Why forests are the next frontier in climate investment – Environmental Finance

Sustainable Forestry Investment and the Path to Net Zero Economy

Introduction

Investors are increasingly recognizing the critical role that sustainable forestry plays in advancing the Sustainable Development Goals (SDGs), particularly in achieving a net zero economy. Andrew Boutwell, Senior Managing Director and Head of Investment Management at Forest Investment Associates (FIA), highlights how diversified forest portfolios can deliver competitive financial outcomes while supporting environmental sustainability.

Diversified Forest Portfolios and Financial Performance

Balancing Risk and Returns

A well-diversified forest portfolio generates risk-adjusted returns by balancing biological growth, market access, and asset characteristics across various regions, species, and end markets. This approach helps manage market cycles, weather variability, and operational risk, aligning with SDG 13 (Climate Action) and SDG 15 (Life on Land).

Multiple Value Streams from Forests

• Timber revenue and land appreciation
• Carbon credits and conservation finance
• Renewable energy siting
• Mitigation banking
• Participation in the growing bio-economy

These diversified value streams contribute to SDG 7 (Affordable and Clean Energy), SDG 12 (Responsible Consumption and Production), and SDG 13 (Climate Action).

Land Use Optimization and Climate-Smart Management

Through data, analytics, and active management, forest portfolios optimize land use by:

1. Converting marginal plantations to solar energy use
2. Improving productivity on high-quality soils
3. Conserving ecologically sensitive areas

This strategic flexibility supports SDG 15 (Life on Land) and SDG 13 (Climate Action), enabling cash flow from timber alongside exposure to climate-smart land-based value drivers.

Integrating Decarbonisation into Investment Strategy

Climate-Smart Forestry Strategy

FIA collaborated with a Danish pension provider to develop a Climate-Smart Forestry Strategy that positions working forests as engines of net carbon removals, directly contributing to SDG 13 (Climate Action). Key elements included:

• Utilizing FIA’s carbon measurement and reporting system
• Conducting data-driven assessments of carbon sequestration potential across regions and forest types
• Applying carbon accounting aligned with international best practices and IPCC land use guidelines

This ensured that decarbonisation was a fundamental investment objective rather than an ancillary feature.

Growing Interest and Future Outlook

Flexibility and Multiple Value Pathways

Forests offer multiple value pathways, allowing managers to tailor portfolios that meet both financial and climate-related goals, supporting SDG 8 (Decent Work and Economic Growth) and SDG 13 (Climate Action).

Portfolio-Wide Carbon Management

Rather than focusing solely on carbon offsets, FIA manages the natural carbon sequestration of working forests at the portfolio level, aiming to deliver steady returns while implementing climate change adaptation measures aligned with the EU Taxonomy. This approach advances SDG 13 (Climate Action) and SDG 15 (Life on Land).

Role of Timberland in Institutional Net-Zero Plans

Timberland is expected to play an increasingly significant role in institutional net-zero strategies, combining climate impact with financial performance at scale.

Ensuring High-Integrity Climate Outcomes

Data-Driven and Transparent Approaches

FIA employs rigorous, data-driven carbon measurement and reporting processes benchmarked against leading standards such as the Programme for the Endorsement of Forest Certification (PEFC) and Forest Stewardship Council (FSC). This commitment supports SDG 12 (Responsible Consumption and Production) and SDG 15 (Life on Land).

Environmental, Social, and Governance (ESG) Practices

FIA continuously strengthens its broader ESG practices to ensure durable climate benefits, ecological stewardship, and long-term economic value, aligning with SDG 16 (Peace, Justice, and Strong Institutions) and SDG 17 (Partnerships for the Goals).

Assurance and Verification of Climate Outcomes

Third-Party Reviews and Audits

• Independent third-party review of FIA’s carbon framework and guiding principles
• Collaboration with a Big Four audit firm for carbon readiness review and limited assurance on net carbon sequestration results

This process enhances transparency and investor confidence in the quality and credibility of climate data, supporting SDG 16 (Peace, Justice, and Strong Institutions).

Consistent Carbon Accounting Across Portfolio

Since 2020, FIA has applied consistent carbon accounting methods across its timberland portfolio, tracking net greenhouse gas changes from forest growth, harvest, wood product storage, and all scopes of greenhouse gas emissions. This ongoing evolution supports SDG 13 (Climate Action) and SDG 15 (Life on Land).

Conclusion

FIA’s approach demonstrates that sustainable forestry investment can simultaneously achieve competitive financial returns and significant contributions to the Sustainable Development Goals, particularly those related to climate action, life on land, and responsible economic growth.

For further information about Forest Investment Associates, visit www.forestinvest.com.

1. Sustainable Development Goals (SDGs) Addressed or Connected

1. SDG 13: Climate Action
   • The article focuses heavily on decarbonisation, carbon sequestration, and climate-smart forestry strategies, which directly relate to combating climate change.
2. SDG 15: Life on Land
   • The sustainable management of forests, conservation of ecologically sensitive areas, and certification under frameworks like PEFC and FSC align with protecting, restoring, and promoting sustainable use of terrestrial ecosystems.
3. SDG 7: Affordable and Clean Energy
   • References to renewable energy siting and converting marginal plantations to solar use connect to increasing the share of renewable energy in the global energy mix.
4. SDG 12: Responsible Consumption and Production
   • Active management and optimisation of land use for sustainable forestry and bio-economy participation support sustainable consumption and production patterns.
5. SDG 8: Decent Work and Economic Growth
   • Generating competitive financial outcomes and steady returns through diversified forest portfolios supports sustained economic growth and productive employment.

2. Specific Targets Under Those SDGs Identified

1. SDG 13: Climate Action
   • Target 13.2: Integrate climate change measures into policies and planning — evidenced by carbon measurement and reporting aligned with IPCC land use accounting and EU Taxonomy adaptation measures.
   • Target 13.3: Improve education, awareness, and human and institutional capacity on climate change mitigation — implied through data-driven approaches and transparency in carbon accounting.
2. SDG 15: Life on Land
   • Target 15.1: Ensure the conservation, restoration, and sustainable use of terrestrial and inland freshwater ecosystems — through sustainable forest management and certification schemes (PEFC, FSC).
   • Target 15.2: Promote sustainable forest management — central to the article’s discussion on diversified forest portfolios and climate-smart forestry strategies.
3. SDG 7: Affordable and Clean Energy
   • Target 7.2: Increase substantially the share of renewable energy in the global energy mix — indicated by converting marginal plantations to solar use and renewable energy siting.
4. SDG 12: Responsible Consumption and Production
   • Target 12.2: Achieve sustainable management and efficient use of natural resources — through land use optimisation and participation in the bio-economy.
5. SDG 8: Decent Work and Economic Growth
   • Target 8.4: Improve resource efficiency in consumption and production — linked to sustainable forestry practices generating economic returns.

3. Indicators Mentioned or Implied to Measure Progress

1. Net Carbon Sequestration
   • Used as a key performance indicator (KPI) for the fund, measured and reported according to international standards and IPCC land use accounting.
2. Carbon Measurement and Reporting Systems
   • Tracking net greenhouse gas changes from forest growth, harvest, storage in wood products, and all scopes of greenhouse gas emissions.
   • Limited assurance audits by third parties and Big Four firms ensure data quality and credibility.
3. Certification under PEFC and FSC
   • Indicators related to sustainable forest management practices and ecological stewardship.
4. Financial Performance Metrics
   • Risk-adjusted returns, timber revenue, land appreciation, and cash flow from timber as indicators of economic viability alongside sustainability.
5. Implementation of Climate Change Adaptation Measures
   • Aligned with the EU Taxonomy, indicating progress towards climate resilience.

4. Table of SDGs, Targets, and Indicators

SDGs	Targets	Indicators
SDG 13: Climate Action	13.2: Integrate climate change measures into policies and planning 13.3: Improve education, awareness, and capacity on climate change mitigation	Net carbon sequestration as KPI Carbon measurement and reporting aligned with IPCC standards Third-party and Big Four audit assurances
SDG 15: Life on Land	15.1: Conservation, restoration, and sustainable use of terrestrial ecosystems 15.2: Promote sustainable forest management	Certification under PEFC and FSC Ecological stewardship indicators
SDG 7: Affordable and Clean Energy	7.2: Increase the share of renewable energy in the global energy mix	Conversion of marginal plantations to solar use Renewable energy siting
SDG 12: Responsible Consumption and Production	12.2: Achieve sustainable management and efficient use of natural resources	Land use optimisation metrics Participation in bio-economy value streams
SDG 8: Decent Work and Economic Growth	8.4: Improve resource efficiency in consumption and production	Risk-adjusted financial returns Timber revenue and land appreciation

Source: environmental-finance.com