In recent years institutional investors increasingly pay more attention on their investment

portfolios through the environmental, social and governance (ESG) factors to get a highly
expected return. By some research, analysis and selections, some investors focus on the
investments on those real assets such as, energy, timber and agriculture. Therefore, in this
situation, Sustainable Forestry investment has been appeared and developed, and spread gradually.
Forests as a real asset that offer higher-up risk-return-profile and long-term wealth preservation to
investors. So, in this essay, it will illustrate the investment sustainable forestry through its benefits,
its types and the troubles it meets now and how to solve.
Generally speaking, when mentioned about sustainable forest investments, it always relative to
build a forest. However, in finance industry, rather than growing the cut down trees, it is an
interesting investment, a unique property that could bring highly benefits. Firstly, according to
research, to the long-term investment on the sustainable forest, the average return lies around
10%, and with the standard deviation around 10%. When compared with S&P 500, the return is
around 6-8% with 20% of standard deviation (Dan 2015). Besides, the global demand in this area
is generally increasing and the prices have been growing for decades. The huge demand, good
management with biological growth could insure the promising market return. Thus, investments
on forestry is fully preferable. What is more, as a long-term investment, inflation is an important
factor to be considered, especially in the low interest rate circumstance. While, in forest industry
such as timber, the correlates strongly relative to the consumer price index, so it is a natural hedge
to against inflation, and a long-term wealth preservation to investors. Last but not least, the
forestry has low operational risks, due to it only have natural disaster risks such as fire or storm
damage. The other risk can be reduced by forestry manager (Brand 2011).
After the explanation of benefits investing on the sustainable forest, then it will introduce its
development and typical investment on this field. The most representative one is the Tropical Asia
Forest Fund (TAFF). According to Adam 2014, TAFF is one of the new emerging markets forestry
fund which founded in 2005 and investing in south Asia including Indonesia, Malaysia, and
Vietnam. Because of the fast growing, high quality, (ESG) factors and environmental markets
offer value added opportunities, TAFF will update and expand the businesses, import modern new
forestry systems, and obtain certification to access the markets. Besides, as a typical forest fund,
TAFF combine the Social & Environmental Management System (SEMS) and ESG Integration,
which decrease the greenhouse gas, and maintenance or enhancement of high conservation value
forests and biodiversity, and have made a typical example on Investment in the Sustainable
Forestry.
Although the investment of Sustainable Forestry has a rapid growth and develop during the
decades, it also has faced some problems. For example, forestry is a real asset investment, the
investor invests in land, and it has long-term investment horizon. While some investors may does
not want to lock their huge capital so long time. Besides, when the investors enter into the forestry
investment, they should know that their investment is an illiquid investment over several years,
and there may be no revenue for the first couple of years. However, there are also some ways to
solve the problem. The most important method is diversification, which means the investors
diversified the portfolio by mixing mature and new projects. Through the different types of
forestry investment models and then by mix the different countries to increase the liquidity from
the illiquid underline. Thus, liquidity from the illiquid investment portfolio is possible.

Reference
D, Brand, and M. Hanlon, Institutional investment in sustainable forestry, paper presented at
New Forests Pty Ltd, Australia, 2011, available at: https://www.newforests.com.au/wp-

content/uploads/2014/08/2011-Institutional-Investment-in-Sustainable-Forestry.pdf
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available at: http://www.fao.org/fileadmin/templates/rap/files/meetings/2014/140505-investors.pdf