As the level of carbon dioxide continues to increase so too does the demand for carbon capture. The resulting commoditization of carbon presents an opportunity for the forestry asset class to diversify risk and enhance returns through active forestry management.
It is generally considered that rising carbon levels are a driver of recent changes in global temperature and associated changes in climate dynamics. Governments in developed nations have generally recognized the negative impacts of this change, including shifts in agricultural productivity, destructive weather events, increases in disease risk and population displacement. These governments are generally taking steps to increase the cost of carbon emissions and to encourage carbon storage. This creates risks for investors who are exposed to carbon intensive industries, as well as opportunities for investors in the areas of carbon emission reduction and storage.
As discussed in our report, active forestry management is a more efficient way than passive management to capture carbon dioxide from the atmosphere whilst preserving financial return objectives. There is a positive correlation between climate mitigation impact and the active management process: where targeted forest improvement operations can be utilized to improve growth and the yield of valuable timber products, which simultaneously increases carbon capture and financial returns. When applied at scale, the impact results can be substantial.
TRG identifies and manages return and climate impact results from timber strategies through a quantitative, returns-based, approach that links the objectives of long-term value creation with carbon capture incentives, for the construction of forest asset portfolios where both financial and climate impact objectives can be achieved.
The guiding framework can be summarized as follows:
- Invest in timber strategies where forest growth, timber value, financial returns and the rate of total carbon capture is projected to be high
- Applying improved forest management techniques such as targeted species and site selection, deployment of advanced genetics and use of precision silviculture to simultaneously seek to increase the
growth and yield of timberland and bolster the rate of carbon capture from a forest
- Utilizing carbon-derived public and private market initiatives to provide added income opportunities to timberland investments
- Matching timber species to environments that are expected to support productivity, capture carbon efficiently and be resilient to any environmental change as a form of climate risk mitigation
The conclusion is that modern forest investment management practices can be used to meet return and climate mitigation objectives, in a manner that enhances the broader financial objectives of timberland investment.
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