23.04.20 Shaking the money tree Hans-Joachim Ziegler • 6 min.

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Summary

Forests are sites of enchanted tales. Sherwood Forest is home to Robin Hood and his Merry Men, Seeonee Forest to Mowgli and his mentor Baloo, and the
Hundred-Acre Wood to Winnie the Pooh and his best friend Piglet. But is a forest a smart and climate-friendly investment?

“I especially like to walk through our forest on a crisp autumn day, preferably right after a rain shower,” writes Erimar von der Osten in Enorm, a Hamburg-based sustainability magazine. “It may sound trite, but a forest glistening with raindrops positively overwhelms the senses with the meaning of sustainability.”

Most of us enjoy a walk in the woods. It brings us in touch with a nature and, perhaps, a little more in touch with ourselves. And it gives us a sense, or maybe merely the illusion, of an eternal, natural order. When von der Osten says “our,” however, he doesn’t mean all of us. He means himself and his family, which owns a large forest in northeast Germany. And by “sustainability” he refers to the Circle of Nature as well as long-term economic viability.

A forest, for von der Osten, is a place where apparent opposites—nature and business, reason and emotion—exist in mutual harmony. Owning a forest is “the most ecologically oriented, sustainable, and long-term investment possible,” he writes. With interest rates low and carbon emissions high, many people dream of such an investment. But should future retirees put their money in trees?

The king of the forest

The Forest of Arden in Shakespeare’s As you like it belongs to Duke Senior. Similarly, much of Germany’s privately owned forests belong to the descendants of former noble families. They generally don’t sell them but rather pass them on to the next generation. So few large woodlands are on the German market. Moreover, because owning less 100 hectares (almost 250 acres) isn’t really economical, interested buyers face a big barrier to entry. The market is much more liquid the United States and Canada, while the Baltic countries are actively encouraging foreign investment in their forestlands.

If a 100-hectare forest is for sale in Germany, acquiring it will cost you anywhere from €1 to €3 million plus a transfer tax, notary costs, and various transaction fees. You’ll also have to pay a forestry firm to manage it for you. In short, the upfront costs, at least in Germany, are high. Moreover, it could take years, in some cases decades, before lumber sales generate a tangible return. Michael Rolland, head of the Germany Association of Forest Owners (AGDW), told Wirtschaftswoche, a national weekly business magazine: “A German forest isn’t the Frankfurt Stock Exchange. The return on investment in Germany is typically 1 percent, at most 2 percent per year.”

Although owning a forest in Germany isn’t a get-rich-quick scheme, it offers financial stability as well as peace of mind: well managed forests provide a biodiverse habitat, and all of them capture carbon. The latter could one day be an additional source of income. Some environmental advocates are already calling for forest owners to receive compensation for the carbon their trees sequester.

Is wood a sustainable investment?

Global woodland investing

Unlike Germany, the global forestry investment market is large and liquid. There are dozens of forestry stocks (like Weyerhaeuser, Rayonier, and Boise Cascade) as well as many forestry exchange-traded funds (ETFs), including some that are sustainability oriented. And it’s always possible to invest directly by buying forestland in your own or another country. But lumber, like any commodity, can be subject to considerable price volatility. The global softwood market grew by 1 percent in 2018 and just 0.3 percent in 2019, leaving lumber prices relatively low. After two poor years, forecasts for 2020 demand growth were bullish; predictions of a 4-percent increase in softwood demand were common. But that was before the coronavirus.

Forestry companies—roundly decried for monoculture, clear-cutting, and pesticide use—aren’t generally known as sustainability pacesetters. But things are changing. Dozens of companies have signed the UN Declaration on Forests, while WalMart, Nestlé, and more than 400 other members of the Consumer Goods Forum have committed to achieving deforestation-free supply chains over the next decade. Furniture giant IKEA announced as far back as 2017 that it had already achieved 100 percent sustainable wood sourcing. These outside factors alone will gradually make the forestry industry more sustainable, just as big corporations’ pledges to be climate-neutral will help decarbonize the energy industry. But it will take time. Investors looking for sustainability right now can choose among a number of sustainability-oriented forestry ETFs.

Woods of one’s own

Instead of acting as an investor, one could also simply act as a steward. Buy a smallish woodland as your own nature preserve or as a source of firewood for you and your friends and family. Under German law, a forest of 75 hectares (185 acres) and bigger qualifies you for hunting rights. More generally, forestland gives its owner a tangible stake in nature conservancy and sustainability. For many, the best option may not be to shake the money tree, but rather to hug one.

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