ESG factors in forestry investing

In Canada, forestry manager Resolute Forest Products had sustainability certifications covering almost 10m hectares of forests in Ontario and Quebec suspended by the FSC. The FSC claimed, among other things, that Resolute had not presented an adequate plan for the protection of woodland caribou, considered a threatened species by the Canadian government. The suspension cost Resolute business relationships with clients who would no longer buy timber-based products from non-certified sources.

In the US, the Lyme Timber Company has developed an investment strategy to sell working forest conservation easements (WFCEs), primarily to public agencies or conservation non-governmental organisations. WFCEs permanently protect the lands from development, conserving important natural values of a forest property, but allow income generation from sources such as sustainable timber harvesting, recreational leasing, and the sale of ecosystem services. In California, several investment managers such as Campbell Global offer investment products that provide direct climate benefits by sequestering carbon in sustainably managed forests, including through the state’s cap-and-trade emissions trading scheme.

The Church of Norway’s investment fund, Opplysningsvesenets Fond (OvF), said its forestry investments in Niassa, Mozambique, did not meet appropriate ESG standards. OvF’s managers in Mozambique were criticised for harming local communities by carrying out land grabs outside of designated forestry planting areas. They were accused of planting forest on land previously used for subsistence agricultural purposes, threatening local food supplies. These allegations triggered protests, including the uprooting of planted trees by locals, corruption investigations against local managers, and delays to the FSC certification process for the holdings, among other problems.

In Southeast Asia, investment manager New Forests uses “participatory mapping” practices to help identify opportunities to align local community objectives with its sustainable forest management practice. This helps to support community development through economic growth and income that aligns with local norms and needs.

As part of the certification process for plantations it manages in Brazil, Lacan Investimentos worked with third-party contractors to improve working conditions. This included ensuring that workers were provided with the right protective clothing, were housed adequately, and that labour practices and relations were fully documented. In the US, Resource Management Services has developed a scheme to encourage female and minority participation in the forestry industry, and ultimately drive long-term performance, by providing scholarships for individuals from such groups taking forestry-related undergraduate courses.

Several incidents in Peru have highlighted the prevalence of corruption, human rights abuses and the potential for illegally-sourced wood to enter mainstream supply chains. For example, there have been allegations that national and local government officials have accepted bribes to award forestry concessions illegally, and that logging companies have sponsored the murder of indigenous and local community leaders who have opposed their operations. Forestry companies have also been accused of mixing illegally-sourced wood with wood from certified sources.