You are all set to do something about your thorniest problems such as a lack of alpha in traditional markets, pressure to become greener and being in control. You have come to like the idea of an investment in woodland. It sounds like the sort of thing that would contribute to a solid SRI portfolio and contribute to your ESG goals.
Of course, you will need local knowledge and expertise. But wait, even if you got a reliable partner on the ground, they will probably be investment intermediaries, working with all kinds of local companies in countries and circumstances where corruption is a problem, if not a habit. The investment could turn out to be a major image risk you can’t manage.
Before you sigh and move on to your next idea, here is some good news. Technology is coming to the rescue. Satellites take pictures of the earth’s surface so often, that changes, even in the most remote areas, can be noticed very quickly. In practical terms, if an illegal deforestation operation takes place somewhere, there’s bound to be a satellite that has the information. That’s only the beginning of a solution, though. The information has to get interpreted, checked, relayed to the responsible authorities and acted upon to prevent further damage. You can’t expect a mere pension fund to organise that.
“WRI knows almost real-time where trees are disappearing.”
This is where the World Resources Institute (WRI) comes in. WRI has been working on the problem of deforestation for three decades, launching a global forest mapping and monitoring project that became a real time information system when, in 2014, high-resolution space pictures were combined with ever greater computer power and always more precise algorithms. Now, WRI knows almost real-time where trees are disappearing.
It doesn’t stop there. WRI has a global force of volunteers on the ground, equipped with up-to-date electronic equipment to find out what is happening and to collect evidence, a job that involves trekking through tropical forests and acting against the interests of people who are not shy of using violence. However, that extra effort makes WRI information reliable enough for the next step: informing the local authorities and pressing them into action with their Forest Legality Initiative.Far too often, poorer countries have perfectly sensible laws that protect the global environment but are not enforced due to lack of equipment or lack of will. The information and evidence from WRI is an important incentive for the authorities to act.
Obviously, WRI’s Global Forest Watch information is of vital importance for pension funds that invest in forestry. It allows them to audit the compliance of the companies they have invested in with the pension funds’ publicly stated goals and policies as if pension fund representatives were checking in place on a daily basis. Pension funds can divest or avoid countries, regions or areas where that compliance is spotty or absent, reinforcing the pressure on the local authorities to stop illegal deforestation. As Rod Taylor, global director of WRI’s Forests Program puts it: “WRI envisions a future where, in landscapes the world over, forests are governed fairly and managed well. They supply humanity with critical goods, ranging from subsistence foods, fuel wood and medicines to pulp and timber for global markets. They are treasured for values as diverse as cultural identity, biodiversity, rainfall and carbon capture. This is essentially a vision for maintaining natural capital, which is broadly consistent with the imperative for pension funds to invest in assets that retain value over the long term.” The interests of pension funds and WRI are the same. Pension funds investment mandates already include clauses on sustainability. WRI would like to learn more about them, how they work, if they can be monitored adequately, if and how other issues, such as human rights, are included in the mandates. In Taylor’s words: “For example, in response to the Task Force on Climate-related Financial Disclosures, how are pension funds monitoring and assessing long term physical risks of climate change and declining biodiversity on forestry and agricultural assets? We would be very interested in working with funds to explore potential solutions to mitigate these risks.” Pension funds can manage risk with WRI’s data collection and experience. Taylor says: “Pension funds can screen companies within their investment portfolio. WRI can offer pension funds a Global Forest Watch Pro account, to support them to monitor and manage deforestation-risk in their portfolios.”
You can contact Taylor at email@example.com or send an email to the WRI finance and commodities team at GFWPROsupport@wri.org