An Irish forest fund was recently rated by its management company as one of the best investments in the country. The fund, which reached a 10-year maturity last year, reported gross rates of return of 83 percent. The average initial investment in the fund in the year 2000 was estimated at 9,400 euros. It is expected to generate a tax-free payment of more than GBP17,000, according to fund managers.
The founder of a UK-based bamboo bond promises even better results for investors. An initial investment of just £10,300 in the fast-growing grass used for its stronger-than-steel stems, he claims, can generate a return of 503 per cent in 15 years.
In a crisis-ridden financial environment, forest funds are generating popular press for their portfolio diversification properties, inflation-hedging capabilities, and relatively low-risk investment potential. However, as with any other investment venture, growing popularity can lead to ecologically dangerous business practices in the service of greedy interests and the need for financial security. With these, unfortunately, forests cannot afford to compete. Therefore, investors looking to forests as the next long-term home for their investment capital should also look to forest funds with sustainable forest management practices. Only then will they be able to reap all the benefits associated with forest funds. – I really don’t understand this last couple of sentences. How can forestry be ecologically dangerous?
The value
According to the World Bank’s International Finance Corporation (IFC), forest funds typically rely on three main sources of income: growth and sale of wood products (i.e. logs, wood chips and pulp for paper), sale of non-wood products (that is, edible products, dyes, perfumery and cosmetic products) and valorization of the land. In addition to the monetary value that comes from these three sources, IFC also recognizes that forest funds can generate value that is not reflected in the corporation’s annual spreadsheet: landscape value, biodiversity, social and cultural sustainability, carbon sequestration and even value in minimizing damage from natural disasters like floods. As the United Nations-backed Millennium Ecosystem Assessment forestry report points out, the combined economic value of “non-market” forest services can exceed the recorded market value of timber, but forest fund managers they often don’t give you proper credit when they make investments. decisions
However, there are a growing number of forest funds that employ sustainable forest management practices to protect the non-commercial value of forests. The Center for International Forestry Research defines sustainable management as “maintaining or enhancing the contribution of forests to human well-being, both for present and future generations, without compromising the integrity of their ecosystems, that is, their resilience, function and diversity.” biological”. Beyond By investing in forests for timber, these sustainable forestry funds seek to finance natural forests, which are valued for their carbon sequestration capacity and role in community sustainability and development.
Mitigating Risks
There are several key factors that investors need to consider to ensure they minimize the risks associated with their investments and maximize returns:
- political environment — forest funds investing in tropically forested areas may be under the jurisdiction of an unstable local government or a region with conflicting local political interests. In addition, some governments may impose restrictions on the extraction of timber. Investors should be fully aware of the political environment in the country where their forest funds operate. This is where it makes sense to invest locally – being familiar and comfortable with local law and knowing how the political process works can be a huge advantage and give investors a sense of security.
- economic environment – As the Millennium Ecosystem Assessment report points out, there is widespread corruption in the forestry sector, especially in developing countries with poor local governance. The stability of the local currency and the country’s economic record are also essential for the return on investment of forest funds. Here, too, choosing funds that monitor local forests might be a better idea than looking for tropical forests in remote locations, about which investors might not be sufficiently informed to make a proper investment assessment.
- Property rights – Who owns the forest land? Who rents it and what is the length/terms of the lease? Some forests are operated by the state. Others are owned by private companies/individuals. Others are still under NGO ownership. These are also important aspects that need to be addressed before investors choose their forest funds to avoid future challenges that could disrupt income.
- Transparency of operations – This key factor has to do with monitoring performance and evaluating the effectiveness of forest management. If the forest fund is investing in an offset, for example, investors need to be informed about how carbon sequestration is measured, who verifies it, and how carbon credits are issued.
Property loss: are natural disasters characteristic of the geographic location of the forestry project? If so, what property damage has historically occurred? This information will help investors to assess the degree of risk that external ecological factors pose to forest funds. In this way, potential shareholders will be able to calculate the potential loss of income and the insurance costs associated with it.
