What impact could COP26 have on forestry investments?

There were many pledges made at the recent COP26 summit in Glasgow, some of which could have an impact on forestry investments.

A commitment was made by 100 nations to halt global deforestation (which accounts for an estimated 10% of humanity’s greenhouse gas emissions) by 2030, including Brazil, China, Indonesia and Russia.

In addition, more than 30 of the world’s largest financial institutions (including Aviva, AXA and Schroders), with over $8.7 trillion in combined AUM, have committed to ending investment in activities linked to deforestation through growing agricultural commodities by 2025 (i.e. earlier than the national commitments).

The outcome is likely to be a continued decline in illegal logging globally, resulting in a reduction in supply of timber and upwards pressure on sustainably sourced timber prices.

Demand for timber from plantation forests which are independently certified as 100% sustainable, such as those managed by Gresham House Asset Management, is expected to increase. In the UK specifically, the Green Buildings Council has launched its Net Zero Whole Life Carbon Roadmap, which aims to: “Achieve net zero carbon in the construction, operation, demolition and reuse of buildings and infrastructure in the UK”.

Demand for timber-framed buildings – and therefore need for timber investment – looks set to continue to increase.

On the carbon front, Article 6 rules have been put in place, aiming to provide the framework for a global carbon credits trading market.

Whilst it is still early days, the direction of travel is very positive in relation to demand for carbon credits and more regulation of their creation, verification and sale. This should all combine to result in upwards pressure on their pricing, as buyers become more comfortable with their provenance and tradability.

The outlook is therefore very promising for woodland creation and carbon forestry schemes.

In conclusion, we believe wood is expected to continue replacing concrete and steel as a low carbon substitute building material.

The traditional drivers of timber demand globally are being turbocharged by the need to transition to a low carbon economy, to keep the global temperature increase target of 1.5C within reach.

Rising demand for carbon credits provides further upside potential to investment returns from forestry.

The views expressed here are the author’s own at the date of publication (December 2021) and do not necessarily reflect those of Gresham House.

When investing in forestry, your capital is at risk. Please ensure you read more about the risks involved. Past performance is not a reliable indicator of future performance. 

Get in touch

Anthony Crosbie Dawson
Director, Forestry and Private Clients

a.crosbiedawson@greshamhouse.com/aus