Does money grow on trees after all?

Investing in the natural world is on the rise. But can you really ‘grow’ your money?

Wildlife haven or source of capital growth? Some fund managers would have you believe the natural world offers returns that are hard to beat (Getty Images/iStockphoto)

The world of investments, capital, stocks and shares can seem very far away from the natural world. The rapid movement of money from institution to institution, zipping across the world through transfers and clicks is the antithesis of slow-growing forests or reefs deep below the waves.

Yet investment in the natural world is booming and not just as a result of environmental concern. It’s starting to look like where the smart money is.

Data recently published by Forest Trends shows that the amount of private capital invested into the natural world soared by 62 per cent between 2013 and 2015.

“The findings of this report speak to the growing recognition of our forests, our wetlands, our reefs, and other natural landscapes as smart investments – a notion that would have been unthinkable to most mainstream investors just five years ago,” said Michael Jenkins, president and chief executive of Forest Trends.

“Just in the last two years covered by this report, we’ve seen a huge leap in demand for these kinds of tangible ‘real assets’ from investors. The demand is growing across the globe and from across investment instruments – the only thing keeping these emerging asset classes from surging even higher is the scarcity of investable opportunities; and, as in any emerging market, transparent information is critical.”

It is certainly true that finding natural world investments can be challenging. However, for investors who want to funnel their money into opportunities that promote habitats and nature, there are a number of opportunities.

Forests

One simpler way to invest in woodlands is to buy a woodland. Some people simply buy non-commercial woods and there are even mortgage products available to help make that possible.

Such woods can accrue value but that’s dependent on finding an interested buyer. However, investing into a forest plantation intended to generate a commodity – namely logs or pulp, chipwood and fuel – can net a decent return.

According to the Forestry Investment Consultancy (FIC), forestry land can be acquired for as little as £300 to £600 per acre and, while returns vary over time, historic 15-year returns have been as high as 7 per cent per annum.

Interestingly for some investors, there are some real tax incentives for investing in forestry. There is 100 per cent inheritance tax relief once the first 24 months have passed and no income tax to pay on timber harvesting revenues. There is also no capital gains tax to pay on the increase in crop value.

Consultancies, such as the FIC, and websites including forests.co.uk and woodlands.co.uk exist to match up would-be buyers with woodland for sale, and investors can pay anything from a few tens of thousands to hundreds of thousands of pounds for larger sites in popular locations such as southern England.

However, a forest is not an investment that can be bought and ignored; the sites require active management, maintenance and insurance.

A less hands-on option is to invest in a forestry fund. There are a number of investment opportunities, for example, last year the company FIM launched a direct forestry investment fund, allowing investors to access the benefits of owning forest without any of the land management responsibilities. That particular fund has a minimum investment of €5,000 (£4,400).

Fund manager Timo Hakulinen says: “Forests are sound investment targets and offer a less risky alternative compared to, for example, equity investments. Trees keep growing even in times of economic downturn.”

Oceans

The planet’s oceans are over-fished and 40 per cent of fisheries are considered to be overexploited or collapsed, according to the report Investing For Sustainable Global Fisheries.

Yet there is potential to protect fishing stocks and ocean habitats for the future and make a good return on investment.

Investment from private individuals and other stakeholders could scale and accelerate fisheries reform by maintaining or restoring fish stocks, reducing bycatch of non-target species and protecting or restoring marine habitats.

Unlocking private capital to achieve those aims is not just good for the planet, it can deliver a decent return. The report suggests that impact-oriented business models benefiting from stock stabilisation or restoration have the potential to generate equity returns of between 5 per cent and 35 per cent, using conservative growth and exit assumptions.

Encourage Capital, the company behind the report, commented: “Private capital can play several key roles in advancing sustainable fisheries. Investors’ holistic approach and return-seeking discipline can foster greater accountability in the design of fisheries management improvements, by aligning financial performance to successful fisheries management.”

It’s not straightforward for private individuals to find sustainable ocean investments. However, reports like this are increasing awareness of the potential for sound returns from environmentally sustainable investments, making opportunities increasingly likely in the future.

Invest in the future

There are almost 100 green and ethical funds available to UK investors and so it has never been easier to place money into areas that are gentler on the planet than typical funds.

Carbon dioxide levels are at all-time highs and temperatures are demonstrably rising each year, making many long-term investors consider how well-proofed their investments are to extreme weather events.

However, it is also possible to invest to help protect oceans, forests and animal habitats – as well as cities and suburbs by investing in funds and technologies dedicated to managing and even reversing climate change.

The Global Innovation Lab for Climate Finance was launched by the UK, German and US governments as part of broader government and private sector efforts to scale up climate finance. It works with industries to identify, develop and support the latest climate finance ideas, allowing private investors to funnel their money into climate change mitigation and adaptation.

By investing in lab-supported campaigns, it is possible to support schemes as varied as energy efficiency in Latin America and solar panels for African homes, all the while making potentially good returns and supporting efforts to protect the planet against global warming.

Understanding the risks

Just because an investment is based around beautiful woodlands, animal habitat or ocean scene does not mean it is free from risk and it is important to understand and bear in mind any risk.

All investments carry a degree of risk and some of the best-performing funds and stocks have the highest levels of risk. Alternative and green investments are not for everyone and they may not be suitable for the novice investor unless he or she does significant research or takes advice.

There are some protections in place for UK investors but they are not the same as the protections for cash held in bank accounts and do not protect people against poor investment decisions.