Sustainable forestry funds may offer a number of benefits to the planet and to those who invest in them, yet fundraising remains a challenge.
What Is at Stake?
From an impact perspective, increasing investments in sustainable forestry is important for the role forests play in combating climate change. Some scientists argue that trees’ ability to absorb carbon dioxide makes them a powerful means of mitigating the effects of greenhouse gas emissions. At the same time, forests provide subsistence and income to some 250 million people and are home to 80% of Earth’s land animals and plants.
Though forests cover roughly 30% of the planet’s land area, they are disappearing at an alarming rate, primarily due to commercial development including cattle ranching, logging, and palm oil production. Between 1990 and 2015, the world lost an area of forest larger than South Africa, according to the World Bank.
Investors in sustainable forestry believe their dollars can generate environmental impact like climate change mitigation and conservation, as well as social impact like quality job creation, according to Scaling Impact Investment in Forestry.
In addition to positive impact, investments in sustainable forestry also often generate positive financial returns. Emerging market funds in sustainable forestry target annualized returns of 15% on average, while those investing in developed markets target an average of 10%, according to the GIIN report. These green investments may also serve as hedges against inflation, have predictable cash flows due to biological growth cycles, and have long-term lock-up periods that align with the needs of certain long-term investors.
What Do Sustainable Forestry Investments Look Like?
The number of investment opportunities in sustainable forestry remains limited. The GIIN identified 34 vehicles managing $9.4 billion in forestry and related assets. Strategies include sales of timber, carbon offsets, land leasing, and land rights for conservation.
For example, Australia’s New Forests manages $3.6 billion in sustainable timber, rural land management, and conservation investments. New Forests invests in sustainable timber in Southeast Asia through its $150 million Tropical Asia Forest Fund. The fund, which targets market-rate returns, generates income from the sale of timber and rubber latex, capital appreciation from biological growth, and improvements to business systems.
Portland, Oregon–based Climate Trust Capital (CTC), founded in 2016, aims to reduce more than 2 million tons of carbon dioxide emissions over the fund’s 10-year life by facilitating initiatives that generate carbon offsets. CTC invests in early-stage forestry, biogas, and grassland conservation projects across the US, based on the belief that carbon offsets are currently undervalued.
Despite the potential benefits, fund managers in the sustainable timber space face persistent challenges in raising capital, they told the GIIN. Most notably, they reported that investors have an exaggerated perception of the risks related to sustainable forestry, including financial risk and exit risk. Still, there are other reasons investors hold back, including the complexity of the field and limited investment options.