Timberland and natural capital investment offer many attractive benefits to investors, including portfolio diversification (low volatility and correlation to other major asset classes), attractive risk/return profile, serving as inflation hedge and a solid cash flow potential.
The renewable nature of this asset class and its positive role in carbon sequestration provide good investment opportunities for those investors that place Sustainable Development Goals (SDGs) and mitigation of climate change high on their agendas.
Social and environmental sustainability underlie all our forest investments. We see forest and natural capital investment as an environmentally and socially responsible activity in itself contributing to sustainable development while generating returns to investors. We are committed to an investment philosophy that integrates rigorous timberland investment analysis with creation of innovative ways to enhance returns also from forest-based environmental services, such as carbon, biodiversity and landscape conservation. We have adopted a comprehensive Forest Investment Policy, which incorporates ESG-related principles as well as forest-specific environmental and social policies and guidelines. Dasos Team has long experience in social and environmental aspects of forest management in various environments in addition to a broad technical know-how crucial in ensuring highly productive forestry combined with enhancement of societal development objectives.
We have a policy of investing only in forests that are certified or are certifiable to demonstrate that the forest management in the invested asset is economically viable, socially acceptable and ecologically sound. The certification of forest assets adds value to the timberland asset, improves market access, demonstrates sustainability through independent annual audits, and mitigates social, environmental and governance related risks. Certification also provides the platform and framework for planning, implementing and monitoring sustainable forest management at a portfolio company (investment) level.
We are open to all accredited certification systems, including Forest Stewardship Council (FSC®) and Programme for the Endorsement of Forest Certification (PEFC®).
The key principles of the internationally endorsed forest certification schemes are integrated into our environmental policy and implementation guidelines.
We put great emphasis on SDG/ESG issues. We have adopted a comprehensive Forest Investment Policy, which incorporates ESG-related principles and forest-sector specific environmental and social policies and guidelines. All our investments are made in accordance with the Equator Principles and we have also adopted key EC’s and IFC’s environmental and social safeguard principles. SDG reporting is an integral part of our sustainability strategy. Our SDG reporting framework focuses on certain economic and environmental indicators, based on materiality assessment. Our policy is to communicate openly about the environmental and social impacts of our operations.
Climate change and environmental policies are creating the demand to have more land under sustainable forest management. Carbon and other non-timber forest products can provide diversification benefits and an upside to investment returns. Bioenergy related wood revenue has increased in significance over the past years. This trend is driven especially by EU’s renewable energy policies and higher energy prices. The use of wood biomass for energy will provide additional revenue from timberland investments; in some areas competition for wood fibre will drive up wood prices.
Several macrotrends, such as population and GDP growth and bio economy, will drive demand for forest products, and thus for fibre and logs; the global demand for wood is increasing steadily. Based on long-term historical data, real wood prices have increased by about 1.0% annually. Forest product demand and price trends are positive for timberland investment as whole, with considerable regional and country variations. We will aim at utilising investment opportunities derived from regional and country demand-supply imbalances and identify countries that have comparative advantages in supplying wood fibre to deficit areas.
Biological growth has unique features for investors because trees grow all the time regardless of economic events or market fluctuations resulting in a predictable and positive yield and providing a natural inflation hedge. Dasos focuses on what it sees as the primary driver of revenue generation, i.e. growing and harvesting trees sustainably and profitably with the objective of maximizing benefits from biological growth. Value is enhanced mainly by improving forest management, reducing inefficiencies in harvesting and marketing as well as improving the strategic positioning of the asset, e.g. through expansion or certification. Additional revenue is created through various value creation activities, including payment for ecosystem services.
We aim at a well-diversified global timberland portfolio which combines the aspects of geographical, age and wood assortment as well end-use diversification. A relatively broad species/end-use mix offers diversification in terms of price exposure, changes in market conditions, natural risks, timing of harvests and rotation cycle. Investment into mature harvestable forests generates immediate, more secure cash flows while investment into younger assets provides potential for increasing yields and appreciation. Country diversification helps with addressing regional market variations, environmental and economic policy and related regulatory risks, and natural disaster risks as well as with providing exposure to climate zones with unique growing conditions and return potential.
In addition to value creation via intensive, sustainable forest management, we identify opportunities for HBU (Higher and Better Use) through sale or rent of selected timberland lots e.g. for recreation or wind power production, especially when it can simultaneously contribute to rationalising the forest resource base.
Dasos invested in forestland growing native species in Central-Finland in 2010 and 2012. The forests are located in a very concentrated area with excellent infrastructure and growth conditions.
A long-term wood sales agreement has been established, ensuring demand for all wood assortments and price premiums for certified wood.
Several value creation activities have been carried out on the properties including the utilization of specific HBU opportunities, optimization of harvest and forest management regimes as well as double-certification by both FSC® and PEFC®.
The forests have currently reached a good growing phase, generating increasing cash yield and capital appreciation.
Dasos has invested in Ireland since 2015. Sitka spruce in Ireland is the fastest growing softwood asset in Europe achieving mean annual increment of 25 m3/ha/year or more in best sites. This species offers significant value creation opportunities when thinning regimes and final harvest age is optimised. Final harvest takes place at the age of 30-40 years.
With well-designed forest policies for afforestation and climate change mitigation, Ireland also benefits of its excellent location next to the large wood consuming markets such as the UK. HBU potential of the lands can be monetised e.g. for wind farms. In addition, part of the assets is planted with broadleaf trees for biodiversity enhancement purposes and/or managed with continuous cover approach (CCF). PEFC® certification is in progress with more than half of the properties being certified so far.
Dasos has launched a buy & build investment programme in Estonia, buying selected forest properties and small property packages from 2010 onwards. Since 2010 Dasos has carried out almost 250 separate transactions. The consolidated forest property integrates substantial values in terms of industrial and conservational rationale.
All forests have been double-certified within PEFC® and FSC®.
Wood sales agreements have been established ensuring demand for all wood assortments and price premium for certified wood.
Further active value creation has been executed by developing optimal harvest and forest management regimes, consolidation of the properties into ever larger entities, developing agriculture land leasing and utilization of HBU opportunities.
Dasos has invested in Portugal since 2013. Fast-growing Eucalyptus globulus plantations managed by Dasos in Southern Portugal are FSC® certified. The assets are in the proximity of local pulp and bioenergy industry and wood is being sold with a long-term off-take agreement. The asset is managed on sustainable basis with 10-year rotation cycle.
After the harvest a new tree crop is obtained via stump coppice. After three rotations (30 years) the land is reforested with the best available genetic material. The asset includes significant areas that are set aside for biodiversity conservation purposes.