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However over the last 20 years, institutional investors have discovered this ‘perfect’ asset and now own around $35 billion worth of timberland globally, in a combination of over 100 private pension, foundation, and endowment funds. Of that around $25 billion is invested in the United States, which represents both the world’s largest producer and user of timber.

Pension funds such as Calpers, led the way in the 1980s, however it was the big university endowment funds such as Harvard and Yale that saw the true potential and invested heavily in a move to diversify their portfolios globally. Last year the Harvard Endowment Fund invested $500m in forestry and carbon credits in New Zealand.

So what makes timber such a popular asset with institutions and what are the fundamentals driving this perfect asset.

Timber can be classified as a specialised form of long-term bond. A forest that holds mature timber will generate cash each year through the harvest and sale of timber. These harvests can be modeled and forecasted with a reasonable degree of accuracy over many years. Since timber growth and subsequent harvests are scarcely affected by the movement of financial markets, forest investment can be structured to act and behave in many respects like a long-term bond.

Most view Timberland as an investment in real estate. While traditional commercial real estate generates income from leasing, timberland derives its primary income from the sale of timber and more recently from carbon credits.

However its tax that has been the major driver of forestry investment in the UK, if held for 2 or more years the Forestry land can be passed on to family members with no Inheritance tax. Timber harvest is also exempt from income tax making this especially popular as a wealth protection asset.

Risk Reward

Timber is a low risk, high return asset which has outperformed stocks, bonds and other commodities for the last 30 years. From 1973-2002, managed timber returned roughly 15% annually as an investment, while stocks returned around 11%. Timber, like most commodities, is uncorrelated to stocks and unlike all other commodities continues to grow on the stump in recessionary times.
In summery forestry:

• Provides true investment diversification
• Responsible and ethical investment
• Low correlation to equity markets
• Continued accretion of value due to the biological growth of trees
• Forestry prices are very stable over time with long growth periods and minimal demand and supply fluctuations
• Huge upside potential based on impending supply crisis
• Unleveraged
• Flexible exit options: with a range of harvest dates forestry investments have great exit strategy flexibility
• Global regional exposure and diversification: varying currency depending on project location
• Arbitrages in the price of emerging market forestry
• Tax advantages for: IHT,IT,CGT
• Carbon credit revenue from non-Annex one countries such as Brazil
• Demand & supply: global consumption of tropical hardwoods has multiplied nearly 25 times in the last 4 decades and population growth rates continue to accelerate. Around 40m acres of tropical forest are being destroyed each year and not being replaced, whilst international political pressure on forest protection increases pressure on illegal deforestation, further enhancing timber values.

Timber vs. stocks

Not only does timber beat all other major asset classes, but it also does so with lower volatility. The below graphic demonstrates this. Timber has had just three “negative years” in the last 45 years whilst stocks, comparatively, have had 12 “negative years” over the same period. The last great bear market in stocks began in the late 1960s and lasted until about 1980. An investor in stocks during that period lost money due to inflation alone.

Diversification

Commercial timberland is affected by a different set of macroeconomic and market factors than other asset classes such as stocks, bonds, and real estate, the traditional mainstay of most investment portfolios. The addition of a low correlation timberland asset can expand the risk-to-return profile of any portfolio.

Why timber prices will continue to rise

Demand for timber is raising fast, especially from the emerging economies of China and India. One current forecast predicts that China’s urban population will increase from 530 million people to 875 million people by 2030. The equivalent of almost 50 cities the size of greater London will have to be constructed over the next 20 years to accommodate them, putting huge strains on global timber prices.

Global consumption of tropical hardwoods has also multiplied nearly 25 times in the last 4 decades. Populations continue to swell as more people seek to consume and live the middle class ideal. Around 40m acres of tropical forest are being destroyed each year to meet the demand for hardwood product and agriculture, of which little to none is being replaced.

International political pressure on forest protection is increasing, the invention of the Carbon Credit has created a value for living trees. This has a very positive effect on global climate change, however it will only seek to further enhance timber values through supply shortages, good news for forestry investors.

Green and ethical investment-biological growth

Aside from its carbon capturing properties, forestry is an incredibly green construction material. The table below demonstrates the amount of energy needed to create each respected construction material. Also by using sustainable timber the carbon within is locked up for the life of the project.

Aside from offering risk adjusted returns and portfolio diversification, timberland continues to add value due to the biological growth of trees at no extra cost unlike other real-estate assets, all the while sequesting carbon from the atmosphere. Trees grow in volume, size, and ultimately into increasingly higher-valued products.

For example, trees begin as lower-value pulpwood, then grow into low value saw timber trees (9 to 12 inches in trunk diameter) before maturing into high value saw timber (greater than 12 inches in trunk diameter).
As a tree grows into a larger and higher value product classes, the monetary value of the tree increases along with its carbon credit value. The effect of inflation and possible downward movement in timber prices is mitigated by volume growth; however what makes timber such an attractive investment is the effect of upward price movement is compounded by volume growth.

Timber continues to grow although at a slower rate as trees mature. This allows the investor to “warehouse” the timber “on the stump,” until such time as market conditions are optimal.

Timberland portfolio structuring to produce specific investment objectives

Timberland is an incredibly diverse asset and can be structured to meet different investment objectives. For example, higher cash flows can be achieved by including a higher proportion of more mature timber holdings such as teak.

If long-term gains are more important than regular cash flow, this goal can be achieved by acquiring young plantations and investing at the seedling stage for maximum long term uplift combined with high growth rates and intensive management techniques.
If the investors’ objective is a balance of cash flows with an emphasis on long-term appreciation, various timber age classes can be included in the portfolio to achieve this goal. In addition, investment returns can be improved with a variety of additional structuring and management options such as carbon credits, the use of leverage, selling selected properties that have real estate development potential or recreational use value such as shooting right.

In short, timberland investments have the versatility to be shaped through financial engineering to meet a variety of goals for both the institution and the sophisticated private investor. Its amazing how few investors have exposure to forestry in light of the above, a fact which won’t stay this way for long, double digit returns and tax benefits will attract a vast number of investors especially as the green revolution takes hold.

What the experts say

Tree growth averages about 8 per cent a year. “If the market goes up that is an added bonus [to the tree growth]. This is what makes timberland a safe investment,” says Liane Luke, head of timber investment at Four Winds, which manages specialist fund Phaunos Timber.

Bloomberg Wealth Management: Hardwood has quietly and consistently outperformed nearly all other commodities for the past 100 years

Another attraction of forestry investing is that when timber prices fall, there is still a “steady offset of the physical growth of the tree”, says Eva Greger, who runs GMO Renewable Resources, the large Boston-based fund manager that has been putting money into forestry since the 1990s.

For More Information on Forestry Investments Click Here

From 1 January 2010, level three of the Code for Sustainable Homes becomes mandatory for all new commercially built homes in England and Wales. The Code, has become a single national standard for design and construction elements which impact on the sustainability of a new home and addresses energy efficiency, water efficiency, surface water management, site waste management, household waste management and the selection of eco-friendly materials.

The most significant part of the Code is the need from 1 January 2010 for all new commercially built houses to be 25 per cent more energy efficient than is currently the case, as applied through Part L of the 2006 Building Regulations. But that shouldn’t be a cause for alarm. The upshot is all new homes should be more pleasant to live in, will have lower fuel bills (because the houses are better insulated and less thermally inefficient) and will, in the main, look just like the house you live in now.

That’s because much of the technology that makes them energy efficient or eco friendly is inbuilt in the fabric of the house and is invisible to all but the trained eye. So they will be better insulated in the roof space and cavity walls (places you won’t see). They’ll also have grey (bath and shower water) recycling inbuilt, which will be recycled for use in your toilet and washing machine. The building materials used in construction will be from sustainably certified sources.

At a higher level of the Code e.g. Level 6 (the highest), which is zero carbon, it’s necessary for the homes to be powered and heated from renewable energy sources – solar, wind, or water or from the earth – and not from fossil fuels – coal, gas, oil – which when burned to produce energy emit CO2. So if you look around you at new houses, you’ll notice many of them have solar panels on the roof, and you may even spot the odd wind turbine.

The Code for Sustainable Homes is the most robust piece of environmental legislation yet to have been implemented worldwide. However, several other countries are not far behind. In Spain, all new homes must be built with solar thermal for water heating. In France, legislation compels developers to install 40% of glazing facing south (for passive solar gain). In Portugal progressive measures have lead to around 11 per cent of its annual electricity requirements being provided for by wind power.

AlmaVerde Village & Spa at Lagos on the Western Algarve, Portugal, was one of the first commercial resorts to adopt sustainable technologies to reduce energy consumption. The developer pioneered the Coolhose system, which ensures a constant 26C degree temperature whatever the external temperature whilst saving 94 per cent on CO2 emissions and energy consumption against the Portuguese average. Local and sustainable building materials are utilised to build the villas, more than 60 of which have been built. Prices start from €550,000.

In Morocco, boutique retreat L’Amandier, which is located in the High Atlas Mountains, one hour from Marrakech, is being developed under a broadly environmental banner. The stylishly modern 16 two and three bedroom have been designed to maximise passive solar gain and retain heat through high thermal mass and insulation. Local and sustainable building materials are being utilised, including fenestration, doors and the aggregates used for construction. Prices start from £280,000.

The British developers of L’Amandier, which is only 15 minutes from Sir Richard Branson’s acclaimed hotel Kasbah Tamadot, are engaged in initiating a local waste management system. The aim is to collect waste from local hoteliers, including Kasbha Tamadot, and villages, which will provide a much-needed service and also create local jobs and a greater civic responsibility. In doing so the environmental impact of poor waste disposal and CO2 emissions will be lessened.

In Kenya, Medina Palms, an environmentally sensitive resort development of 50 villas and apartments at Watamu, on Kenya’s Indian Ocean coast, has a local and sustainable agenda. The British developers support the Born Free Foundation, and a local marine conservation initiative, Watamu Turtle Watch. Around 200 local jobs will have been created once the resort is completed in 2011. Onsite, hot water will be generated from solar power, and two underground biodigesters will be process greywater that will be reused for irrigation purposes. Prices start from £170,000.

Across the other side of the Atlantic Ocean, Emerald Monkey Eco-luxe Resort & residences, located in the Bocas del Toro archipelago, off the Caribbean coast of Panama has been conceived as one of the world’s first carbon-neutral developments. The ambition will be achieved through the use of hydro electricity – a renewable source of energy – and energy reduction initiatives, such as LED, lighting throughout. Water will be drawn from local wells and recycled. Prices start from $75,000 for a one-tenth fraction of a one-bedroom villa; whole villas are priced from $565,000.

NOTE: The developments above and more than 100 other eco developments worldwide in 29 countries, including the UK, are profiled and assessed on independent website http://www.whatgreenhome.com/

Source: Gordon Miller

Whether this particular scandal started in a small hidden town in Russia or with a scientist in East Anglia one thing is very apparent- IT did NOT start in the Watergate Hotel.

If you think increasing carbon dioxide and consequently polluting the atmosphere is in some way a good thing then I can see your point for jumping on the band wagon. Let’s all turn around now and forget about Copenhagen, and possibly save on a few air miles.  While we are at it let’s stop saving rain forests, forget about renewable energy and enjoy the warm weather while it’s still bearable.

However if you have ever even opened a text book, journal or presentation on climate change I think you might just find sources of research other than the IPCC. They are obviously the dominant force within this close knit community; however they are certainly not the only one. People have been measuring ice sheets, tree rings, sea temperatures, land temperatures and atmospheric temperatures for years. Just look what the ice sheets have been doing for the past 56 years.

Or take a look at glacial retraction over the past decade. Having studied both glaciations and climate change at university within the last 10 years I am perhaps better qualified than most lazy journalists who add the word ‘gate’ to their copy for maximum impact rather than a balanced argument.

Sadly Sinicism and global conspiracies sell considerably more copies, than fact.

So after momentarily questioning my business, my degree, my past academic mentors and ultimately my life I now stand tall and remember all those interesting lectures and field trips that led me to pursue a career in sustainable investment.

Despite the e-mail scandal, the evidence that human activity is largely responsible for climate change during the last 50 years is still very strong.

For those of you still adamant it’s all a great hoax on the same scale as the emperor’s new clothes

Pascal’s Wager suggested that even though the existence of God (substitute for climate change) cannot be determined through reason, a person should wager as though God/(Climate change)  exists, because living life accordingly has everything to gain, and nothing to lose.

Following an historic meeting in mid November 2009, both President Hu Jintao of the People’s Republic of China and President Obama of the United States of America, outlined their “Action Plan”. In this the US and Chinese administration agreed to invest US$150m (yes million, not billion) over 5 years in “research & development” toward mitigating climate change. Breaking it down, they will be investing $75m each over 5 years, so $15m each, each year. It doesn’t take much to see through these glossy magazine-selling statistics and realise that this is little more than a get-out-of-Copenhagen-free card.

In the UK, Nicholas Stern outlined that we need to be spending 1% of GDP (recently increased to 2%) to have the minimum necessary impact on climate change. Other recent estimates suggest over €1trn in the next 10 years is the minimum required and these funds are needed immediately to have the desired impact. Without arguing over the highly debated cost of climate change mitigation, the fact is that the figures are very high and much higher than those proposed by the US-China “Action Plan”. Whilst we can argue over the state of our economies (in the US unemployment and health care are considered much more important in public opinion), this latest offering is nothing less than a slap in the face to those attending Copenhagen.

To ensure the critics did not focus on the figures, the US and China employed a typical diversion tactic agreeing and highlighting that “climate change is one of the greatest challenges of our time” and confirming that they are both “fully committed to a successful outcome in Copenhagen this December”. Yet President Obama will be attending for just one day, and President Jintao is not attending at all. Confused? So rather than commit to any levels of reduction, or play any major part in Copenhagen, we have a new “US-China Energy Efficiency Action Plan” to hang our hopes on.

The US Department of Energy and the National Energy Administration of China will invest $150m over 5 years on solutions for energy efficiency in buildings, clean coal including carbon sequestration, and clean vehicles. The “US-China Electric Vehicle” initiative aims to advance the electric vehicle market whilst they also launched the “US-China Renewable Energy Partnership” which will chart a pathway to wide-scale deployment of wind, solar, advanced bio-fuels and a modern smart electric power grid in both countries. Meanwhile to engage a short-term solution, “Coal in the 21st Century” initiative will promote cooperation on carbon capture and storage projects. See the White House website for details.

President Barack Obama on Friday abruptly altered the timing of his appearance at an international climate summit in Copenhagen. The move means Obama will be at the summit on Dec. 18, considered a crucial period when more leaders will be in attendance, as opposed to his original plan to be in Denmark next Wednesday on his way to Oslo to receive his Nobel Peace Prize. Ironically his flight to Copenhagen to discuss measures to curb climate change will be his tenth foreign flight in his first presidential year.

With a recent report from the WWF outlining that we have less than 5 years to stop uncontrollable climate change, hopefully by now you would have imagined that the climate change skeptics would have been educated long ago. It seems however they remain steadfast in their own self-denial, be it adamant, ignorant or just stupid. With Nasa, UN and independent scientists and scholars all around the World pointing out that drastic and immediate measures need to be taken to prevent a 2˚C temperature rise, hopefully there will be no doubters in Copenhagen..And why the concern over a 2ºC degree increase? Only that a catastrophic breakdown of ecosystems, leading to mass migration, poverty, hunger and drought, with half of all animals and plants going extinct and a large sea level rise, and massive change in weather patterns. This has been forecast to occur at current rates within the next 35 years!

Droughts, acidic oceans and melting glaciers are the most simple signs of accelerated global warming, a United Nations report said recently. Mountain glaciers in Asia are melting at such advanced rates that they could threaten water supplies far sooner than expected, including irrigation and hydropower, affecting up to 25% of the World’s population.

So with regards to Copenhagen, what is really making this all so difficult? Our complete dependence on fossil fuels and an inability to realise an affordable and scaleable replacement is the main problem. Of course this is not helped by the fact that developed nations like China and the US have such high levels of pollution, and yet don’t seem willing to even announce let alone stick to emission reduction targets. A fundamental change in developed society, how we live, how we travel, how we eat, will all need to occur if society is to have any chance of preventing climate change. Our lives will change drastically in the coming years of that there is no doubt. Perhaps also the largest single issue with the Kyoto Protocol was that the developed nations need the less-developed nations to help them reach their emission reduction targets, but dont seem willing to pay for it! With next week looming, these are nervous times indeed.

With the release of CO2 in to the atmosphere through deforestation responsible for 20% of global greenhouse pollution and recognised as practically the single largest contributor to global warming, Indonesia is recognised as the World’s largest greenhouse gas polluter through deforestation.

High levels of press exposure highlighting illegal deforestation in Indonesia for the purpose of Palm Oil plantations, which are also sideling potential food crops, Indonesia is under pressure to act fast. With over a billion tons of CO2 emissions from its forests and peatlands, Indonesia has pre-empted the UNFCC’s decision and officially issued national regulations on REDD allowing forest stakeholders, be they private organisations, local authorities or indigenous people, can all acquire REDD permits for projects that prove they prevent CO2 otherwise entering the atmosphere. More recently at the G20 summit in Pittsburgh, Pennsylvania,  President Susilo Bambang Yudhoyono pledged to voluntarily cut Indonesia’s carbon emissions by 26 percent by 2020 using the state budget, the first developing nation to do so.

Reducing emissions from deforestation and degradation, or “REDD” as it is known, is one of the most crucial topics to be addressed by the UN in Copenhagen this December. It is widely accepted by experts that limiting the rise in global temperature to 2˚C above pre-industrial levels (the level at which widespread ecosystem breakdown is forecast) will be almost impossible without REDD.

Once the International Panel on Climate Change present their findings in Copenhagen to the World governments it is hoped that necessary financial mechanisms will be implemented that correctly incentivise 3rd World governments such as Indonesia to not only protect existing rainforest but replant new forests. Only then will the Kyoto Protocol’s effective successor have taken the crucial action in attempting to mitigate climate change.

By planting 33.2 million hectares of trees and undertaking REDD programs, Indonesia could slash about 15 percent of its emissions and cut a further nine percent of its emissions by reducing forest fires in peat lands by 75 percent.

Should a large percentage of Indonesia’s current deforestation be prevented, and if REDD is accepted in to Kyoto’s existing CDM system, then the potential carbon credit trading value for Indonesia will run in to US$ bns. We only hope that in Copenhagen this winter the World’s governments can reach an agreement for this vital solution to global climate change, and financially motivate everyone to protect their forests.

Source: Communities to get paid through REDD & Indonesia first volunteer to emission cuts

“We’ve lost over half the forests on the planet, to give you an idea of the speeds they’re going, we lose about the size of 36 football pitches every minute – so that’s pretty fast.” Colin Butfield, head of Campaigns at WWF.

The biggest contributor to global greenhouse gases, the destruction of tropical forests emits more carbon dioxide every year than all the cars, planes, and boats on the planet – between 15 and 20% of global emissions. Its clear to see why conservationists turned economists are being dispatched around the world to work out a forest’s asset value and in turn create a new investment opportunity in the form of carbon credits.

“It is possible to calculate the amount of carbon in a hectare of rainforest to a reasonable amount of precision,”. Colin Butfield. Ground survey data is combined with satellite imagery to calculate the carbon stock, satellite pictures are then used to track the impact of any deforestation to create models for likely deforestation rates. That forest deemed to be under greatest threat that hold the most carbon are then worth the highest net value.

The resultant carbon credits issued for the protection of the trees can be traded on the voluntary carbon market. However most spectators myself included believe that Reduced Emissions for Deforestation and Degradation (REDD) will be accepted into the CDM in one form or another increasing both the demand and value of forestry stock.

London’s financial centre is the main home to the incipient global carbon market. Prof Heal believes that in a decade, the trade could be worth trillions of dollars and a report out already claims that the value of the market – which doubled in 2008 to £449m consists of carbon credits from offset providers and credits traded in the voluntary Chicago Climate Exchange cap-and-trade scheme.

Commodities traders are not the only ones who are seeing the potential in this new market, Sky Television wants to do its bit too. They have teamed up with the WWF to offer subscribers the chance to donate £10 to the Rainforest Rescue site which will help to protect around 500 trees iAcre Brazil – Sky will match every donation made, up to the value of £2m.

This is an exceptional piece of triple bottom line PR for Sky, they are genuinely doing good by protecting rainforest, they are creating massive PR for both themselves and a topic that is perhaps the most import threat our generation has seen and they are likely to receive a healthy income from the resultant carbon credits created.

It’s this type of model that shows companies can make a difference and a profit at the same time. Not to mention all the social implications of job creation in the area.

REDD is still in its infancy with regard being accepted as a global solution to climate change, this will change rapidly over the coming months and years. Those companies such as Sky acting now will see the benefits of this. If the dot com boom made millionaires of the geeks, it is now time for the conservationist and ecologist to plant themselves firmly on centre stage.

Accounting for approx 2-4%  of global carbon dioxide emissions, global aviation industry and subsequntly air travel is underfire from climate change analysts for several reasons. Tourism travel is seen as excessive only fuelled further by the burgeoning of short-haul carriers such as Easyjet and Ryanair, whilst business travel is again seen as avoidable with modern telecommunication systems such as Skype solving the eternal face-to-face business dilemma. How many of us are really willing to cut back on our air travel if pushed? With around a 5th of global CO2 emissions coming from the automobile industry, most consumers would prefer to find a solution to their gas-guzzling cars and allow aeroplanes as a luxury.

On the horizon however, there are several fuel alternatives to reduce aeroplane emissions. As the Exxon’s of the world strive to use one of nature’s gifts, algae, to solve their automobile fuel solution, another plant looks like it may be able to work for the aviation industry.

Hailed as global aviations miracle crop saviour, a little know plant Camelina thrives in semi-arid conditions and can be grown on marginal lands, therefore not competing with vital food crops. Camelina can be converted in to hydrocarbon rich jet fuel, something that other bio-fuels such as ethanol can not do due to their different molecular structure.

Camelina’s aviation life-cycle has now been studied by researchers at Michigan Technological University and they concluded that CO2 emissions may potentially be reduced by over 80%. Now all that is needed is proper commercialisation of the plant specifically for delivery and integration in to the aviation industry.

Source: Biofuel could lighten Jet Fuel’s carbon footprint by over 80%

Putting a price on saving rainforest via carbon credits, could enable developing countries to benefit from actively reducing deforestation through funding from the private sector and governments in the developed world utilising forestry projects to offset CO2 emissions.

Columbia University economist Professor Geoffrey Heal explains:

Basically the mechanism we’ve come up with is the following; countries reduce their rates of deforestation below what they historically have been and in exchange for that, they get carbon credits which they can sell on world carbon markets,

and

It is possible to calculate the amount of carbon in a hectare of rainforest to a reasonable amount of precision,

Source: Rainforests could be traded on world market – bbc.co.uk

What Green Investment Comment:

The debate over forestry protection gathers pace as Copenhagen Climate Summit looms large. Many global conglomerates approach to solving their problem of climate emissions has been to invest in rainforests tracts globally, further sanctioning the use of forestry as an investment vehicle and underlying confidence for its future worth.

If the price of carbon increases, a regulated price for carbon stored in tree’s can be reached/accepted and a deal is reached to force governments and businesses to cut CO2 emissions, the growth in investment in the forestry sector could be phenomenal.

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