Undervalued and Overlooked: Ignoring Forests Could Cost Us Everything

Why global financial systems still ignore forests

Forests cover 31% of Earth’s land surface. They support 80% of terrestrial biodiversity. Yet primary forests vanish at 3.5 million hectares per year, an area the size of Taiwan.

The reason is simple. Global economic systems treat forests as timber inventories rather than vital infrastructure. Jack Hurd, head of the World Economic Forum’s Earth System Agenda and executive director of the Tropical Forest Alliance, argues this systematic undervaluation creates profound economic, environmental, and social risks.

Traditional economic models prioritize marketable products like wood. They ignore non-market benefits such as carbon storage, biodiversity support, water regulation, and rainfall generation. Consequently, forests appear in national accounts primarily when they are cut down.

This narrow view has real consequences. Primary forests store 30-50% more carbon than logged ones and host unique biodiversity. However, international policies often favor industrial use over ecological integrity. Forest-rich developing nations face impossible trade-offs between resource exports and long-term stability, complicated by weak currencies, high borrowing costs, and capital flows into deforestation-linked sectors like agriculture and mining.

How forests generate economic value beyond timber

A February 2026 University of Leeds study quantified what farmers already know. Each hectare of tropical forest generates 2.4 million liters of rainfall annually. For Brazilian Amazon agriculture alone, researchers valued this service at roughly $20 billion yearly.

Lead author Jess Baker explains: “Demonstrating the financial benefits that tropical forests provide will unlock investment and strengthen arguments for forest protection.”

Forests sustain 1.6 billion people globally. In Indonesia, sectors like agriculture, forestry, and fisheries employ 28% of the workforce. Over 65% are informal workers vulnerable to economic insecurity. Despite this, a 2026 United Nations report identifies their systematic exclusion from national accounts, underrepresenting subsistence activities, informal jobs, and services critical to Sustainable Development Goals.

The IUFRO’s 2025 assessment, Forests as Pillars of Social and Economic Resilience, emphasizes their role in buffering economic disturbances. Coordinator Nelson Grima states: “When we destabilise forests, the impacts can be felt across all regions and economies. Forests are everyone’s business.”

Recent analyses show forests function as economic infrastructure rather than corporate social responsibility projects. Capital markets are beginning to notice. Reclassifying forests as productive assets could yield 8-15% returns through carbon revenues, land appreciation, and enhanced productivity. However, inconsistent data, unstandardized risk assessment, and fragmented evaluation methods hold back investment.

The real cost of deforestation for UK supply chains

Deforestation creates cascading risks that eventually reach UK businesses. It erodes soil quality and disrupts pollinator populations. Crop yields decline as a result. Disease outbreaks like malaria increase in deforested regions.

Physical risks manifest through floods, droughts, and supply chain disruptions. Transition risks emerge from policy shifts as governments respond to climate pressure. Meanwhile, capital continues flowing to high-risk sectors despite forests’ foundational roles in climate regulation, water security, and industrial resilience.

A recent CETEx report warns that deforestation’s transmission channels threaten financial stability. These channels link directly to workforce health, productivity losses, and supply chain reliability. For businesses dependent on agricultural commodities or forest products, these risks remain largely unpriced.

In Uganda and Kenya, conservation opportunity costs exceed local forest benefits by three to six times. This creates powerful economic disincentives for protection. Without mechanisms to capture forest services in market prices, landowners rationally choose conversion to agriculture or extraction.

Forest loss undermines the sustainable procurement commitments that increasingly determine tender success. Public sector buyers now scrutinize supply chain deforestation risk. Companies without credible forest protection measures face growing commercial disadvantage.

Global climate targets depend on forest finance

Forests could contribute approximately 10% of the mitigation needed to limit warming to 1.5°C. This translates to 6.0 gigatonnes of CO₂ per year by 2055. Achieving this requires $393 billion annually, or $281 per tonne of CO₂ avoided.

Currently, private finance covers less than 25% of this total. The funding gap reflects forests’ invisibility in traditional investment frameworks. Investors lack standardized methods to assess forest assets. Risk profiles remain poorly defined. Returns appear uncertain compared to conventional infrastructure.

Governance challenges compound the finance problem. COP26’s 2030 deforestation halt pledge remains non-binding. Poor enforcement and elite capture undermine implementation. Countries with the greatest forest resources often lack the institutional capacity to manage carbon markets or verify emissions reductions.

Nevertheless, forest economics are shifting. Carbon markets are maturing. Verification standards are improving. Jurisdictional approaches that reward entire regions for maintaining forest cover show promise. Some forest-rich nations are exploring debt-for-nature swaps that reduce borrowing costs in exchange for conservation commitments.

For businesses pursuing carbon reporting compliance under PPN 06/21, forest carbon credits offer a mechanism to address residual emissions. However, quality varies significantly. Credits from avoided deforestation require rigorous additionality testing. Buyers need assurance that forests face genuine conversion threats and that protection delivers real climate benefits.

What systematic undervaluation means for business

• Primary forests vanish at 3.5 million hectares yearly despite storing 30-50% more carbon than logged forests and hosting unique biodiversity that logged areas cannot replicate.
• Each hectare of tropical forest generates 2.4 million liters of annual rainfall, with Brazilian Amazon agriculture receiving approximately $20 billion in yearly benefits from this hydrological service alone.
• Global forest protection requires $393 billion annually to deliver 6.0 gigatonnes of CO₂ mitigation by 2055, yet private finance currently provides under 25% of necessary funding.
• Conservation opportunity costs in Uganda and Kenya exceed local forest benefits by three to six times, creating substantial economic disincentives for protection without payment mechanisms for ecosystem services.
• Forests sustain 1.6 billion people globally, with over 65% working in informal roles vulnerable to insecurity, yet national accounts systematically exclude their contributions and subsistence value.
• Reclassifying forests as productive infrastructure could generate 8-15% returns through carbon revenues, land value appreciation, and enhanced agricultural productivity from maintained ecosystem services.

Forests as risk management infrastructure

Viewing forests through a risk lens changes the business case entirely. They regulate water supplies that industries depend on. They stabilize local climates that affect agricultural yields. They prevent soil erosion that damages infrastructure and increases maintenance costs.

Financial institutions are starting to incorporate these dependencies into lending decisions. Businesses in forest-dependent sectors face higher capital costs if they cannot demonstrate sustainable sourcing. Conversely, companies with robust forest protection programs access preferential finance terms.

Insurance markets are adapting as well. Premiums increase for operations in deforested watersheds due to flood and drought exposure. Agricultural insurance requires documentation of sustainable land management practices. Property insurers adjust rates based on wildfire risk, which correlates directly with forest health and management.

For UK SMEs, these shifts create both risks and opportunities. Supply chains that depend on forest products or ecosystem services need assessment and potential restructuring. Companies that act early to secure sustainable sources gain competitive advantage. Those that delay face rising costs and potential supply disruption.

The regulatory environment around ESG compliance reinforces this trend. Disclosure requirements expand to cover deforestation risk and nature-related dependencies. Businesses must demonstrate understanding of their forest exposure and mitigation strategies.

Policy gaps and governance challenges

International agreements on forests lack enforcement mechanisms. The COP26 pledge to halt deforestation by 2030 included major forest nations. However, signatories face no penalties for non-compliance. Domestic political pressures often override international commitments, particularly in countries where agricultural expansion drives economic growth.

National-level governance presents additional challenges. Land tenure systems in many forest-rich countries remain unclear or contested. Indigenous communities with traditional forest rights lack formal recognition. Corruption enables illegal logging despite nominal protections. Weak institutions struggle to monitor vast forest areas or prosecute violations effectively.

These governance gaps create uncertainty for businesses and investors. Supply chain due diligence becomes difficult when legal frameworks are ambiguous or poorly enforced. Companies seeking to invest in forest conservation face complex negotiations with multiple stakeholders whose rights and interests may conflict.

Some promising approaches are emerging. Jurisdictional programs that work with entire states or provinces create economies of scale and clearer governance structures. These programs combine policy reform, enforcement capacity building, and economic incentives. Early results suggest they can reduce deforestation while supporting local development.

Satellite monitoring technology improves transparency. Near-real-time deforestation alerts enable faster response. Blockchain and digital verification systems help track timber and agricultural commodities from source to market. However, technology alone cannot substitute for political will and institutional capacity.

Practical steps for UK businesses

Start by mapping your forest dependencies. Identify which products or services in your supply chain rely on forest resources or ecosystem services. Agricultural commodities, timber products, and water-intensive operations warrant particular attention. Assessment tools from bodies like the UK government’s due diligence framework provide structured approaches.

Engage suppliers on their forest practices. Request evidence of sustainable sourcing for forest-risk commodities. Certification schemes like FSC or PEFC offer third-party verification, though they vary in rigor. Supplier questionnaires should cover deforestation policies, traceability systems, and grievance mechanisms. Build these requirements into procurement contracts.

Consider nature-based solutions in carbon planning. High-quality forest carbon credits can address residual emissions that operational changes cannot eliminate. However, due diligence is essential. Evaluate additionality, permanence, and co-benefits. Avoid credits from projects with questionable baselines or community conflicts. Reputable registries and standards provide guidance.

Monitor regulatory developments closely. UK due diligence legislation on forest-risk commodities takes effect in phases. The Environment Act 2021 includes provisions affecting supply chains. EU regulations on deforestation-free products will impact businesses trading with European partners. Early compliance reduces scrambling later.

Participate in industry initiatives where relevant. Sector-specific coalitions often achieve more than individual company efforts. Collaborative approaches share costs of traceability systems and supplier engagement. They also create level playing fields that prevent competitive disadvantage from higher standards.

Where to find authoritative guidance

The Department for Environment, Food and Rural Affairs publishes guidance on environmental land management and nature recovery relevant to UK forestry. Their resources cover both domestic woodland and imported forest-risk commodities.

The Forest Research agency provides scientific evidence on forest ecosystem services, carbon sequestration, and sustainable management practices. Their publications translate research into practical application for land managers and policymakers.

For international forest issues, the Food and Agriculture Organization maintains comprehensive data on global forest resources, deforestation rates, and policy frameworks. Their State of the World’s Forests reports offer authoritative overviews of trends and challenges.

The International Union for Conservation of Nature publishes guidance on forest conservation approaches and nature-based solutions. Their resources cover both protection and restoration strategies with evidence from diverse geographies and ecosystems.

Businesses seeking to understand their forest exposure can access tools through the Forest 500 initiative, which tracks corporate commitments and performance on deforestation. The platform enables benchmarking against peers and identification of improvement areas.