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Social Entrepreneurism

Green-led recovery and the role of forests

Events of the last six months or so have caused many of us to re-appraise our big picture thinking.

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by
Andy Turnbull

in Social Entrepreneurism

14.10.2020

As both an individual and part of a 180-year old firm, it seems clear to me there will be a fundamental change in the way we live our lives and in the way we do business. In fact, there needs to be a change. We believe all our activities will and should be viewed through the lens of how they impact upon our shared Natural Capital.  This was our greatest challenge pre-Covid-19 and it certainly has not gone away.

[Natural Capital can be defined as the stocks of natural assets which include geology, soil, air, water and all living things.]

Humanity may generally have benefited since the dawn of the industrial revolution, but this has too often been at the cost of our environment and the destructive exploitation of our Natural Capital.  Evidence of this can be seen in the anthropogenic increase in atmospheric carbon dioxide which is now at a level not seen in the past 800,000 years. Another startling sign of a human impact on our planet is that scientists estimate 1 million species will become extinct in the coming decades, with humans having already wiped out 83% of wild mammals and half of all plants on Earth.  If we are to have any chance of halting these declines, we all must act now.

A recent report from the World Economic Forum stressed our dependence on nature and biodiversity, of which climate plays a key and indivisible part.  The report estimated $44 trillion of annual economic value generation, over half the world’s total GDP, is moderately or highly dependent on nature and its services. Central banks and global financial institutions are switching on to this issue and can see the clear reliance of our future prosperity on taking measures to address the twin challenges posed by changing climate and biodiversity loss. In July of this year the UK and Swiss governments, alongside 10 major banks, formed a working group called the Task Force for Nature-related Financial Disclosures.  This new initiative aims to create a global framework to measure and publicly report the financial risks posed by nature, biodiversity and habitat degradation.  Much like a similar initiative focused on climate change (known as the Taskforce on Climate-related Financial Disclosures), shining a spotlight on these risks can help to direct financial flows in a climate and nature-positive fashion.

Part of the solution – plant more trees?

One of the simplest, proven and cost-effective ways of absorbing and locking up carbon from the atmosphere is by planting trees.  The ‘right tree, planted in the right place’ boosts rural employment and sequesters carbon whilst growing.  If the timber from that tree is harvested, the carbon-packed wood product can displace high emission materials such as steel and concrete in construction or plastics in packaging.

The UK Government has recognised this and adopted the recommendation from the Committee on Climate Change to plant 30,000 hectares of new woodland per year by 2025 through to 2050.  To add some context to this figure, in the year to March 2019, the UK planted 13,460 hectares of new woodlands, 85% of which was in Scotland.  If achieved, the 30,000 hectares of planting per annum would take the UK’s national tree cover from 13% to 17% by 2050, with the European average at around 38%.  It is perhaps no wonder that “treeless Britain” is the second-largest importer of timber in the world after China, with the UK importing around 80% of its timber usage.

In March 2019 the UK planted 13,400 hectares of new woodlands.

Trees and woodlands can deliver multiple objectives, from habitat enhancement to timber production.  In the UK, investing in woodlands more often than not focuses on, for good reasons, the timber-producing commercial conifer plantation forests.  However, modern well-designed productive woodlands can greatly benefit biodiversity and landscape amenity too.

The strengths of commercial forestry as an asset class have perhaps been recognised even more during the Covid-19 lockdown.  Whilst many industries were obliged to come to a halt, production of timber continued on the basis of being essential to supply other key industries with the materials they needed including keeping the logistics supply chain going with pallets and packaging materials.  In addition, while many mainstream financial markets descended into uncertainty and near chaos, the reassuring nature of a 3-4% annual biological growth rate in productive forests has not gone unnoticed.  Commercial forestry can provide a safe, tangible, ethical place to invest capital. 

As the UK, European and global leaders talk of a green-led recovery, tackling the threats of climate change and biodiversity emergencies have remained a prominent policy position for many. It is perhaps the indiscriminate nature of the pandemic that has provided a glimpse, not only of how these global threats could affect us all and the fragility of us as a species but have demonstrated that existential crises are not simply theoretical and has helped us envisage a holistic view of our impact on the environment.

With this in mind, forestry’s green credentials have shone brightly as current and aspiring owners of all types, from individuals to institutional and fund managers, are attracted by the benefits a sustainably managed forestry investment can have in helping meet their ESG (Environmental, Social & Governance) goals.

A green outlook

The next 10 years will be critical for society if we are to tackle the challenges faced by climate change and biodiversity loss.  It is likely that governments and regulators will make moves to help galvanise the transition to a more sustainable way of living.  When the nature of our activities is increasingly judged by how we impact our collective Natural Capital, then it will require us all to make changes to the way we live our lives, conduct our business and direct our capital.  As the price of carbon or nature becomes factored into what we produce and consume, industries will have to source and invest in methods to reduce negative impacts and consider ways in which they can soak up carbon and enhance nature.  Forests are set to play an important role in this change.

The decade through to 2030 needs to be the ‘Decade of Sustainable Investment” and collectively there appears to be a momentum growing to make this happen.
 

Andy Turnbull is Partner at Bidwells.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
 

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