Hancock Natural Resources Group completed the acquisition of 89,800 acres of timberland in the US state of Maine, though financial details were undisclosed.
The purchase was labelled as an impact-first investment by the Manulife Investment Management subsidiary because the firm intends “to remove more carbon from the atmosphere than would have normally been removed under traditional thematic investment,” Manulife private markets chief sustainability officer Brian Kernohan told Agri Investor.
“We’re likely going to increase the length of time between harvest and not harvest a larger portion of the forest, thereby letting that forest grow in store carbon. I want to emphasize that harvesting will still occur sustainably because it can still generate benefit from removing carbon in wood products,” Kernohan added.
The acquisition was made on behalf of John Hancock Life Insurance Company.
Kernohan declined to disclose return expectations for the asset. In response to a question about whether an impact-first approach meant average US timberland returns of 4 percent annual cash yields and an IRR of between 8 to 10 percent were out of reach, he said the firm’s early work “suggests you can have an impact first forest that is competitive so long as you factor in the total return from the carbon component.”
HNRG has not disclosed the amount of carbon the asset is expected to sequester annually and Kernohan could not provide details regarding how much of the asset’s total returns could be derived from the sale of carbon credits.
New Zealand-based GP Craigmore launched a forestry fund in March which could derive as much as a third of its returns from carbon credit sales on the country’s regulated emissions trading scheme.
Kernohan explained that Manulife may choose to hold on to its carbon credits for its own net-zero commitments in any given year depending on how it is performing against its targets, or it may choose to sell the credits depending on the value at which they’re trading.
The CSO confirmed the firm is continuing to work on a strategy that would make timber and ag investments that prioritize carbon sequestration. “The work with this particular investment is definitely informing that strategy. We think there’s a lot we can learn from this particular acquisition,” he explained.
Hancock chose to pursue a forestry-based impact-first investment in this instance instead of an agriculture-based one because the forestry-derived carbon market is more mature, Kernohan said.
“There has been a lot of work to perfect the rules of accounting for carbon and the science of understanding carbon in trees. It’s generally a more advanced asset class when it comes to carbon. Agriculture is fast moving in that direction relative to soil carbon however we do believe that agriculture is a little bit further behind.
“We think it has some room to go before we’re comfortable putting it into an investment thesis.”