“Forests are well recognised as a natural solution to many of the world’s climate, biodiversity and social challenges,” says a JP Morgan AM spokesperson.
The changing forestry sector is starting to reshape the economics of forestry investing, moving from an industry primarily focused on harvesting logs to one revolving around the capture of carbon for offsets.
At a carbon price of, say, US$50/tonne, you are looking at a potential yearly cash flow of US$500bn across the land-use sector.
So far, New Forests has been running a traditional forestry investment approach, with any carbon credits treated as upside.
“That is where things are going to evolve.
Tom Sarno, global head of timberland investment at Manulife Investment Management, says: “It is easy to predict that more of our business will come from new emerging values arising from climate initiatives.
Sarno thinks this will depend on how societies and corporates value carbon, the cash value that it creates and where it trades.
Carbon prices in some markets have doubled in the past six months, hitting US$50/tonne in New Zealand, US$35 in Australia and US$16.50 in California.
“Traditional forestry valuation looks at forward pricing, expected rates of timber production and the growth rate of the trees.
“But we need to understand the risk associated with forward carbon markets.
Cooperstrom says: “The intention there really was to invest for carbon value.
Gian Paolo Potsios, managing director of Timberland Investment Resources Europe , says: “In the past 12 to 18 months, we have seen renewed attention from corporates to the carbon footprint of their ESG portfolios.
“Others prefer not to enter this kind of trading.
They must establish new forests through afforestation or reforestation – or keep the trees in a plantation for five to 10 years longer than originally intended.
Industry experts say that investors demand strong, detailed data on carbon management – data that has to be independently validated by established certifying organisations.
TIR, which manages US$1bn mainly in the US, is working on a fund that will encompass new approaches which enable environmental, social and governance obligations to be met while still delivering returns.
Demand for forest investment spawned several new funds in 2021, and some of these have experienced substantial oversubscription.
Its US-Forest Climate Solutions Fund is raising capital and is expected to close in the first quarter of 2022.
All New Forests funds and separately-managed accounts are already selling carbon credits as a sideline.
Brett Himbury, former IFM Investors CEO and recently appointed chairman of Stafford Capital, says that, while he sees increasing interest from investors and bigger emitters in timberland funds for additional carbon credits, he continues to see interest from investors for the fundamentals of the sector.
Oranje says timberland investment is enjoying a thematic boost led by increased demand for sustainable products.
“We are buying fund positions from other limited partners in existing forest funds.
Stafford’s forestry assets are located in Australia, New Zealand, Latin America and North America valued at about US$2.5bn.
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