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Briefing: Sumitomo Mitsui Trust Bank eyes forestry, biomass energy and carbon credits

The Japanese trust bank made its first timberland investment last year amid a trend that has now led to New Forests being acquired by Mitsui & co and Nomura.

Sumitomo Mitsui Trust Bank’s first forays into forestry have been part of a wider inspection of new assets for the firm that includes carbon credits and biomass energy, a spokesperson told Agri Investor.

The Trust Bank invested in Manulife Investment Management Timberland and Agriculture’s Hancock Timberland and Farmland Fund in July 2021, and New Forests’ Tropical Asia Forest Fund II in March 2022.

Why it matters

The spokesperson declined to disclose the size of the investments and was only willing to say it is “not a huge amount,” but the moves come amid a trend of Asian LPs pivoting to forestry in the past 12-months, which culminated with Japanese pair Mitsui & Co and Nomura acquiring the second-largest global forestry manager New Forests this month (May).

The Trust Bank’s trade and commodity finance team is in charge of the investments, whose main customers are hard and soft commodity traders.

“Global hard commodity traders are now exploring their business to find out [about] new energy [sources], which would be alternative to oil and gas, while global soft commodity traders are focusing on agricultural assets such as wood, paper and pulp, soybean or wheat,” the spokesperson said in an email.

As well as a desire to better understand these customers existing businesses better, “We also think we would be able to obtain the knowledge regarding new assets such as biomass energy or carbon credits acquired through forestry investment,” they added.

New big player on the block?

The trust bank has not yet set an allocation for forestry in its portfolio, as the trade and commodity finance team’s primary objective is not to expand fund investments, but to “provide new solutions to our customers which will be obtained by the fund investment. However, if our customers would like to consider the business about fund raising [sic], we of course hope to support their demands as a trust bank,” the spokesperson clarified.

The financial firm is open-minded about the prospect of switching its strategy to direct and co-investments, they added, and is open to the possibility of directly acquiring carbon credits although it has not done so yet.

Mitsui Trust Bank will only receive financial returns from its March and July investments in the New Forests and Manulife vehicles, respectively – the funds will not provide the bank returns in the form of credits.

Sumitomo Mitsui Trust Bank had $719 billion in assets under management as at March 2022, according to the company’s website.