New research on the investment case for Continuous Cover Forestry in Ireland
SLM Partners has released a white paper on the economic performance of a more sustainable form of forest management, with a special focus on Ireland.
SEPTEMBER, 2016. SLM Partners is pleased to announce the release of a new white paper that sets out the investment case for Continuous Cover Forestry. This is a more sustainable form of commercial forest management that provides a viable alternative to clearfelling.
SLM Partners is launching a new forestry fund that will acquire commercial plantation forests in Ireland and apply Continuous Cover Forestry management where appropriate. The European Investment Bank has approved a €12.5 million investment through its Natural Capital Financing Facility.
Forestry is a well-established asset class for institutional investors and can offer income yield, inflation hedging and diversification, backed by real assets.
But most investment so far has gone into clearfell-replant systems, in which even-age plantations are cleared after each rotation. Clearfelling can have negative environmental impacts by damaging soils, disrupting water cycles, reducing biodiversity and releasing carbon.
Continuous Cover Forestry (CCF) is an alternative forest management system that maintains permanent forest cover. Trees are selectively harvested every few years, and replacement trees are allowed to emerge through natural regeneration. The result is a more natural, diverse, mixed-age forest. This can enhance biodiversity, soil health, water regulation and carbon storage.
Apart from the environmental impacts, there are solid commercial reasons to consider Continuous Cover Forestry. It can
bring forward cash flows;
deliver a more stable cash yield;
avoid the costs of replanting;
produce larger, more valuable trees;
maintain the capital value of the forest; and
reduce biophysical risks such as pests, disease and storms
SLM Partners has modelled the financial returns from forestry investment in Ireland, a country that is now attracting interest from forestry investors. The results indicate that application of Continuous Cover Forestry on acquired, semi-mature forests in Ireland can deliver an annualised rate of return of 6% in real terms – slightly higher than clearfell management.
This paper is based on the latest research from Ireland, Britain and continental Europe, although the conclusions are relevant to commercial coniferous forestry in all temperate regions.
This paper is intended for institutional investors, family offices and investment managers with an interest in forestry investing. You can download a copy here.