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Impact Investor

januari 16, 2024

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New Forests’ fund raises €410m at first close with backing from European investors

Swedish and German pension institutions and Australia’s Clean Energy Finance Corporation have invested in the fund which targets forestry and agricultural investments in Australia and New Zealand.

New Forests’ new fund has backing from Australian and European institutional investors | New Forest

Investment manager New Forests said it had raised some A$450m (€410m) from Australian and European institutional investors at the first close of its Australia New Zealand Landscapes and Forestry Fund. The fund is targeting an overall size of A$600m, which New Forests hopes to reach within the next year. 

Investors thus far include Swedish pension fund Andra AP-fonden (AP2), German pension group Bayerische Versorgungskammer (BVK) and the Australian Government’s Clean Energy Finance Corporation (CEFC), along with an Australian and a German insurer, both unnamed. 

CEFC said its A$75m commitment to the fund, targeting carbon abatement, was its first forestry natural capital investment. The size of the other investments were not disclosed. 

David Shelton, New Forests’ managing director, Australia and New Zealand and global head of investments, said investment in the forestry and land use sectors was a crucial in creating  a pathway towards net zero. 

He told Impact Investor the current fund had a broader remit than some of the Sydney-based company’s recent forestry funds, offering greater exposure to other forms of sustainable land use in addition to the core forestry theme, including agriculture, processing, carbon-related projects, biodiversity, and renewable energy.

This wider mandate reflects increased investor interest in role played by all forms of sustainable land use in tackling climate change impacts, and potentially also allows the fund to retain some investments for longer. Shelton said the fund still had a core focus on forestry, because most of its investor clients still wanted to invest in a forestry fund, but the fund’s structure gave it flexibility to transition some land between forestry and sustainable agriculture, or to acquire agricultural land in response to a particular price trend.

“For example, if a carbon price were to fall, then a forestry asset may no longer be as economically attractive. If the fund mandate prevents you switching to agriculture, then you would be required to sell that asset straight away, but we can take a long-term view with the flexibility to maintain the underlying land through time. The same applies where carbon prices rise, and conversion from agriculture to forestry becomes more attractive,” he said.

New Forests is a B Corp with A$11bn in nature-based assets under management across more than 1.3m hectares in Australia, New Zealand, Southeast Asia, Africa and the United States. Japan’s Mitsui & Co and Nomura agreed to jointly acquire New Forests in May 2022. 

It manages a portfolio of sustainable timber plantations and conservation areas, carbon and conservation finance projects, agriculture, timber processing and infrastructure. The company has launched several forestry funds across its global markets over the last 15 years.

European investors to the fore

European investors have been significant investors across New Forests’ funds – AP2 was an investor in its first fund in 2010. That reflects, in part, the relatively early interest of European investors in combining forestry investments with sustainable development objectives, as well as the attractions of diversifying investments to include Australia, New Zealand and south-east Asia. 

“The European capital base has been very quick to adopt principles around impacting investing and were early adopters of our funds. US-based investors have traditionally been investing in forestry assets for longer, but generally that has been on more conventional economic terms, rather than selecting the asset class on the basis of its sustainability performance,” Shelton said.

Jessika Ingvarsson, AP2’s head of forest and agriculture investment, said that the institution’s long-term investment horizon meant that it needed to consider climate aspects in its investment decisions. 

“The forest industry has the unique opportunity to both reduce fossil use by replacing it with renewable products and at the same time increase carbon storage in growing forests and plays an important role in natural climate solutions,” she said.

Trade-off on returns?

The fund targets “attractive” returns for investors. Shelton insists no trade-off is necessary between returns on traditional forestry investments and those which also have impact objectives.

“There is that widely held perception that you can’t be economic and sustainable environmentally at the same time and I fundamentally disagree with that. At no point have we ever presented an investment where we’re compromising the economic returns on the basis of an environmental or social performance. We see both factors as fully integrated and performing alongside each other,” he said.

Increased investor interest in ensuring investments are sustainable – partly in response to stakeholder pressure and regulatory requirements – is also driving demand for forestry projects carrying sustainability certification or offering other positive impacts.

“If you have FSC certification, for example, your product is more likely to be moved in the market than a non-certified product, and the same apples for carbon accreditation, social impact, and so on. We see time and again that our assets are performing preferentially because of their environmental and social performance, not in spite of it,” Shelton said.

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