Timberland Investment Resources Europe is targeting $250 million for a vehicle devoted to investments into working US forests designed to generate long-term returns alongside “environmental and social resilience”.
TIR partner Hugh Humfrey told Agri Investor that similarly to the London-headquartered firm’s TIR Europe Fund II, which closed on $200 million in July 2021, fundraising for the Sustainable Forestry and Natural Capital Fund will focus on European pensions and family offices, and certain Japanese investors.
“Our observation of the Japanese investors is that they are are just as enthusiastic about the ESG component as the Europeans are. That is a contributor to their decision to invest in this asset class,” he said.
The Sustainable Forestry and Natural Capital Fund will target 8 percent to 9 percent net IRR over the 10-year life of the fund through investment focused largely in the US South. Plans call for TIR’s Atlanta-headquartered affiliate to implement a Whole Forest Monetization strategy, which involves development and sale of diverse timber and natural capital forest resource values like carbon credits, solar projections and mitigation credits.
Humfrey added that while the strategy of the fund is to find working forests with the potential to generate asset appreciation and cashflow and providing tangible environmental returns, there are no guarantees about the actual supply of those assets.
“All the investors who give us money, fundamentally they are buying into the core investment characteristics of timberland. All these natural capital opportunities are a plus. If they come off, there will be an uplift in performance,” he said. “However hard you are trying, you can’t guarantee you’re going to have a solar project on your property.”
Investors in the Sustainable Forestry and Natural Capital Fund will have the option to monetize carbon credits created by projects acquired by the fund. According to an April report, TIR has generated “several hundreds of thousands of dollars” through the sale of voluntary carbon credits on clients’ land in a 12-month trial with Natural Capital Exchange, a San Francisco-headquartered company backed by Salesforce co-founder Marc Benioff.
The report explains that TIR established bid prices that served as the lowest price it would be willing to sell an offset from a participating client’s property. NCX, the firm wrote, has mapped every acre of US forestland and uses satellite imagery to calculate stocking levels and timber growth to calculate a business-as-usual scenario against which the “additionality” of any carbon credits will be evaluated.
The company wrote that although NCX includes intensely managed softwood plantations that generally have been excluded from carbon markets in favor of hardwood forests, and its short-term commitment period is helping it gain market traction, TIR is also exploring other strategies for monetizing carbon values.
“At the moment, we find it difficult to see how an investor can actually make money out of forest timberland and generating carbon credits,” said Humfrey. “Much depends on assumptions about future price of carbon, That in itself is a pretty immature process. The TIR thinking at the moment is that generating carbon credits in the US is drag on performance. That may well change, but that’s how we see it at the moment.”
Rather than a focus on carbon, Humfrey said TIR aims to use the Sustainable Forestry and Natural Capital Fund to build upon experience in renewable energy, mitigation and water conservation projects.
“None of these things are particularly new, but they have crept quietly onto the dinner plate of the timberland portfolio manager,” he said. “In this fund, we will seek to buy assets that give us the opportunity of all those natural capital situations, whereas in the past we have retrospectively been able to take advantage of them.”