Major report says forestry will be key to investor CO2 response

London Accord carries out the largest ever future modelling of portfolios for climate risk and reward.

Investing in forestry and projects to avoid deforestation will be two of the key strategies for investors seeking to stabilise their exposure CO2 emissions in the coming decades, according to one of the broadest pieces of portfolio research by financial firms and institutions.
The research was released as part of the London Accord, the largest ever private-sector investment research project into climate change. In the report, titled: “A portfolio approach to climate change investment and policy”, Professor Michael Mainelli, who holds the London City’s Gresham College Professor of Commerce chair, combined thousands of possible investment portfolios for the next twenty-five years ranging from allocations to biofuels, nuclear, solar, hydropower and carbon capture & sequestration/storage technology. The report used data from the United Nations Framework Convention on Climate Change and the Intergovernmental Panel on Climate Change to analyse what “rational investors” might do bearing in mind current projections over climate change. The report said: “Forestry might be the most significant part of any portfolio, investment or policy. If forestry’s costs and benefits reflect a real opportunity, fantastic, but if they are illusory it is important to dispel that illusion rapidly.”The report called for rapid scientific and economic research to reduce the uncertainties on abatement potential and costs surrounding forestry in order to guide investors.
Institutional investors are already significantly upping their allocations to timber. Earlier this month, Responsible Investor revealed that PKA, the DKK 114bn (€15.4 bn) Danish collective pension scheme for employees in the public social and health sectors, would raise its forestry investments to about €335m by the end of this year. The move accompanies a significant boost in timber allocations by European pension schemes. ABP, the €211bn Dutch pension fund made its first timber investment earlier this year with a $60m (€40m) allocation to the Global Solidarity Forest Fund (GSFF), which will develop three sustainable forestry projects in the Republic of Mozambique, in south-eastern Africa, and Angola. It was accompanied in the fund by a commitment from a large US pension fund.
The London Accord is an “open-source” research project resulting in a 780-page guide to investment for climate change and supported by banks and brokerage firms including ABN Amro, Bank Sarasin, Cheuvreux, Credit Suisse, Société Générale and WestLB.
Click here to read The London Accord