Timberlands are an attractive asset class for pension funds and other institutional investors, since they generate long-term, sustainable cash flows with strong risk-adjusted returns, they are good portfolio diversifiers, and they can serve as a hedge against inflation.
Canada’s private timberland holdings attract around C$20 billion of institutional capital, and they have been growing at a yearly rate of about 20 percent since the early 1980s. How solid those timberland investments are in the long term, however, will depend considerably on whether timberlands are managed in a way that does not diminish or compromise the forest ecosystem’s capacity for renewal and timber production.
Unlike publicly owned forests, Canada’s private timberlands are not thoroughly regulated for environmentally sound management, and there is evidence that private forests of ecological significance are not being managed sustainably. In that context, forest certification can be used as a tool to verify that adequate environmental standards are being observed by forest managers.
This investor brief, prepared by SHARE for the Ivey Foundation, seeks to assist institutional investors in choosing among the major forest certification schemes available in Canada to mitigate environmental risks and protect the long-term value of their timberland investments. The report shows how Forest Stewardship Council (FSC) certification is superior to competing systems in mitigating risks and adding value to timberland investments, and why it is preferred by many investors, including some of Europe’s largest pension funds.
Read the full report about FSC certification and how it has implications for both investors and the environment.