Making Responsible Institutional Investments in Forestry

February 6, 2017- The forestry sector is somewhat controversial, as it provides investors profitable timber production, but is often seen as unsustainable and unethical. This has led the majority of institutional investors to realize that deciding to invest in forestry has societal and environmental implications, so many of them are beginning to make more responsible investment choices.

According to a report by NewForests, an ethical investment is one centered on attempting to define what is right. A sustainable investment, on the other hand, is considered to be one that is centered on the principles of intergenerational fairness and equity. For an investment to be deemed responsible, it should represent both ethics and sustainability, as the combination of the two minimizes negative effects on:

  1. Society
  2. The environment
  3. Corporate governance

Fortunately, making a responsible investment is becoming easier, as policies and international processes have started to set up rules and requirements for more conscious forest management. The first step in minimizing the risks of forestry investment is knowing what value forests bring to society and the environment:

  • Employment
  • Biodiversity conservation
  • Materials
  • Cultural values
  • Conservation of freshwater catchments
  • Maintenance of soils
  • Ecosystem productivity
  • Storehouses of terrestrial carbon

With everything forests give the population, how can investors make more responsible choices so humans can continue enjoying these benefits?

How to Be a Responsible Investor

Third-party certification of sustainable forest management is available, and many institutional investors are requiring this for employees and managers. These certifications show which projects are generating products from sustainably managed sources and which are not. While this has helped the situation, some managers don’t take it seriously and simply complete the certification because they have to. Certifications might be the first step, but there are other things investors can do to make more responsible decisions:

  • Instead of harvesting natural forests, invest in semi-natural forests and tightly-operated plantations that are more productive over a small area. According to NewForests, most of the world’s timber could be supplied by 100 to 150 million hectares of high-output, sustainable plantations, which is equivalent to only about 2.5 to 4 percent of the Earth’s forest cover.
  • Look for new business models for funding that include forest conservation and ecosystem services so forests can be both protected and productive.
  • Before investing in an area, make note of the needs of local communities, workers, and anyone employed in downstream markets so they can be better supported.
  • Invest only in well-developed timber plantation regions, as they are low-risk and can be run under ethical and measurable sustainability parameters.
  • Participate in and support the commercializing of natural forest ecosystem services to help support conservation.

Finding the balance between timber production and forest conservation is a struggle for any institutional investor, but it is extremely important. The objective for any investment in forestry should be profit to the investor without negatively impacting the community. As the industry keeps moving in that direction, the standard model of forestry investment will likely change to a model that coordinates financial goals with trends in sustainability and ethics. This could ultimately result in investors being rewarded for responsible investing.