By: Tom Sarno, Chief Investment Officer, Managing Director, Global Head of Timberland Investments, Manulife Investment Management
There is a growing consensus that the inexorable nature and climate transition taking place across the globe will have profound implications for the world economy. From where we sit as a global asset manager, this ongoing, multifaceted transition also implies a vast and rich spectrum of possibilities—many of them still emerging—for discerning asset allocators.
With that in mind, we’ve identified five investment themes that we think encompass the various challenges and opportunities arising from climate change and nature loss. We believe the investable universe associated with these five themes is enormous, cuts across the global capital markets, and offers a long-term runway that all investors should explore.
Five themes for investing in the nature and climate transition
Source: Manulife Investment Management, 2024. For illustrative purposes only.
As the world’s largest timberland investment manager,¹ we are honored to celebrate our 40th year of business as we continue to conduct our business in a way that improves our environment, nourishes our communities, empowers our people, and delivers performance for our clients. Drawing on our vast experience over the decades, we firmly believe investment in sustainable forestry has a critical role to play in solving for these twin challenges without sacrificing performance. Beyond traditional financial benefits, investment in sustainable forestry can support global ecosystems, positively impact climate, nature, and communities, and align with evolving investor objectives—bolstering today’s compelling case for investing in timberland.
Value Beyond Forest Products
Timberland’s traditional investment fundamentals are increasingly augmented by the value created through sustainable forest management. We believe that good stewardship is good business, and that effective stewardship of both people and the environment is critical for long-term timberland productivity. In addition to the sustainable production of timber for use in forest products, this approach also supports global ecosystems through its positive impact on climate, nature, and people. These environmental and ecosystem benefits, which have long been associated with sustainable timberland investments, are increasingly being assigned tangible value, strengthening returns, adding optionality to timberland management, and bolstering the compelling case for investing in timberland today.
This optionality is not new but is becoming more fully realized given rising recognition of the economic and societal value intrinsic to natural capital. In our view, this not only offers an opportunity to diversify and strengthen revenue streams and expand capabilities to create individualized timberland portfolios for meeting varied investor objectives but could also attract a wider and more diverse set of investors and investment strategies that may broaden demand and enhance performance.
Recognizing the value timberland produces beyond wood products, Manulife Investment Management has established a Value-Added Services (“VAS”) team to actively identify investment opportunities from these additional environmental and ecosystem benefits for our clients and stakeholders. Consequently, we’ve expanded our sustainable timberland management practices to explicitly include investments in carbon sequestration, wetland mitigation, and other ecosystem services.
As a result, the VAS team has enabled Manulife Investment Management to unlock additional value for our timberland clients. The following case studies were selected as the VAS projects that are furthest along their respective regulatory pathway and closest to being implemented as part of the timberland operational management plan for each property. These examples showcase the potential positive financial and environmental impacts of the projects identified and implemented by our VAS team on the timberland properties we manage for our investors.
Case study No. 1 – Camp Azalea Gopher Tortoise Conservation Project
On a client investment property in Florida, Manulife Forest Management (“MFM”) identified an area with unique attributes. This area offered an opportunity to create a long-term recipient site for gopher tortoises, providing a permanent home for tortoises in need of relocation due to real estate development, and was designated as a VAS project named Camp Azalea in 2022. The Camp Azalea project represents roughly 2% of the larger timberland property and presents a unique opportunity to support a threatened keystone species, realize strong returns for our clients, and continue to operate the remaining property under traditional sustainable timberland management practices. The VAS team developed a management plan to permit the project in two phases: Camp Azalea North and South. This initiative requires permitting from the Florida Fish and Wildlife Conservation Commission (“FWC”).
The gopher tortoise is one of the oldest living species on Earth, originating 60 million years ago, and is the only native North American tortoise east of the Mississippi. Its traditional habitat has been encroached upon as real estate development has expanded in Florida. As a keystone species, this also impacts many other animals that depend on the gopher tortoise for their survival. More than 350 species of invertebrates, birds, reptiles, amphibians, and mammals have evolved to rely on the tortoises’ multichambered, sandy burrows. These burrows, which average 15 feet long and 6 to 7 feet deep, provide moderate temperatures during hot or cold days, protection from fire and storms, and numerous other ecosystem benefits. Residents include the endangered eastern indigo snake, the gopher frog, and even a species of burrowing owl.
The Camp Azalea footprint comprises approximately 1,052 acres, primarily dominated by pine plantation with minor components of mesic flatwoods, mixed hardwoods/conifers, and wetlands. The parcels are adjacent to land under conservation easement managed by the Suwannee River Water Management District.
Based on an assessment of the two parcels, MFM estimates the optimal tortoise density to be up to 1,800 tortoises, which requires aggressive thinning, fire management, and supplemental planting of native groundcover. These management actions would convert existing mesic plantation to more open canopy upland flatwoods, meeting the FWC’s desirable vegetative criteria throughout both parcels. Based on these estimates, the implementation of the Camp Azalea conservation project could generate an estimated gross revenue of between $6.0-$8.5 million, based on the mitigation bank parameters.
Despite Camp Azalea representing only about 2.3% of the broader investment property’s total acres, we believe the project could have a meaningful positive financial impact on the overall property.
Camp Azalea North is currently undergoing authorization review by the FWC, with anticipated permitting in Q2 2025. Phase II (Camp Azalea South) is slated for authorization in 2026. Permitting the projects in distinct phases allows for revenue to be spread over a broader timeline, while achieving optimal habitat conditions.
Case Study No. 2 – Virginia Stream Mitigation Bank Conservation Project
In Pittsylvania County, Virginia, the MFM VAS team has identified approximately 285 acres of streams, wetlands, and other aquatic resources within a 1,958-acre area of client-owned timberlands as suitable for developing a stream mitigation bank. Following the development and approval of its design by mitigation authorities, MFM will facilitate the sale of a conservation easement from the Manulife Investment Management client across these 285 acres for the implementation of the restoration plan. The plan includes restoring the watercourse and riparian areas for pre-determined credits and is expected to take several years to complete, with mitigation credits available to developers on an ongoing basis. The plan also includes a perpetual monitoring program to ensure long-term success. The conservation easement is being sold for approximately $2.4 million, monetizing an area of the timberlands that otherwise contributes minimally to the property’s revenues.
The primary objective of a stream mitigation bank is to restore, enhance, and/or preserve streams and their surrounding environment, thereby creating a reserve of ecological credits. Entities with an impact on streams can purchase these credits to offset their effects, ensuring no net loss of aquatic resources. This system promotes more efficient and effective environmental restoration and conservation by concentrating mitigation efforts on larger, more ecologically meaningful projects.
Manulife Investment Management has established a strategic partnership with Resource Environmental Solutions, LLC (“RES”), the nation’s leading provider of nature-based solutions. RES focuses on transforming impaired lands and waters into fully functioning ecosystems. Through this partnership, Manulife Investment Management leveraged its extensive acreage under management to identify project areas with the potential to significantly enhance the ecology and health of stream ecosystems through the development of stream mitigation banks.
The closing date for the conservation easement sale has been scheduled for the end of May 2025, and we believe that this project, which dedicates less than one percent of the property to ecological enhancement, has the potential to enhance near-term financial performance of the overall property while having a positive impact on the environment..
Creating Value Through the Sustainable Management of Timberland Assets
At Manulife Investment Management, we believe that sustainably managed natural capital assets can enhance portfolio diversification, provide a proven inflation hedge, and boost long-term return potential while promoting healthier ecosystems. Our depth of experience, size and scale has honed our ability to drive additional ecological, social, and financial value on behalf of investors through additional value-added strategies, such as recreation and renewable energy leases, conservation, and carbon projects. These strategies can help investors meet their financial objectives while contributing positively to a better future.
This year, we proudly celebrate our 40th anniversary, marking four decades dedicated to natural capital investment. Our commitment to sustainable investing—good stewardship is good business—is as relevant and true today as it was when we started in 1985. We have always believed that our clients’ financial success directly depends on the health of the farms and forests we manage on their behalf, and our global vertically integrated farmland and timberland management teams—from portfolio managers to professional farm and forest managers— is set up to help us achieve both objectives.
Important Disclosures
1 IPE research as of 1/24/2025. Ranking is based on total Natural Capital AUM, which includes forestry/timberland and agriculture/farmland AUM. Firms were asked to provide AUM and the as of dates vary from 12/31/2023 to 12/31/2024.
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Australia: Manulife Investment Management Timberland and Agriculture (Australasia) Pty Ltd, Manulife Investment Management (Hong Kong) Limited. Canada: Manulife Investment Management Limited, Manulife Investment Management Distributors Inc., Manulife Investment Management (North America) Limited, Manulife Investment Management Private Markets (Canada) Corp. Mainland China: Manulife Overseas Investment Fund Management (Shanghai) Limited Company. European Economic Area Manulife Investment Management (Ireland) Ltd. which is authorised and regulated by the Central Bank of Ireland Hong Kong: Manulife Investment Management (Hong Kong) Limited. Indonesia: PT Manulife Aset Manajemen Indonesia. Japan: Manulife Investment Management (Japan) Limited. Malaysia: Manulife Investment Management (M) Berhad 200801033087 (834424-U) Philippines: Manulife Investment Management and Trust Corporation. Singapore: Manulife Investment Management (Singapore) Pte. Ltd. (Company Registration No. 200709952G) South Korea: Manulife Investment Management (Hong Kong) Limited. Switzerland: Manulife IM (Switzerland) LLC. Taiwan: Manulife Investment Management (Taiwan) Co. Ltd. United Kingdom: Manulife Investment Management (Europe) Ltd. which is authorised and regulated by the Financial Conduct Authority United States: John Hancock Investment Management LLC, Manulife Investment Management (US) LLC, Manulife Investment Management Private Markets (US) LLC and Manulife Investment Management Timberland and Agriculture Inc. Vietnam: Manulife Investment Fund Management (Vietnam) Company Limited.
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The ESG-related case studies shown here are for illustrative purposes only, do not represent all of the investments made, sold, or recommended for client accounts, and should not be considered an indication of the ESG integration, performance, or characteristics of any current or future Manulife Investment Management product or investment strategy.
Manulife Investment Management conducts ESG engagements with issuers but does not engage on all issues, or with all issuers, in our portfolios. We also frequently conduct collaborative engagements in which we do not set the terms of engagement but lend our support in order to achieve a desired outcome. Where we own and operate physical assets, we seek to weave sustainability into our operational strategies and execution. The relevant case studies shown are illustrative of different types of engagements across our in-house investment teams, asset classes and geographies in which we operate. While we conduct outcome-based engagements to enhance long term-financial value for our clients, we recognize that our engagements may not necessarily result in outcomes which are significant or quantifiable. In addition, we acknowledge that any observed outcomes may be attributable to factors and influences independent of our engagement activities.
We consider that the integration of sustainability risks in the decision-making process is an important element in determining long-term performance outcomes and is an effective risk mitigation technique. Our approach to sustainability provides a flexible framework that supports implementation across different asset classes and investment teams. While we believe that sustainable investing will lead to better long-term investment outcomes, there is no guarantee that sustainable investing will ensure better returns in the longer term. In particular, by limiting the range of investable assets through the exclusionary framework, positive screening and thematic investment, we may forego the opportunity to invest in an investment which we otherwise believe likely to outperform over time. Please see our ESG policies for details.
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