June 10, 2021

By Lynda Kiernan-Stone, Global AgInvesting Media

Recognizing that carbon sequestration by forests is one of the most highly effective investments that can be made to combat climate change, Gresham House, the largest commercial forestry manager in the UK, has launched the Gresham House Forest Growth & Sustainability strategy.

Gresham House manages approximately 140,000 hectares of forest land worth more than GBP1.8 billion (US$2.5 billion), harvesting in the neighborhood of 10 percent of the UK’s annual softwood production. The firm is also highly experienced in the creation of new woodland, acquiring 10,000 hectares of unplanted land since 2015, and planting more than 9 million trees in 2020 alone.

By the close of 2020, a boost to the UK forestry market, an uptick in new institutional clients, and recent acquisitions – namely, forestry manager Aitchesse, real asset specialist FIM Services, and Ireland’s Appian Asset Management – drove AUM for Gresham House to increase by a whopping 40 percent to a value of GBP3.9 billion (US$5.5 billion). 

This new fund intends to deliver a “double bottom line” –  sustainable capital growth via the creation of more than 10,000 hectares of new productive woodland, as well as through exposure to existing income generating forestry, and the sequestration of carbon to drive the generation of carbon credits. 

Distributions to investors will be in the form of verified carbon credits that can be used to offset carbon emissions within their own portfolio or business activities (which also have the potential of increasing in value) or sold to generate income.

“The merits of this strategy for investors are numerous,” said Anthony Crosbie Dawson, director of forestry and private clients, Gresham House. “By combining exposure to commercial forestry and carbon sequestration, this strategy offers an opportunity to benefit from capital growth and income generation, whilst meaningfully combating climate change.”

Crosbie Dawson continued, “Additionally, sustainable forestry offers protection against mounting inflationary pressures, alongside strong portfolio diversification due to its uncorrelated returns. By increasing the UK’s forestry stock, we are also contributing to the UK’s natural capital, enhancing the country’s climate, biodiversity and flood mitigation.” 

However, the firm is not only targeting the UK, but has an eye toward an international footprint.

“We’re actually looking to establish an international asset management presence in forestry. You’re likely to see us go beyond the boundaries of European forestry,” said Tony Dalwood, CEO, Gresham House.

Political and Private Pressure at Play

Climate change, net-zero emission goals, and public policy shifts are all coalescing to make forestry an enviable asset class.

As part of the country’s strategic scheme to meet the benchmark of achieving net-zero emissions by 2050, the UK government has pledged to support the planting of 30,000 hectares of trees per year by 2025.

Along with offering the reassurance of government support, forestry investment and management also provides portfolio diversification, reliable returns, and a channel for impact investment – factors that have attracted the likes of the UK Church Commissioners and Danish pension fund Sampension. 

For the 10 years culminating with the close of 2017, forestry returned 15.7 percent per year, compared to 6 percent per year for bonds, equities, and UK property investments, per data from Tilhill and the IPD UK forestry index, according to Institutional Asset Manager. 

The first carbon credit sales occurred in the UK in 2014. Since that time the EU, New Zealand, South Korea, and regions of the U.S. have established carbon trading structures, with China, the top carbon generating country in the world, set to launch their own carbon trading system this year.

“Net-zero ambitions are beginning to become a political pressure as people need to publicly state those ambitions,” said Dalwood. “All of that will mean that forestry as an asset class will be part of the discussion.”

However, this pressure is not only stemming from political quarters. As of January of this year, climate reporting is now compulsory for certain major listed companies in the UK, sending companies such as Amazon scurrying to mitigate their carbon footprint through securing carbon credits, or even planting trees.

All of these factors combined have resulted in ever greater capital being allocated to alternative assets by institutional investors who are nearly universally incorporating ESG considerations into their investment decisions.

“I don’t think there will be anything that’s non ESG anymore, Dalwood told Institutional Asset Manager, “everything that comes to market now we’ll have to go under the microscope.”

– Lynda Kiernan-Stone is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Oilseed & Grain News. She can be reached at lkiernan@globalaginvesting.com.