The role of investors in encouraging a forest-positive economy

June 12, 2023

Multinational corporations and their investors often drive deforestation. Through conventional investing practices, investors have contributed to the destruction of forests and accelerated climate change. That being said, investors can also be part of the solution to deforestation.

This includes supporting responsible forestry, choosing investments that emphasize sustainability initiatives such as avoiding development in primary forests, using more efficient use of resources, engaging in conservation efforts, and implementing social policies that promote sustainability. In addition, investors can leverage their influence on companies through shareholder activism to push for improved environmental and social performance standards related to forestry management.

Aonther solution is forestry investing, an emerging asset class that blends traditional investment approaches with strategies for protecting forests and their associated ecosystems. Forestry investing involves both direct in forestry projects such as sustainable timber land management, and indirect investments through forest-related financial instruments including green bonds and renewable energy markets.

When it comes to direct investments, investors may put money towards companies that are committed to responsible forest management practices or the creation of new forestry projects such as reforestation initiatives. These types of investments can be particularly attractive because they often offer higher returns than more traditional asset classes over time. Furthermore, these direct investments can result in positive environmental outcomes such as improved air quality, reduced greenhouse gas emissions, and protection of watersheds and biodiversity that support healthy ecosystems.

In the area of indirect forestry investments, investors can take advantage of financial instruments such as green bonds and renewable energy markets to invest in projects that address climate change by reducing global emissions from deforestation. These types of investments also offer opportunities for investors to make a positive impact on the environment while earning good returns over time.

In Europe, there are a number of ways to invest in shares of forestry groups. These investments can be structured in investment vehicles or can be owned by private investors. Moreover, platforms such as Ecotree enable investors to access investments in timber and other forestry assets with greater transparency. In either case, investors can benefit from diversification across different forestry funds and portfolios.

Given the complexity of forest management, there is a strong need for standards that ensure responsible management of forests and their resources. To this end, organizations such as The Forest Stewardship Council have developed certification standards to promote sustainable forest management worldwide. As investors become more aware of these standards, they are increasingly looking towards forestry projects that adhere to them in order to reduce environmental risk while still earning good returns on their investments.

Ultimately, forestry investing provides an opportunity for investors to combine their financial goals with their environmental values, helping to protect forests and reduce the risk associated with failing to consider systemic risks posed by environmental changes. Forestry investing is becoming increasingly attractive as more companies recognize their role in protecting forests and are taking steps to become part of this growing asset class.

CPM