Keywords: natural resources, sustainability, forestry, timber investments, asset management, alternative investments, quantitative analytics, risk management, carbon sink, sustainable development, sustainable financial returns
Forestry as a sustainable asset class for turbulent times?
There is good reason to anticipate increased demand for sustainable and responsible investments from both retail and large institutional investors. Increasing interest in forestry may come from both a financial and general sustainability standpoint, and from a carbon perspective, because trees are a critical part of any successful climate change strategy. We develop the true sustainable financial return (TSFR) concept for forestry investment screening which provides a good indication of long-run, sustainable return levels without leverage. Depending on investment horizon and illiquidity level, forestry investments tied to biological growth drivers seem the most attractive. Forestry then qualifies as a sustainable and responsible investment even during periods of financial crisis. In addition, we provide evidence that forestry investments can offer significant value to investors by adding a low correlation with other assets. Ultimately, the business model is proven and successful.