What is ethical forestry?

Forestry is a subject that incites much passion amongst people concerned about the environment. The truth is that timber is a great, sustainable resource. It’s the way in which it is managed that can be the problem. The slash and burn felling operations that have decimated the world’s rainforests are unsustainable practices that have no place in the modern, environmentally-aware world. Consistently chain-sawing down 500 year old trees and not replacing them at the same rate is simply not a sustainable business.

Ethical forestry can refer to best forestry practice that produces timber using sustainable methods. As the world population eclipses 7 billion with a roaring middle class demanding houses and furniture this is what will set the stage for sustainable forestry to rocket skywards.

An ethical forestry plantation will typically use mixed indigenous species of differing ages and fell them in a way that allows the formation of glades or clearings. When forestry operations are located in areas of former rainforest they should allow areas of the plantation to revert to rainforest which creates wildlife corridors.

Ethical forestry investments

Why invest in ethical forestry?

Increased public awareness of global issues, along with increased accessibility to investments for individuals means that many modern investors demand not only a good return on their money, but also the knowledge that their money goes towards something good or worthwhile.

Well-managed forestry operations can help to recreate areas of forest previously levelled by slash and burn, as well as providing the world’s ever growing demand for timber.

India and China alone are expected to more than double their demand for timber by 2020, and both countries have a massive shortfall in domestic production. Add this to the ever increasing global demand from the rest of the world and you have a market clamouring for timber.

Timber is a sustainable, renewable material with a growing market. It has been considered a sound investment for hundreds of years. Timber prices have proven to be stable and are not prone to the same extreme fluctuations as the stock market.

Historically returns have been good

It is not always clear how these returns are calculated. Does the investor receive money yearly or at the end of the project? You would want to know the year by year returns and then add a discount rate of maybe 5% – 6% to work out the Net Present Value (NPV calculator) of this investment.

Current offers we found for ethical forestry that we found online vary significantly:

  1. £18,000 would return £93,000 in only 10 years;
  2. £18,000 over 12 years projects returns of £104,189;
  3. £18,000 over 24 years returns of £1,059,312;
  4. £36,000 over 24 years returns £1,163,501;
  5. Cost of trees – 100 cost £6,000;

What to look for when investing

  • Company should preferably own the land the you are investing in or hold a secure long term lease over it;
  • Company should be doing all the work from planting the seed right through to harvesting the timber;
  • Company ideally would have its own timber mills;
  • Think about what timber you are investing in, is it a hardwood, softwood, formaleta with 12 years to maturity, acacia harvesting in 10 to 12 years, teak with 15 to 24 year maturity and mixed species such as hevea-sentang and hevea-teak or would you prefer to invest in bamboo?
  • Where are you investing? Is the company based in the UK or overseas? Where is the timber? Countries like Costa Rica offer a more secure economy and legal system than say Nicaragua.
  • Does the company offer insurance on your timber, such as a plant and replace guarantee for the first three years?

"As an asset class, timber – a renewable resource with constant product demand – stands out as a remarkably stable investment"
Bloomberg Wealth Manager

The future of energy

How to invest in ethical forestry

Investing in forestry was traditionally the realm of large investment companies and financial institutions, involving multi-million pound transactions. In response to demand from the smaller scale ethical investor, there are now companies that specialise in handling investments in ethical forestry that are accessible to the individual or small business.

Here’s how it works:

Most ethical forestry investments entail actually buying the trees. These are physical assets which, if you wished, you could manage yourself. You will normally get title to the trees and full GPS co-ordinates for your own stand. But of course you don’t manage the trees yourself. What happens is you pay a forest management company to look after, and harvest your trees. The best operations manage the trees with their own teams rather than use a third party. When the trees are thinned, and then harvested, you get the proceeds of the sale.

Investing in ethical forestry is not for the short term investor who is looking to turn their money around in a couple of years. Typically investments are long term and will run for a fixed term for anything between 10 and 25 years. As always, do your research before parting with any money. A good investment will show a proven track record and will be SIPP approved.

An alternative to ethical forestry investment can be made in emissions or carbon trading and solar or renewable energies. These are known as green investments.