Forestry is becoming a key element of the discussion around reducing global carbon emissions in order to limit global warming to 1.5°C. The 2015 Paris Climate Agreement and the EU’s Action Plan on sustainable finance could spur the flow of more institutional capital into forestry. As a result, more forestry investment products and strategies, which deliver market returns and environmental and social benefits, are likely to become available. Such products and strategies include developing carbon offset programmes as part of emissions trading schemes, conservation easements, and biomass production for generating renewable energy. However, for these to grow at scale, certain issues must be addressed, including the price placed on carbon, the concept of natural capital to place a floor under the value of forests as a means of supporting greater institutional investment, and the debate over land use, which often pits forestry against agriculture.
Forestry investors are exposed to a range of environmental, social and governance (ESG) factors. How those factors impact investments—whether they materialise as risks or opportunities for value creation—depends largely on an investor’s responsible investment approach. A holistic approach to responsible forestry investing includes certification as well as the use of other tools that address specific issues in more depth, such as land rights and usage.
This report discusses ESG factors in forestry investing and the integration of the ESG factors in the forestry investment process.