A GLOBALLY SIGNIFICANT RESOURCE
Forestland in the Western U.S. is a globally significant natural resource attracting over 50% of the ~$200 billion invested in forestland globally. The region produces a significant amount of the world’s softwood lumber and the native species (Douglas fir, western red cedar, Sitka spruce to name a few) are all commercially valuable building materials. The region has some of the highest concentration of high-site (a measure of productivity) forestland in the world, leading to high growth rates and species that can continue to add biomass for 100+ years. The west coast location creates optionality of end markets, with logs flowing to domestic mills feeding west coast markets or to export yards servicing the Pacific-rim markets.
Forestland is a biological asset, with steady growth rates (of 4-6%/yr on average) that are driven by nature’s free inputs – sun, water, and soil. Trees grow regardless of market cycles and political swings, making forestland a great portfolio diversifier. It is also considered to be one of the best hedges against inflation. Unlike agricultural crops which have a definite shelf-life, forestland owners can time harvests to strong log-markets and can store value on the stump in weak markets.
"EFM is one of the few organizations that has expertise in implementing ecological forestry principles within an investment context."
— Dr. John Gordon,
EFM Board Member, Pinchot Professor Emeritus & former Dean of the Yale School of Forestry
AN INNOVATIVE APPROACH
The natural forests of the western U.S. have unique social, environmental and cultural dimensions that are largely ignored by traditional investment approaches and this creates opportunities for differentiated approaches and nuanced management strategies. Forestland is a largely mature asset class, but conservation finance opportunities create an avenue for forestland owners to access previously untapped revenue streams while also generating public benefit. EFM acquires assets that are largely overlooked by conventional investors because of their unique operational, environmental, or social attributes—targeting landscapes that will benefit from our management strategies and conservation finance expertise. We specialize in the use of tools like conservation easements, carbon offsets, tax credits and recreational permits that can monetize the value of trees without harvesting the logs for lumber.
Research from the GIIN and Cambridge Associates below, highlight the economic benefit of these strategies.
EFM is honored to have contributed to the Cambridge Associates and GIIN partnership that created real-asset impact investing benchmarks, which will help investors measure their performance in timber, infrastructure, and real estate against the rest of the sector.
AN UNDERVALUED CARBON ASSET
There is a growing public recognition that natural intact forest ecosystems across the globe need significant protection and investment in the face of climate change. The world’s forests contain more carbon than exploitable oil, gas, and coal deposits. Research shows that reforestation and improved forest management together could provide 18% of cost-effective mitigation needed to keep global temperatures under 1.5 Degrees through 2030.
Closer to home, the forests in the western U.S are a nationally significant carbon sink, sequestering 10-13% of the country’s annual emissions with the capacity to sequester much more. For example, in Oregon forests sequester up to 50% of the State’s annual emissions, and play an important role in filtering drinking water, facilitating recreation and improving the quality of life across the region. Over 9 billion tons of carbon are stored within these forests, making this the largest un-priced terrestrial sink in the United States. The species that grow here are known to sequester more carbon per acre, for a longer period of time than other forest ecosystems globally.
Governments across the region are recognizing the role of both public and private forests in tackling climate change and efforts are underway to price carbon, fund forest restoration, reduce fire-risk and reduce forestland conversion. These efforts will create new sources of revenue for landowners and investors. We believe that the carbon-rich western forests will increasingly become more valuable for their carbon storage capacity in a carbon-constrained future.
We project that an investment of $1M dollars will sequester more than 135,000 tons of carbon over the lifetime of the investment, the equivalent of offsetting the yearly emissions from more than 2,500 U.S. households.