Sarah Clawson is Head of Global Investor Relations at New Forests, the global investment manager of nature based real assets and natural capital strategies. In CFA UK’s ‘In Conversation Podcast’, Clawson talked to Maha Khan Phillips about how forestry has evolved as an asset class, and key considerations for investment.
Global forestry has seen substantial growth. In the early 2000s, forestry was worth approximately $10 billion to $15 billion as an asset class. It has now hit the $100 billion mark, and is expected to reach $1 trillion by 2050.
In CFA UK’s In Conversation podcast, Sarah Clawson, Head of Global Investor Relations at New Forests, pointed to the expansion of climate finance and biodiversity as drivers of the growth. She also discussed some of the key themes behind the sector’s evolution, including a shift in wood supply from intensive clearing of natural forests to more sustainable harvesting of timber plantations.
“There’s also been a really big rise of Asian timber and wood fibre demand. So that’s absolutely been driving the evolution of the asset class… there’s also been a really big rise in sustainability, [and] climate mitigation opportunities. And lastly, I guess it’s the rising importance of investment capital in the evolution of forestry and land use, because if you think about it, natural climate solutions are the most cost-effective evolutionary path to mitigating climate change,” she said.
Clawson also talked about how market fundamentals are attracting institutional investors to forestry. “[Forestry] is a low correlation with other asset classes. It’s also a hedge against inflation and there’s a low volatility of returns there. There’s really inherent optionality in timber returns and that’s up to good managers to be able to seek that out,” she said.
She did however emphasise some of the complexities around forest products, for example with supply chains. “There’s many supply chains for different wood products and energy products. So both the supply and the demand are going to be dispersed around the world. And these markets have various cycles that are driven by economic conditions, by housing demand, technological changes, and also public policies settings. So due to a lot of these multiple variables, it’s difficult to develop an overall econometric model that can really accurately predict forest market prices globally,” she explained.
She highlighted the need for building diversified portfolios across the asset class, and the need for sustainable land use transitions, for example by getting rural farmers engaged in the process of change, and convincing them of natural climate solutions.
Monetisation of Carbon
Clawson also talked about the ways in which the rise of forestry has been linked to the monetisation of carbon. “They’re inherently linked as forests offer such large carbon sinks and opportunities for investors to commit to strategies with a really strong climate mitigation angle. So because trees store carbon, this is proven it’s a low cost technology for removing greenhouse gas emissions from the atmosphere. And as economies transition to a low carbon economy, sustainable wood is a crucial material to replace carbon intensive steel and concrete in building construction,” she said.
Additionally, Clawson spoke about the continuing evolution of the industry, for example the growing use of technology to leverage key insights. “It’s creating heat maps, for example, that might show areas of farms with lower net primary productivity that could be good candidates for reforestation in or heatmaps of unrealised climate mitigation potential in certain areas of forests. And so using that technology and innovation and analysing, that is going to be key to the future success of this sector,” she said.
Podcast originally recorded in December 2022
Sarah Clawson, Global Head, Investor Relations at New Forests