Manulife Investment Management on investing in carbon-focused timberland

This article is sponsored by Manulife Investment Management.

Eric Cooperström, managing director for impact investing and natural climate solutions at Manulife Investment Management, discusses how new strategies in timberland are helping investors pursue a wide range of financial and sustainability-focused goals.

What kind of opportunities can investing in carbon-focused timberland offer investors?

Eric Cooperström: Commercial timberlands have traditionally focused on the expected streams of revenue generated from the sale of future timber harvests. At Manulife Investment Management, we’ve long sought to capitalise on the opportunities presented by renewable energy leases, recreation access and conservation easements, among other value-add strategies.

The global prioritisation of the Paris Agreement goals, increased carbon market participation and growing demand for high-quality carbon credits are current drivers supporting forestry as a viable, scalable and investable natural climate solutions (NCS) opportunity.

Trees’ natural role as long-term carbon sinks has added a new dimension to timberland investment and opened new opportunities as companies and investors increasingly look to carbon markets as a tool for achieving their climate goals. And we believe that the increase in carbon market activity – which is expected to increase by a factor of up to 100 by 2050 – is likely to drive carbon offset prices higher.

Which investors is carbon-focused timberland appropriate for?

EC: Forestry projects now generate new management options that can help a range of investors achieve their carbon, financial and ESG-focused goals, and we expect private sector net-zero commitments to significantly boost demand for voluntary carbon credits. We’ve seen increasing interest in impact investing across the globe, and among other things, we’re fielding questions on how we’ve shaped and refined our approach to managing for impact.

As increasing numbers of institutional investors, companies and a range of impact investors begin to explicitly value carbon sequestration and other ecosystem services, we believe that carbon will become a more integrated value driver of both timberland and agriculture as providers of stable, high-quality, long-term sources of carbon sequestration in support of investors’ net-zero goals.

What do you look for when exploring carbon-focused investment opportunities?

EC: Within timberland and agriculture, our core sustainable investment strategies are our starting point, and the global footprint of our business allows us to look for local investment opportunities for meeting the sequestration and impact needs of individual investors in different markets.

As the world’s largest manager of natural capital assets ¹, many of the fundamentals underlying effective carbon-focused investment are already part of our core strategic focus at Manulife Investment Management. And these sustainable practices can lead to a wide variety of positive outcomes, including cleaner air, water and soil, as well as other community benefits.

In terms of timberland specifically, we seek forests with strong carbon value creation potential and high conservation value. For example, Manulife’s general account acquired 89,000 acres of timberland in the US state of Maine, built on a well-established local history of land conservation and public environmental awareness for its carbon-first focus.

The lands are subject to a working forest easement offering numerous recreational and local business opportunities, and the acquisition offered us the opportunity to integrate NCS into our investment decisions by allowing the option to sell carbon insets or retire carbon credits to support our own net-zero commitments.

We’ve also developed a carbon toolkit aligned with our carbon principles, against which all new carbon projects and acquisitions with existing carbon projects are screened to ensure alignment with our high-integrity carbon focus.

How do you view the evolution of carbon markets, and how can clients best achieve their net-zero goals?

EC: We’ve been heartened by the improved focus on standards and management practices within carbon markets over the past 20-plus years and warmly welcome clearer guidance emerging from initiatives, such as the Science-Based Targets initiative, which should help companies progress toward net zero. We expect private sector net-zero commitments to boost demand for voluntary carbon credits generally, and quality is rapidly becoming a critical differentiator across carbon markets.

We see NCS becoming more widely recognised for their climate change-related potential. This is especially true, in our view, for forestry-generated carbon credits with established track records at scale, which are already available and at relatively low cost, while delivering a host of co-benefits for nature and local communities. As carbon becomes a more integrated value driver of both timberland and agriculture, we’re generating new management options to help our clients achieve a wide range of carbon, financial and ESG-focused goals through our forestry investments.

What should investors look for in managers who offer NCS using timberland and farmland?

EC: Managers need to have the necessary long-term experience of sustainable timberland and farmland management and a credible track record of managing natural resources and NCS both for combatting climate change and for their broader ecological and social benefits.

Our experience extends throughout our vertically integrated organisation, which allows ESG and NCS considerations to be integrated from acquisition screening through to investment management and property disposition. And we’re intent on developing further carbon strategies to fit the needs of NCS-focused investors, so I feel we have a significant role to play.

Our own business has taken action to lessen our environmental impact through our forest and farmland assets, allowing us to remove more carbon than we emitted on average over the past five years.²

We harness our timberland investment expertise to manage carbon projects registered in the compliance and voluntary carbon markets on clients’ timberland properties, working with leading carbon project developers and accredited third-party verification and validation bodies to underpin high-integrity, high-quality carbon sequestration. This means that in addition to managing investments for timber value, we’re able to develop portfolios of forest investments managed primarily for carbon value that are based on our high-integrity carbon principles and international best practice.

How are you able to measure your impact when reporting to limited partners?

EC: Performance measurement is a core component of our approach to sustainable asset management. Our reporting includes our performance against metrics aligned with each of our five key sustainability and responsible investing priorities, as well as other external standards, such as selected UN Sustainable Development Goals and third-party agriculture and timberland certification system objectives.

We produce a climate disclosure report consistent with the recommendations of the Task Force on Climate-related Financial Disclosures, and for carbon-focused investments, we measure and report on climate benefits, including carbon credits generated and conservation easement sales for long-term habitat and biodiversity protection, among other value-added strategies.

Our sustainability dashboard tracks our progress across five pillars: climate stability, ecosystem resiliency, watershed protection, people empowerment, and community prosperity, in addition to our publicly available third-party audits associated with independent certification standards. And we aim for continuous improvement in both the metrics we track and our performance against them at the investor, fund, and property levels.

Are you optimistic that climate-focused investments can make a real difference to climate change efforts?

EC: I am, or I wouldn’t be so dedicated to NCS investments! It’s also why I jumped at the opportunity to join Manulife Investment Management in 2021 to help move the needle in this direction. A Proceedings of the National Academy of Sciences study has demonstrated that NCS could contribute up to one-third of the cost-effective solutions needed to keep the earth within the Paris Agreement warming boundary of 2C. In our view, it’s imperative that greater investment flows are used to support them; in particular, timberland and agriculture investments can make up the vast majority of those NCS offerings while delivering important co-benefits to nature and society.

Carbon markets are changing very quickly as demand from corporate and individual investors grows, and the necessary infrastructure around critical issues such as quality, standards, and transparency is also evolving rapidly. We believe the time is right for climate-focused investments in forests and farmland, and now we just need continued sustained uptake from investors to make that real difference.

1 IPE research, as of 5 March, 2023. Ranking is based on total natural capital assets under management (AUM), which include forestry/timberland and agriculture/farmland AUM. Firms were asked to provide AUM, and the as of dates vary from 31 December, 2021, to 22 December, 2022.

2 See Manulife Investment Management’s most recent annual sustainable investing report, which includes our performance against metrics aligned with our sustainability priorities as well as other external standards, such as the Global Impact Investing Network, the Sustainable Development Goals, and third-party certification system objectives.

Learn more about Manulife Investment Management’s approach to opportunities for climate impact using natural climate solutions.

Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market or economic developments.  These risks are magnified for investments made in emerging markets. Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a portfolio’s investments.

The information provided does not take into account the suitability, investment objectives, financial situation or particular needs of any specific person. You should consider the suitability of any type of investment for your circumstances and, if necessary, seek professional advice.

This material is intended for the exclusive use of recipients in jurisdictions who are allowed to receive the material under their applicable law. The opinions expressed are those of the author(s) and are subject to change without notice. Our investment teams may hold different views and make different investment decisions. These opinions may not necessarily reflect the views of Manulife Investment Management or its affiliates. The information and/or analysis contained in this material has been compiled or arrived at from sources believed to be reliable, but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness, or completeness and does not accept liability for any loss arising from the use of the information and/or analysis contained. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline, or other expectations, and is only current as of the date indicated. The information in this document, including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Manulife Investment Management disclaims any responsibility to update such information.

Neither Manulife Investment Management or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained here.  All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment or legal advice. Clients should seek professional advice for their particular situation. Neither Manulife, Manulife Investment Management, nor any of their affiliates or representatives is providing tax, investment or legal advice. This material was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security or adopt any investment strategy, and is no indication of trading intent in any fund or account managed by Manulife Investment Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation does not guarantee a profit or protect against the risk of loss in any market. Unless otherwise specified, all data is sourced from Manulife Investment Management. Past performance does not guarantee future results.

Manulife Investment Management

Manulife Investment Management is the brand for the global wealth and asset management segment of Manulife Financial Corporation. Our mission is to make decisions easier and lives better by empowering investors for a better tomorrow. Serving more than 17 million individuals, institutions, and retirement plan members, we believe our global reach, complementary businesses, and the strength of our parent company position us to help investors capitalise on today’s emerging global trends. We provide our clients access to public and private investment solutions across equities, fixed income, multi-asset, alternative, and sustainability-linked strategies, such as natural capital, to help them make more informed financial decisions and achieve their investment objectives. Not all offerings are available in all jurisdictions. For additional information, please visit manulifeim.com.

This material has not been reviewed by, is not registered with any securities or other regulatory authority, and may, where appropriate, be distributed by the following Manulife entities in their respective jurisdictions. Additional information about Manulife Investment Management may be found at manulifeim.com/institutional

Australia: Manulife Investment Management Timberland and Agriculture (Australasia) Pty Ltd, Manulife Investment Management (Hong Kong) Limited. Canada: Manulife Investment Management Limited, Manulife Investment Management Distributors Inc., Manulife Investment Management (North America) Limited, Manulife Investment Management Private Markets (Canada) Corp. Mainland China: Manulife Overseas Investment Fund Management (Shanghai) Limited Company. European Economic Area Manulife Investment Management (Ireland) Ltd. which is authorised and regulated by the Central Bank of Ireland Hong Kong: Manulife Investment Management (Hong Kong) Limited. Indonesia: PT Manulife Aset Manajemen Indonesia. Japan: Manulife Investment Management (Japan) Limited. Malaysia: Manulife Investment Management (M) Berhad  200801033087 (834424-U) Philippines: Manulife Investment Management and Trust Corporation. Singapore: Manulife Investment Management (Singapore) Pte. Ltd. (Company Registration No. 200709952G) South Korea: Manulife Investment Management (Hong Kong) Limited. Switzerland: Manulife IM (Switzerland) LLC. Taiwan: Manulife Investment Management (Taiwan) Co. Ltd. United Kingdom: Manulife Investment Management (Europe) Ltd. which is authorised and regulated by the Financial Conduct Authority United States: John Hancock Investment Management LLC, Manulife Investment Management (US) LLC, Manulife Investment Management Private Markets (US) LLC and Manulife Investment Management Timberland and Agriculture Inc. Vietnam: Manulife Investment Fund Management (Vietnam) Company Limited.

Manulife, Manulife Investment Management, Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.