Manulife Investment Management’s Forest Climate Fund (MFCF or “the Fund”) is a 12-year closed-end fund that seeks to deliver durable, high-quality carbon value to investors and annual optionality for in-kind carbon credit distributions or offset sales. The Fund seeks to provide the opportunity to promote climate change mitigation through a globally diversified portfolio of sustainably managed forestland assets where carbon sequestration is prioritized over timber production. The Fund successfully completed its final close in December 2024, and is currently investing $480.1 million in committed capital.
With nearly 40 years of experience and $11.9 billion in AUM [1], Manulife Investment Management manages over 5.3 million acres of sustainably managed timberland across the U.S., Australia, Brazil, Canada, Chile and New Zealand in both comingled funds and separately managed accounts. The entire global forest portfolio is certified to third-party sustainability standards [2], a recognition of Manulife Investment Management’s operational excellence. As responsible stewards of natural capital, Manulife Investment Management seeks to operate in a way that delivers competitive performance for their clients while improving the environment, nourishing communities, and empowering their people.
Devon Baker, CFA, director, portfolio manager for the Manulife Forest Climate Fund (MFCF), spent some time with GAI News to offer further details about the fund strategy and opportunity for investors looking to diversify their portfolios with timberland assets.
1.) GAI News: Why does Manulife Investment Management believe MFCF is a compelling investment opportunity for timberland investors?
Baker: “At Manulife Investment Management, we believe MFCF is a compelling opportunity for a few reasons. Traditionally, timberland investments have focused mainly on the revenue from the sustainable growth and harvest of timber products, with other revenue streams being an important, if somewhat less impactful, source of returns. These other value-added revenue streams have always been a part of how we manage our timberland investments, and by tapping into carbon, leases, recreation access, easements, and other value-added strategies, we have been able diversify value drivers and generate alpha over pure timber plays.
“However, over the last decade or so, the market recognition of forests’ ability to naturally capture CO2 from the atmosphere and provide long-term storage in secure carbon sinks has matured to the point at which it can take a front seat for an investment thesis. This added dimension has opened new timberland investment opportunities and expanded existing areas of interest. With the world increasingly prioritizing climate goals like those in the Paris Agreement, and as more participants become active in carbon markets, the demand for high-quality carbon credits is growing fast. Companies and investors are making more net-zero commitments, and they’re looking at carbon markets as a key tool to reach their climate goals. The demand for voluntary carbon offsets could increase up to 100 times by 2050, which could drive up the prices of these offsets.
“The MFCF is designed to help both traditional investors and companies alike by allowing them to tap into this potential through a globally diversified portfolio of forestland assets in one investment partnership vehicle. Through the ability to choose between capturing this carbon value as in-kind distributions of high-quality carbon credits, and/or financial distributions from credit sales, MFCF investors can support their journey to net-zero and also seek attractive risk-adjusted returns. The Fund aims to achieve this while ensuring long-term protection of sensitive habitats, creating environmental and social impact through non-timber activities, and providing much needed forest products to society at large through sustainable forestland management.”
2.) GAI News: Can you talk to us about the Fund’s investment strategy?
Baker: “The Fund’s investment strategy is multifaceted. We’re focused on acquiring a portfolio of sustainably managed timberland and select greenfield opportunities for afforestation or reforestation. By combining these different types of investments, we’re aiming to create a portfolio that offers a good mix of carbon value, timber based income, value-added revenue streams, and potential long-term appreciation. We’re very intentional about diversifying the portfolio across various metrics to maximize high-quality carbon credit generation and enhance financial, social and ecological impacts. All of this is designed to generate what we believe are competitive returns while mitigating risk.
“As more institutional investors, corporates, and other impact-focused investors start to place explicit value on carbon sequestration and other ecosystem services, whether that be with the aim of participating in the potential value appreciation, or simply to mitigate a projected increase in future offset costs, we believe carbon will become a key value driver. This will make timberland even more important as a stable, high-quality, long-term source of carbon sequestration, which is crucial for supporting investors’ net-zero goals.
“The Fund will seek to diversify its investments geographically, with an eye toward all regions that we consider institutionally investable from a forestry perspective. The fund will invest a minimum of 60% in the U.S., reflecting our belief that the U.S. represents the largest amount of institutionally investable traditional timberland in the world, providing a solid foundation for our strategy.”
3.) GAI News: What do you look for when exploring potential investment opportunities?
Baker: “When we’re exploring potential investment opportunities, we start with our core sustainable investment strategies. Thanks to our global footprint, we’re able to seek out local opportunities that meet the specific sequestration and impact needs of individual investors. As one of the world’s leading managers of natural capital assets,3 many of the fundamentals underlying effective carbon-focused investment are already part of our core strategic focus at Manulife Investment Management. These sustainable practices don’t just help with carbon sequestration; they also lead to a variety of other positive outcomes, like cleaner air, water, and soil, as well as benefits for local communities.
“When it comes to timberland specifically, we’re on the lookout for forests that have strong potential for carbon value creation and high conservation value, while maintaining attractive traditional timberland fundamentals as a long term risk mitigator. Prior to the launch of MFCF for example, on behalf of Manulife’s general account, Manulife Investment Management acquired 89,000 acres of timberland in the U.S. state of Maine. Operated intensively for traditional timber value over many decades, the shift to a carbon-focused investment thesis made a great fit with the well-established local history of land conservation and public environmental awareness. The land is also subject to a working forest easement, which in addition to ensuring that the land remains forested in perpetuity, offers numerous recreational and local business opportunities. This acquisition was a great example of how we can integrate natural climate solutions into investment decisions, demonstrating the real option to sell carbon credits for financial benefits, or to retire those carbon credits in support of Manulife’s own net-zero commitments.
“As part of each acquisition, we utilize an internal carbon toolkit that evaluates projects against our carbon principles, which are aligned with the Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles (IC-VCM CCPs), helping us screen all new carbon projects and acquisitions to ensure they meet our high standards for integrity and impact. These results are further scrutinized by our Carbon Standards Working Group to ensure alignment and refinement of the investment approach.
“In short, we’re looking for opportunities that offer strong carbon value, demonstrable timber value, align with our sustainable practices, and provide broader environmental and community benefits.”
4.) GAI News: For which investors is MFCF appropriate?
Baker: “MFCF is unique insomuch that it not only seeks to offer attractive risk-adjusted returns for more traditional institutional investors, but that it also offers an opportunity for corporate entities with long term offset needs to secure access to a stream of high-integrity carbon credits. We’ve seen this thesis play out with MFCF welcoming multiple corporate and institutional investors as partners in the Fund.
“Our investors understand that our long-term experience in both investing in and sustainably operating timberland and farmland assets has really honed our approach to managing for the long term. Forestry investing offers various management options that can help our clients achieve a wide range of goals—whether they’re carbon-related, financial, or focused on environmental, social, and governance (ESG) criteria.
“The MFCF represents an expansion of our strategic offerings for a diverse range of clients – from those looking to diversify their portfolios with a strategy that not only aims to deliver strong financial returns but also has a positive environmental impact to corporates seeking high-integrity carbon credits to assist in their net zero journeys.”
5.) GAI News: How do you view the evolution of carbon markets, and how can clients best achieve their net zero goals?
Baker: “Over the past 20-plus years, we’ve seen a significant improvement in standards and management practices within carbon markets, which is very encouraging. We’re also excited about clearer guidance from initiatives like the Integrity Council for the Voluntary Carbon Market (ICVCM) through their Core Carbon Principle reviews of carbon registries and methodologies. This should really help companies gain clarity on carbon credit quality. We expect that continued growth in private sector net-zero commitments will boost the demand for voluntary carbon credits, and more specifically demand for high-quality credits as this is quickly becoming a critical differentiator in these markets. Natural climate solutions (NCS), especially forestry-generated carbon credits, are gaining more recognition for their potential to combat climate change.
“Achieving meaningful net-zero goals will require clients to pursue aggressive emissions mitigation work in tandem with the use of high-quality offsets to neutralize hard to abate emissions and to support mitigation beyond their immediate value chains. Obtaining these high quality credits is likely to become increasingly costly over time as supply is limited and new technologies are slow to develop and expensive. With NCS generated credits sitting on the lower end of the cost curve, we view the upside potential for a strategy such as the MFCF to be highly attractive.
“As carbon becomes a more integrated value driver for timberland, we’re continually developing new management options to help our clients achieve a wide range of goals. Whether they’re focused on carbon, financial performance, or environmental, social, and governance (ESG) criteria, our forestry investments can be designed to support these objectives.”
6.) GAI News: Why Is Manulife Investment Management uniquely equipped to offer this product?
Baker: “Manulife Investment Management’s experience, size, and scale allow us to access a wider array of markets with reduced operating risk. We’re well positioned to accelerate the use of nature-based solutions in the fight against climate change. We believe our extensive experience, global reach, and strong reputation in developing and managing global timberland portfolios, along with our expertise in carbon markets beginning in 2010, enhance the Fund’s ability to achieve its objectives. Our competitive advantages provide the significant depth and resources necessary to create ongoing value for our investors.
“We have a long track record of managing natural resources and natural climate solutions (NCS) not just for combating climate change but also for their broader ecological and social benefits. This experience runs throughout our vertically integrated organization, allowing us to seamlessly integrate ESG and NCS considerations from acquisition screening all the way through to investment management and property disposition. We use our timberland investment expertise to manage carbon projects registered on our clients’ timberland properties. We work with leading accredited third-party verification and validation bodies to ensure high-integrity, high-quality carbon sequestration. This means that in addition to managing investments for timber value, we’re able to develop portfolios of forest investments managed primarily for carbon value, based on our high-integrity carbon principles and international best practices.”
7.) GAI News: Can you tell us about the investments the fund has made to date?
Baker: “We’ve had a very good first year of deploying Fund capital, with over $200 million deployed across three assets in the US. Comprising of approximately 157,000 gross acres, these three assets represent banner additions to the portfolio, with significant diversity across the lake states, south, and northwest, high carbon credit and conservation potential, and access to robust regional timber markets. One early success includes the conservation sale of a minority portion of the Fund’s northwest investment to the Rocky Mountain Elk Foundation and Oregon Department of Fish and Wildlife, which resulted in the protection of a significant area of prime elk habitat and preservation of public access for generations to come.
“Given the strong foundation already laid for the portfolio, the Fund will be looking to grow strategically within the US and to enhance its diversity with acquisitions outside of the US over the coming years.”
This content describes Manulife Forest Climate Fund LP (the Fund), a Delaware limited partnership in formation. The information is for information use only. This is not an offer to sell or a solicitation of an offer to buy any security, including any interest in the Fund. Interests in the Fund are being offered solely on the terms of the Fund’s Confidential Private Placement Memorandum (the Offering Memorandum) and related Subscription Documents, as they may be amended and supplemented from time to time. Prospective investors in the Fund should carefully review the Offering Memorandum and related Subscription Documents. No investor should rely on this presentation as the basis for making any investment decision.
Manulife Investment Management Timberland and Agriculture Inc (“MIMTA”) is the investment advisor of the Fund. MIMTA is registered with the U.S. Securities and Exchange Commission as an investment advisor. It is a wholly owned subsidiary of Manulife Financial Corporation (“Manulife”) and is affiliated with several U.S. based and non-U.S. based investment advisers which are also subsidiaries or affiliates of Manulife. MIMTA has prepared this webpage and it is intended for institutional and professional investors only. Recipients should carefully read and evaluate the risks outlined in the Fund’s Memorandum.
Any general discussions or opinions contained within this presentation regarding securities or market conditions represent the view of either the source cited or MIMTA as of the date indicated and are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. The information and/or analysis have been compiled or arrived at from sources believed to be reliable but MIMTA does not make any representation as to their accuracy, correctness, usefulness or completeness and does not accept liability for any loss arising from the use hereof or the information and/or analysis contained herein. Information about a portfolio’s holdings, asset allocation, or country diversification is historical and will be subject to future change. The Fund is intended to complement other types of investments and is not intended to serve as an investor’s only investment. Neither MIMTA or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained herein.
Nothing in this constitutes investment, legal, accounting, tax or other advice, or a representation that any investment or strategy is suitable or appropriate to any prospective individual investor’s circumstances, or otherwise constitutes a personal recommendation to a prospective investor. Prospective investors should take appropriate professional advice before making any investment decision.
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Third-Party Certifications
Any third-party certification is as of the date presented and Manulife has not separately verified the information underlying any such certification. Neither Manulife nor its affiliates compensated any such third-party for such certification, other than the third-party’s standard fees, such as program fees and audit costs. Payment of those fees is no guarantee of certification. Certification by the third-party does not reflect any endorsement by that third-party to invest in the Fund. None of the certifying entities references herein endorses Manulife Investment Management or the Fund or recommends any investment in the Fund.
Carbon Case Studies
The carbon case study projects identified and described herein were chosen based on investment strategy and do not represent all projects managed by Manulife IM. The projects described represent carbon investment projects currently under management in the United States as of the first quarter of 2022. The Fund is not expected to invest in any of these carbon projects and these projects may or may not be representative of any projects of the Fund. There is no guarantee that these are, or that these or any similar projects that the Fund invests in will be, profitable or will produce comparable carbon credit sales. Carbon credits from these projects may also be subject to reversal or invalidation. Carbon case studies are for illustrative purposes only.
Risk Factors
Investments in the Fund’s strategy include a number of risks and limitations, including but not limited to the risk of loss. Forestry investments involve a number of significant risks, any one of which could cause the Fund and investors in the Fund to lose all or part of the value of their investment.
Carbon credits are an emerging and evolving asset class, and thus the regulatory and taxation rules and valuation standards that apply to them and forestland held primarily for the generation of carbon credits are also emerging and evolving. Valuing Forestry Investments and related assets is subject to uncertainties and there is no guarantee that values determined by Manulife IM or its affiliates will represent the value that could be obtained for an asset if it were then disposed of in a market sale or when it is ultimately disposed of. The long-term demand for carbon credits is also uncertain, as demand is driven by political and social commitments to the goal of reducing greenhouse gas emissions, which goals may change or may be superseded by newer or more cost-efficient technologies.
There can be no guarantee that there will be a sufficient number of suitable investments available to the Fund to permit it to execute on the Fund’s strategy. For example, the Fund will compete with other forestland purchasers in acquiring investments. Because the Fund is prioritizing the generation of carbon credits over commercial timber production, the Fund may not be able to offer pricing for a property that is competitive with an offer from a timber production-only buyer. Once the Fund has acquired a property, there can be no assurance as to whether it will be successful in implementing carbon projects on the property or in generating carbon credits for sale or distribution in kind to the partners. The development of a carbon project is a complex and lengthy process and subject to independent verification procedures. Even if the Fund is able to generate carbon credits from carbon projects on its property, the ability of the Fund to distribute them in kind may also be limited due to a number of factors beyond its control, including the requirements of the registries on which the carbon credits are registered or regulatory restrictions or burdensome requirements with respect to the transfer of carbon credits.
Forestland is also subject to damage from fire, flood, wind, drought, insects, disease, storms and/or natural disasters and poor soil productivity that could result in loss or damage to the forests or negatively impact future carbon sequestration and/or productivity. The Fund may also be subject to environmental liabilities related to its forestlands. A portion of the Fund’s strategy will include commercial timberland production. The markets for timberland products are global in nature, very competitive and impacted by numerous factors.
For a more complete description of the risks, please refer to the Fund’s Offering Memorandum, as amended, restated, supplemented or otherwise modified from time to time.
Information about Environmental, Social and Governance (ESG) Considerations
ESG Integration is the systematic inclusion of financially material ESG issues in investment analysis and investment decisions. We look to incorporate material ESG considerations throughout the stages of our investment and asset ownership lifecycles, taking into account the characteristics of the asset class and investment process in question, as well as industry and geography, among other factors. Each investment team operates in different markets and with different nuances to its approach to investing. Accordingly, each team integrates ESG factors into its investment process in a manner that best aligns with its investment approach. ESG is only one of many considerations that Manulife Investment Management takes into account when making investment decisions, and other considerations can be expected in certain circumstances to outweigh ESG considerations. While ESG analysis is integrated into our investment process the strategy is not optimized or constructed on the basis of sustainability or ESG factors in isolation. There is no guarantee that the evaluation of ESG characteristics will be additive to a strategy’s performance. ESG is not a uniformly-defined characteristic and information used to evaluate ESG characteristics may not be readily available, complete, or accurate, and may vary across providers and issuers. Because of the subjective nature of ESG integration, there can be no guarantee that ESG factors considered will reflect the beliefs or values of any particular client. Unless otherwise noted, any references in this presentation to ESG or sustainability reflect the general approach of Manulife Investment Management to integrating sustainability risk considerations into our investment decision-making processes. Further details on Manulife Investment Management’s general approach to sustainability are available at www.manulifeim.com/institutional/global/en/sustainability.
All data as of September 30, 2024 unless otherwise stated.
[1]Represents assets of Manulife Investment Management’s timberland group managed on a discretionary and nondiscretionary basis for the general account, its affiliates, and third-party clients.
[2] As of September 30, 2024. 100% of our forests were certified under either the Sustainable Forestry Initiative (SFI) or Forest Stewardship Council (FSC), and some of our forests in Australia and New Zealand carry dual FSC and Programme for the Endorsement of Forest Certification (PEFC) accreditation. As a condition of certification, forests must have management plans, including consideration of biodiversity.
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