Manulife on measuring what matters

Timberland and agriculture assets represent significant opportunities for investors to meet their sustainability and climate goals, say Manulife Investment Management’s Oliver Williams, Brian Kernohan and Brandon Lewis.

This article is sponsored by Manulife Investment Management. 

Oliver Williams

There’s increasing recognition of the crucial contribution that agriculture and timberland investment can make toward achieving the United Nations’ Sustainable Development Goals. It will require defining, measuring and reporting these benefits in a consistent, verifiable and transparent manner.

Credible third-party certification allows managers of timberland and agriculture to demonstrate that integrated sustainable management and regenerative agriculture practices create value and result in favorable ESG outcomes. In our experience, financial value goes hand in hand with good stewardship; our clients’ investment performance – and our shared future on the planet – depends on it.

Stewardship as value creation

Brian Kernohan

Interest in sustainable investing has exploded. While some see sustainability as a fundamental driver of value creation, others view it as a superficial label used by asset managers to differentiate their products.

There are strong incentives to appeal to this rapidly growing segment, potentially leading to exaggerated claims that we now call out as greenwashing. However, when sustainable investing is practiced and appropriately documented, it can mitigate climate change, nature loss and socioeconomic inequalities.

Sustainable – relative to what?

Brandon Lewis

The investment community has realized that biological real assets, such as forests and farms, are worthwhile investments, not only for the portfolio diversification, income and appreciation benefits they can provide but because they can also provide tangible environmental and social services, including carbon sequestration and rural employment.

While some of these services can be monetized, increasing investor returns, those services that can’t be monetized still benefit society more broadly.

At Manulife Investment Management, we’ve been implementing sustainable, regenerative agricultural practices for decades, and we develop and track metrics to validate and document those practices, including third-party certification. Investors increasingly value these types of measurements as ways of evaluating the extent to which these practices contribute to nature-based solutions that address climate change and other environmental problems.

But in the wider world, what activities are being financed in the name of sustainable investment, and how do we distinguish what’s genuinely green from greenwashing? It’s not a simple question to answer, as witnessed by current reporting issues with the European Union taxonomy regulation or ongoing debates in carbon markets over what does, and does not, count as sustainable investing.

Ultimately, the fundamental question at the heart of defining sustainable investing is: sustainable relative to what? Some define sustainable investing as what it isn’t. The most important thing may not be precision, or numbers, or the ability to analyze; rather, it is to ask instead whether it’s material and meaningful – and what it ultimately means and doesn’t mean.

Not everything can be measured – and not every measurement matters

So, how do we measure – meaningfully – the positive or negative impact of timberland and farmland assets on their local environments and communities? Commonly used metrics include:

  • Acres under management;
  • Acres certified according to third-party standards;
  • Quantity of food grown;
  • Percentage or dollar contribution to local or regional GDP;
  • Number of jobs created;
  • Reduction in fuel or water use;
  • Tons of carbon sequestered;
  • Carbon credits sold.

While each item is potentially helpful, none in and of itself tracks true sustainability. What we view as true sustainability places metrics in their appropriate context and provides insight into what matters – and includes both current and aspirational impacts. Key performance indicators can help evaluate progress toward these goals of a sustainability program.

A metric is merely a measurement; a key performance indicator is a measurement with meaning.

What does the distinction look like in practice? Discernment may hinge on the difference between a raw number and a percentage, for example: the number of acres carrying a third-party certification of sustainable practice is a metric, but more meaningful is the percentage of the manager’s land that is third-party certified. Manager A with 19,000 of its 20,000 acres under management certified is operating more sustainably (95 percent) than Manager B with 1.5 million of its two million acres (75 percent). Pound for pound, Manager B has much more room for improvement than Manager A.

We can make a similar case for water, greenhouse gas emissions, or biodiversity:

  • Water: the absolute quantity of water saved isn’t as meaningful as the percentage reduction in the manager’s water footprint.
  • GHG emissions: tons of CO2 avoided, reduced, or removed is less meaningful than the percentage reduction in the manager’s GHG footprint.
  • Biodiversity: the number of threatened or endangered species on managed land means less than the plans in place to preserve habitat.

Similarly, it’s become common in sustainable investing for managers and companies to cite the specific SDGs to which their investments contribute. But citing isn’t measuring.

Alignment with SDGs creates awareness of an investment’s impact potential – but citing alone doesn’t confer impact. Lengthening the list of SGDs adopted doesn’t necessarily promote greater impact; a measure’s degree of materiality for the manager must be considered first. By first selecting the SDGs most material to the timberland or agriculture investment business and assigning a degree of materiality to each, progress toward each of those goals can be better measured.

If such an approach sounds challenging, that’s because it is challenging. A partial solution to the difficulties of establishing meaningful measurements of actual realized contributions to SDGs lies with third-party sustainability certification programs.

Third-party sustainability certification programs define materiality on a sector-specific basis, set out clear principles and objectives for operating in a sustainable manner that are relevant to that sector, identify a range of practices that could be employed to achieve those principles and objectives, and then evaluate the extent to which those practices are, in fact, being followed.

Certification’s external auditing process ensures rigor and verifiability of the sustainability claims being made. The key performance indicator “percent certified” can convey much greater meaning through validation of outcomes than a large amount of data provided for data’s sake.

Beyond what statistics and metrics an individual firm reports, and how they utilize these statistics to brand themselves, it’s imperative to consider what they do, what they have done, and what they credibly commit to doing in the future. Certification can go a long way toward providing investors with valuable information on the sustainability practices of their timberland and agriculture investment managers and the true impact their investments


What best demonstrates a commitment to sustainability?

Integrated investment management fosters alignment of interests, protection of assets and security of information; integrated investment management also promotes a culture of continually creating value. One of the strongest demonstrations of our commitment to sustainability is the extent to which our managed lands are third-party certified. We favor outcome-based sustainability standards with a continuous improvement component.

Third-party forest certification programs, such as the Sustainable Forestry Initiative and Forest Stewardship Council, emerged in the mid-1990s and have evolved to become common practice in timberland investing. Today, we certify all eligible timberland investments to at least one credible certification program. While that’s possible in the timberland sector, it hasn’t been possible for agriculture until recently.

Oliver Williams is global head of agriculture investments; Brian Kernohan is chief sustainability officer; and Brandon Lewis is associate director of sustainability at Manulife Investment Management.