restoration and reforestation projects. The target users of the VERENA valuation tool are investment analysts, land owners, financial institutions, and policy makers. The model allows for the assessment of returns from any kind of biological asset, such as the reforestation with single or multiple native species and agroforestry systems with different combinations of tree species and permanent and annual crops.

This technical note is organized in three main parts: (a) introduction and main concepts, (b) methodology with the structure, the input data sources, model simulation and main results, and (c) Final remarks and conclusion.

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