Timberland’s carbon potential must pass through Brazil’s tricky terrain

Brazil was not included among markets highlighted as being of particular focus for Nuveen’s Global Timberland Strategy, which was launched in November with plans to target net annual returns of up to 7 percent through land and timber sales, conservation easements, carbon offsets and appreciation.

As the location of more than 241,000 of the 735,128 timberland acres managed by Nuveen and the firm’s second-largest carbon stock as of its 2021 sustainability report, Brazil would seemingly play a key role in its Global Timberland Strategy. The firm manages 235,000 acres of native forest in Brazil that will never be cultivated as a result of its zero-deforestation policy.

Nuveen declined to comment on whether Brazil would form part of the GTS’s strategy when approached by Agri Investor, so we don’t know if the fund will categorically rule the country out. But it seems relatively safe to assume that Nuveen must look with interest at the possibility of monetizing the natural capital value of its Brazilian assets.

Nuveen’s Global Timberland Strategy – like several other vehicles launched recently – aims to capitalize on institutional and corporate interest for emissions-reduction by offering to sequester carbon in the timberlands of Chile, Uruguay, Canada, New Zealand, the US and elsewhere.

‘Globally diversified’

Carbon credits were among the strategies considered for a collaborative fund launched last year by The Nature Conservancy and BTG Pactual that is seeking up to $1 billion for investments in Uruguay, Chile and Brazil. After publishing regional carbon price breakeven prices that compared Brazil to markets in the US, New Zealand and Australia in October, Manulife launched its Forest Carbon Fund last month with plans for a “globally diversified portfolio.”

Brazil’s gigantic forestry resources dictate that it will inevitably play a key role in any effort to collaboratively manage global resources to mitigate climate change. Though interest in potential revenue streams from stewarding natural assets, like those at the center of Brazil’s economy, has grown, a thorny set of environmental, regulatory and political risks confront investors in what will remain a key venue to demonstrate their environmental, social and governance management capabilities.

Deforestation is a particular challenge. In fact, its potential to threaten the double-cropping that has made Brazil’s agricultural sector attractive to global investors was the focus of a report published by non-profit financial think tank Planet Tracker in late 2021. An October update highlighted potential for continued deforestation to push the Amazon past a tipping point that turns it from a rainforest into a carbon-emitting savannah.

“The Amazon rainforest stores 150-200 Gt (gigatons) of CO2, which would be at risk of entering the atmosphere if the forest dies,” wrote the report’s authors. “This would use up half of the remaining carbon budget for a 50 percent chance of warming to 1.5 degrees (420 GtCO2) by 2050 and would be equivalent to over three times the current annual anthropogenic emissions (58.1 GtCO2).”

Such threats make Brazil a high-profile voice at the UN level, where the recent COP 27 meeting in Egypt included efforts to mobilize national level financing and advance the Paris Agreement’s Article 6, which governs international transfer of carbon credits across borders.

Restrictions of foreign ownership and a contentious political and policy environment are only the most immediate of many challenges to integrating Brazil’s forestry assets into budding markets for sequestration credits. This would naturally require restrictions on land use that must be credibly presented as permanent.

Charles De Gaulle is sometimes credited with being the first of many to say Brazil is the country of the future “and always will be.” The same logic threatens to apply to carbon markets that must have some international scope to achieve their goals on a planet where Brazil’s resources play a unique role.