More than two billion hectares(nearly five billion acres) of degraded and deforested land awaits restoration worldwide. The annual economic benefits of restoring this land are an estimated $84 billion—about the gross domestic product of Sri Lanka in 2015. As the economy surrounding landscape restoration – the New Restoration Economy – continues to develop, prospective investors are intrigued by the financial returns restoration projects can deliver.
Investing in landscape restoration may seem different from buying a bond or trading stocks online, but the fundamental structure is the same. Restoration projects, like conventional investments, also generate both income and capital gains.
Income refers to recurring payments received following an investment. Investments in restoration— such as planting bamboo along gullies or agroforestry systems on degraded land – can deliver income in a variety of ways, including from the periodic sales of sustainable wood fibers or annual revenues from ecotourism. For example, a study of an Indonesian forest restoration concession sought to quantify its economic benefits for local households. Depending on the ethnic group and their associated reliance on forests, the study found that households earned between $455-663 per year through the sale of multiple forest products, including rubber, honey and rattan.
Additionally, investments deliver returns through capital gains – profits from selling the asset, which has increased in value over time. Restoration projects improve the productivity of the land by, for example, improving soil and water quality, increasing the value of the land and the opportunity for capital gains. In a study on the land value impacts of wetland restoration in North Carolina, wetlands were shown to have a significant positive effect on adjacent properties, increasing home prices at sale by $3,100 compared to properties with no wetlands nearby.
If we only consider income from restoration projects through sales of goods and services – such as bamboo or carbon credits — we risk overlooking the returns from capital gains because of improved land quality. As restoration emerges as a promising opportunity for investment, it is important to consider both types of returns to realize the true financial potential of restoring land.