Will Canada be the first country to tokenize its forests?

February 6, 2020
Louisa Bartoszek

Louisa Bartoszek discusses how newly emerging sustainable financing solutions can provide Government's and landowners with a way to generate financial return on positive climate action and asks, will Canada be the first country to tokenize its forests?

It has been four years since 196 countries negotiated the Paris Agreement, under which they committed to taking steps to limit the increase in global average temperature this century to well below 2 degrees Celsius over pre-industrial levels.

Yet, despite the rhetoric and promises, the last five years have been the hottest on record.

Records continue to be broken too, with January 2020 declared the warmest January on record globally, according to the European Union’s climate monitoring system on February 4, 2020.

It’s clear we are not doing enough, and more urgent action is needed.

The underlying problem has arguably been the lack of political will to take climate change seriously. Or rather, it struggles to compete with other economic and societal demands on domestic Government funds, to secure the budget needed for climate and sustainability policies to have a real impact.

But also, perhaps, there is a limited understanding of how to monetise natural resources using newly emerging sustainable financing solutions.

Or how it can provide a financially lucrative alternative to physical environmental actions which negatively impact the climate, like deforestation.

There are interesting new opportunities for Government’s/landowners worldwide to generate a financial return on climate action.

Could Canada pioneer a new way?

I followed the October 2019 Canadian elections with great interest, with the climate crisis in mind.

Firstly, Canada is the second largest country in the world by land mass with forest or other woodland making up roughly 40% of its 979 million hectares. There are a reported 347 million hectares of forest in Canada according to Natural Resources Canada, making up 9% of the world’s forests.

Second, back in 2015, the then newly elected Prime Minister Justin Trudeau said Canada was on the world stage as a leader in climate change, and subsequently championed climate and environmental initiatives throughout his first term.

Indeed, in an interview with the International Monetary Fund last year, Mr Trudeau stressed: “Canada’s economy is strong and growing, but its future success depends on a bold, concerted response to climate change.”

Adding: “With a strong economy, a solid track record of innovation, and an internationally competitive financial sector, Canada has an opportunity to become a world leader in sustainable finance.”

Then third; the newly re-elected Liberal Government under Mr Trudeau’s leadership, again made climate change a manifesto priority by promising to plant two billion trees in 10 years to help Canadians manage the risk of natural disasters if elected, as part of C$3 billion investment.

All really great to hear. But as we all know, it’s not going to be easy.

And at the time of writing, Canada is still projected to miss its 2030 carbon emissions target under the 2015 Paris Agreement and needs to find new ways to reduce the gap.

Undaunted, Mr Trudeau upped the ante even further last year by promising to set Canada on a path to achieving net-zero emissions by 2050.

Planting billions of trees is one of the biggest and cheapest ways of addressing the climate emergency and its terrific to see initiatives like this in Canada. I applaud Mr Trudeau and his Government for this commitment.

But we also need to find ways to encourage forest owners (predominantly Governments) to preserve existing forests too.

One way to do this is to create new innovative ways in which forests can generate income so that they do not feel the need to destroy forests and rare natural habitats for financial reasons.

Will we see the first Forest Token in Canada?

Maybe. This is why I’m curious about Canada.

Whilst it’s fair to say Canada does not have a deforestation problem. The Canadian Government has been extremely vocal about the importance of climate change initiatives as a cornerstone to domestic economic growth, as well as the broader concerns around saving our planet.

Mr Trudeau says Canada has the opportunity to become a world leader in sustainable finance.

He’s absolutely correct on that front. And one of the ways in which Canada could do this is to consider tokenizing Canada’s forests using new blockchain technology.

Tokenization is a new and cutting-edge addition to the ESG / sustainable financing stack. As we have explained previously, tokenization can:

  • Protect - it could provide a revenue stream for the landowner (like the Canadian Government), providing a financial incentive to not sell the land for deforestation and commercial development. Protecting historic forests and habitats for wildlife.
  • Restore – the additional investment can be reinvested into planting lost trees and restoring lost woodlands, supporting global reforestation initiatives like World Economic Forum’s 1t.org project announced at Davos 2020.
  • Fund – the money raised through tokenizing could be reinvested into further sustainable development initiatives. For example, to support local forest dwelling communities or clean water to reduce pollution which annually impacts the health of existing natural areas.

We know that saving forests will require all of us and it’s going to take more than just making promises to plant billions of trees.

It’s going to require significant multi-billion-dollar investment to deliver existing climate and forestry promises.

Through tokenizing forests, we believe Governments and other forest owners, can unlock access to previously unavailable capital, adding liquidity to the financial system and bringing in a new stream of funding which can be reinvested into climate-related initiatives in each country around the world.

If Canada is serious about being a world leader in sustainable finance and the role of forests in climate change, will Canada be the first country to tokenize its forests?