Tiedemann’s Brad Harrison is quoted in FundFire’s sustainable forestry article
We are pleased to share that Tiedemann Advisors' Managing Director Brad Harrison is quoted in FundFire's recently published article on sustainable forestry. The article cites statistics from the recent GIIN study on the topic, and Brad is quoted throughout providing the benefits of such a strategy and how it has become more accessible to investors.
Please read the full article below.
Inst'l Investors Turn to Niche Asset Class to Reduce Carbon Footprint
By Aziza Kasumov | July 3, 2019
Pensions, foundations and other institutional investors are warming up to a niche but increasingly popular real asset strategy: sustainable forestry. The industry is small but has been attracting both mainstream investors as well as institutions trying to reduce the carbon footprint of their broader investment portfolios.
“A number of pension funds have committed publicly to making their portfolio carbon neutral by a certain date,” says Pete Murphy, manager of the Global Impact Investing Network’s (GIIN) market building team. “What we’ve heard from folks throughout the process of the report is that forestry is far more effective at reducing the carbon than sustainable energy.”
Murphy adds that one institutional investor told him forestry strategies were nine times more effective at reducing carbon exposure in their portfolio than clean energy strategies.
But pension funds aren’t the only institutional investor type showing interest in sustainable forestry investments. The 37 sustainable forestry vehicles surveyed for a report by the GIIN had 22 pension funds invested in their products – but that was far from the majority. They also received capital allocations from 19 family offices, 17 endowments and 13 foundations. Several high-net-worth individuals and funds of funds also had invested in the vehicles surveyed.
The Russell Family Foundation (TRFF), for instance, made its first sustainable forestry investment after, in 2014, signing on to the "Divest and Reinvest" pledge, which asks investors to not just pull assets from climate-harming industries, but further reinvest them sustainably.
“Early on, it was a challenge to find funds that were being assembled to address these kinds of opportunities,” says Richard Woo, the CEO of the foundation. TRFF, he adds, did an exercise to measure the carbon footprint of its portfolio to make sure it wasn’t reinvesting in strategies that would inadvertently increase its carbon footprint.
“But the market has changed a lot in these [last] four to five years,” says Woo.
As interest in sustainable forestry has grown rapidly, so has the number of available investment vehicles. The sustainable forestry vehicles surveyed in the GIIN report represent just a sample of the overall market, but already capture at least $9.4 billion in combined assets. (Three of the 37 vehicles did not report their size.) Since 2017 alone, 10 new funds have entered the field. That’s an uptick from the six added between 2011 and 2013 and the four new funds incepted between 2008 and 2010. Between 2014 and 2016, eight funds launched.
Most of those funds are located and invested in North America and Oceania.
TRFF, for instance, is now invested in Portland, Ore.-based Ecotrust Forest Management, as well as Agriculture Capital, a sustainable farming strategy, among other, similar investments. In total, $2.1 million of the foundation’s $145 million endowment is invested in sustainable forestry, and another $1.7 million in sustainable agriculture. Overall, a little over 80% of TRFF’s total portfolio is invested in alignment with its mission.
“The intent is to be fully impact,” says CFO Kathleen Simpson.
Sustainable forestry or agriculture can be a good way for investors hungry for more impact to dip their toes in the water – for several reasons. First, minimums to get into those funds have “come down significantly” and now range between $100,000 and $250,000, says Brad Harrison, managing director at wealth management firm Tiedemann Advisors, commenting on the sustainable forestry funds that his firm tracks. Returns, on the other hand, have often been in line with the market, if not outperforming – “removing some of the misperceptions that they may have about impact investing, like that returns are below market,” the GIIN’s Murphy says.
The industry has the potential to deliver a diversified income stream, both Harrison and Murphy say.
Sustainable forestry funds usually don’t just make money off selling timber, as conventional forestry firms do. Their sustainable counterparts often sell carbon offsets, lease land and sell land rights for permanent conservation as well.
“The other hypothesis that we have based on conversations is that the management of social and environmental criteria, especially in emerging markets, mitigate risks significantly,” says Murphy. “Better understanding the ways in which local communities are engaging ... with your plantation is good business and potentially drives that outsized return.”
Those arguments have also begun to bring mainstream investors into the space, says Harrison. "Half of the investors in the funds are considering impact and ESG," he says. The other half, he adds, has been led to those vehicles through traditional analyses that suggested that "these are just good investments."
But there are challenges, too, that the GIIN outlined in its report. Many sustainable funds have 10- to 12-year tenures, which is a long time frame, even for this asset class. Plus, with at least a dozen of these funds only having launched in the past four years, some investors are wary of their lack of track records and perceived risk.
For foundations, the high illiquidity might be less of a problem. “It’s prime for foundations," says Tiedemann Advisors’ Harrison, "because they have that long-term time horizon."