Night View 29.07.2021

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Alternative Investments :

The real green Asset : the Forest !

In the current context of increasing green consideration and mediatisation of Green Financial Assets, the demand for greener assets is increasing. However, the green asset by essence is not necessarily found on the financial markets but closer to home: the Forest!

Generally, Forestry investment is directly possible (particulars buy/sell Forest lands) but the mutual investments funds management  are more and more presents (as exemple the Groupement Foncier in France) allowing particulars to acquire share in in a funds dedicated especially to Forestry transactions and related management. Direct investments require more knowledge of the Forest Market, its management and legal rules.

Advantages and risks of Forestry Investment

The volatility is low compare to financial assets because it is an investment based on two tangibles assets: the Forest Land  (the legal aspects relating to Land are area in hectares, degree of afforestation, presence of building and agricultural land, etc.) and the Wood (here the production of the Forest land, most common are woods but such Forest produce fruits etc…).

The benefits of forestry investment are the increasing demand of raw material like woods for construction, firewood, furniture, etc … Then, the environmental aspects of such investment are also important as a good silvicultural management is required to better preserved the Forest like sustainability of wood production, protection of species regulating naturally the Forest, control of invasive species, preventing measures against Fires and climatic disasters etc … Forestry investment is then based on long term view !In addition, fiscal, taxation and transmission rules for forest assets are advantageous in certain countries (in France for example).

At the opposite, the main disadvantage of such investment is … the long-run view. As the value is generated in long term, the annual return is weaker than financial, around 2% -5% per annum in average as the localization of the Forest is important to determine returns. The climactic risk is the most important as Fires, Floods, Droughts, Earthquakes can destroy the Forest. These events are particularly difficult to prevent and timely anticipated. In addition, the Wood prices (or commodities generated by Forest) are dependent to Global Demand and stocks markets prices in fine.

Prices of Forest Hectare in France from 1997 to 2019 in constant euros of 2019

source: Société Forestière et  Terres d’Europe-Scafr d’après
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