木材を見て森林の価値を知る

This is an audio transcript of the Talking Heads podcast episode: Talking Heads – Seeing the worth of the forest for the trees

Daniel Morris: Hello and welcome to the BNP Paribas Asset Management Talking Heads podcast. Every week, Talking Heads will bring you in-depth insights and analysis through the lens of sustainability on the topics that really matter to investors. In this episode, we’ll be discussing natural capital. I’m Daniel Morris, Chief Market Strategist, and I’m joined today by Otto Reventlow, CEO, and Asger Strange Olesen, Director for [Environmental, Social & Governance] ESG, Climate and Biodiversity for IWC International Woodland Company, a leading global natural capital manager based in Copenhagen, and in which BNP Paribas Asset Management recently bought a majority stake. Welcome, Otto and Asger, thanks for joining me.

Otto Reventlow: Thanks, great to be here.

Asger Strange Olesen: Great to be here.

DM: With high volatility in equities and fixed income, many investors are looking for less volatile sources of income, and if we can add a sustainability angle to that, even better. Timber and wood tick both of those boxes, and IWC has 30 years of experience in that. Let’s start with that phrase, ‘natural capital’. Could you define it and talk about its importance for the asset management industry?

OR: There is blue natural capital – what lives in the sea – and land-based green natural capital. We focus on timberland investment – plant-based green natural capital that produces various kinds of bio energy.

You make choices during a tree’s lifetime. Every time you cut down a tree, you plant a new one. You nurse the trees for three to four years, then you can leave them to grow for the next 10 years before reaching the phase where you can cut them down and sell the product. The small, thin trees you sell to the pulp industry for paper and packaging. The ones you leave behind grow to become trees you want to sell to local industry for construction purposes, so you leave them for another 10 years.

Wood is climate-friendly. You store carbon in wood and in the buildings it’s used for – it’s the opposite to using steel and concrete. Wood’s weight/strength ratio is better than that of steel and concrete, so there are a lot of advantages in using wood, especially in construction.

The business relies on the economy and on activity in the building sector, but it goes wider than that. For example, during the Covid crisis, [wood-based] packaging came to the fore because everyone was buying things from online retailers.

Finally, timberland investment provides a negative correlation with public (asset) markets and a positive correlation with inflation. It can also provide stable yields. Our clients have seen that over the past two years of a sudden rise in inflation, their investments in timberland has been well protected. We have seen good returns in the past few years while other markets have been hit.

DM: How has the asset class been evolving?

OR: Having started in the eighties, around USD 100 billion of institutional capital has been invested in timberland today. We believe that will grow in the coming years, but it is a limited asset class, so it will never become comparable to public markets or other asset classes that are publicly traded and easy to access.

But we foresee investment in natural capital increasing. We expect commercial forestry to increase due to new plantings, especially in New Zealand, Australia and Latin America.

We also see other ways of investing international capital coming on stream. For example, we have been in agriculture for the last six years and we see that as an interesting new way to invest in natural capital. We have ecosystem services as another growing route to invest in the asset class.

DM: Asger, can you talk about some of the risks and opportunities for natural capital investing, in particular highlighting some of the sustainability features of the asset class?

ASG: One common perception among the general public and the people we talk to is that forests are just rows of trees. But forests are much more than that.

Forests are part of a landscape and that matters a lot when we talk about biodiversity, for example. Forests are living ecosystems. Depending on how you manage them – and how intensively you do so – you can incorporate shelter and access to food for different species of animals that can survive and live in that forest.

Some of those animals also wander and migrate. They need a larger landscape, particularly mammals. They look beyond borders into the surrounding landscape, for food and shelter. So, connecting your forest with the landscape around it is important.

In our sustainable forest management, we look at what we call ‘mosaic landscapes’. In those, there will be productive compartments – plots of land where we produce timber as part of the overall landscape – as well as set-aside areas that can provide habitats bordering this particular forest.

We find out which native species – plants and animals –live in the landscape and how to give them access to what they need while maintaining production.

Forest sustainability means always thinking about the context and all the other aspects of the forest and the timber, and making sure all these integrate well.

What does that mean from an investor’s point of view? One thing is that forest asset management is hands-on. You manage biodiversity and carbon sequestration right there in the forest. So when you invest in forests, you remove carbon by growing the trees; you get a good habitat quality hosting biodiversity aligned with your climate targets or any nature-based targets you might have.

Because now you own a plot of land, you own a forest, so you own all the features and all the life within that forest. It gives you access to biodiversity, the ability to invest in improving biodiversity alongside providing timber as a renewable resource and, of course, the income from that.

DM: Otto and Asger, thank you very much for joining me.

OR and ASG: Thank you.