Forestry: See the money for the trees

This piece has an US slant but shows the growing awareness of the value of investing in forestry.

Money doesn’t grow on trees, but this could be missing the point. As some institutional investors have found, the trees themselves are valuable. And they tend to become more valuable over time as they increase in height and volume, making their lumber suitable for a wider array of purposes.

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Booming demand for timber fuels surge in profits at Scottish Woodlands

SCOTTISH Woodlands has highlighted the importance of the forestry sector in Scotland after it achieved record trading results amid strong sales of timber.

The company, which manages forests for owners ranging from individuals to local authorities, increased pre-tax profits by around 80 per cent annually, to £1.1 million in the year to September.

Scottish Woodlands harvested more than a million tonnes of timber during the year, when sales surged by around 15 per cent annually, to £74m.

The employee-owned company said the growth reflected strong demand for domestically grown timber in the UK.

Scottish Woodlands’ customer list includes sawmills, fencing producers, paper mills and biomass energy firms.

The company noted the growth was also driven by strong interest in woodlands among investors.

It said new woodland creation and re-stocking following harvesting led to stable demand for forest management services.

Managing director Colin Mann said the company’s growth demonstrated the importance of the forestry industry to Scotland.

“The forestry and wood sector in Scotland is delivering a powerful combination of sustainable economic growth and significant environmental benefits,” said Mr Mann.

Economists have estimated the industry supports 40,000 jobs in Scotland.

The monthly average number of employees at Scottish Woodlands was 141 in the latest year.

Scottish Woodlands has 13 offices in Scotland, from Strathpeffer in the Highlands to Castle Douglas in the south west.

Mr Mann said the firm’s success was based on the bedrock of the involvement of employee owners. Scottish Woodlands is 80 per cent employee owned, with the remainder held by sawmiller James Jones & Sons.


AXA Invests in Forestry because it is a ‘safe-haven investment’, with ‘resilience to crisis’.

AXA Real Estate has made its first foreign forest acquisition, buying three estates in Finland.

The investment manager paid €11.2m ($12.5m) for the assets, which cover 3,700 hectares.

The estates were bought for AXA Insurance from forestry company UPM, which will maintain its role as asset manager.

Christophe Lebrun, head of forest investment, said investor appetite for alternative asset classes had seen a “marked increase in recent years”, with demand for strong and sustainable returns.

“As a sector, forestry is underpinned by robust economic fundamentals,” he said.

The sector was, he added, a “safe-haven investment”, with “resilience to crisis”.

AXA said that, as part of its alternatives investment strategy, it was looking to grow its forestry portfolio for clients, targeting Western Europe and the Nordics.

The move into Finland by AXA Real Estate is, it said, part of a strategy to diversify into countries where forestry-related industries account for a significant proportion of GDP.

AXA Real Estate’s forestry assets under management total around €100m, comprising more than 17,600 hectares.

Globally, the 1.2bn hectare timber market is worth an estimated €600bn, the investment manager said.


Can Money Grow on Trees?

For around the last two decades environmental campaigners have been warning us about the need to protect the Amazon rainforest.

The world’s largest stretch of rainforests is in South America, spread across eight South American countries and French Guiana, an overseas department of France. This wide band of forests is the one of the most biologically diverse places on Earth.

It produces water vapour that falls as rain within the region, and beyond, and is estimated to hold 60-90 billion tonnes of carbon in its vegetation; helping to combat climate change.

Today the rainforest is being cut down at the fastest rate for three years because the land it sits upon is much more valuable as cleared farmland, which can be used to graze cattle and grow fast growing crops such as soybeans. This is a problem because deforestation (without reforestation) accounts for 20% of world wide carbon emissions.

However, the rainforests themselves provide so-called “ecosystem services”. They influence weather systems on a vast scale, produce rainfall and capture CO2 from the atmosphere, which reduces global warming.

Now a new plan has been proposed to save the rainforest by making it worth more standing than chopped down. A Brazilian forestry institute in the middle of the Amazon is measuring vapour and carbon levels to calculate an exact value for the “services” that the rainforest provides so that this can be given a monetary value. After all if there is no rainforest, there will be less rain falling on agricultural land worldwide and less carbon sequestration.

The institute hopes that the rest of the world will finally realise that if the rainforest is to be saved then the benefitting countries will have to help to pay for it. The goal is to issue bills to governments and polluting companies and make them pay the costs to the Amazon citizens who live in the region and are keeping the forest alive.

In Guyana people hope that when the standing forest’s true contribution to the planet is recognised, the country will be able to charge for an “avoided deforestation” programme.

The government there has issued statements, that it has not received many positive responses, despite this offer being on the table for over two years.

Perversely, under the Kyoto Protocol, which aims to reduce greenhouse gases, there is no mechanism for rewarding a country like Guyana for retaining its standing forest.

Only land that has been deforested and then replanted with trees can attract some payments, despite deforestation being responsible for 20% of world wide carbon emissions, which is a larger figure than the globe’s entire transport system.

Roland A. Jansen

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