Global demand for timber over the next 30 years is set to increase threefold from today, according to Olly Hughes, managing director, forestry, at Gresham House.
In this Green Dream video interview, Hughes also discusses the positives and negatives of plantation timber, and what investors can expect from investing in a timber fund.
Watch the full video interview above and read the transcript below.
NK: Hello and welcome to the Green Dream video series. Today I’m joined in the studio by Olly Hughes, managing director of forestry at Gresham House. Thank you so much for coming in today.
OH: Nice to be here. Thanks.
NK: First of all, can you set the scene for us? What’s the impact of deforestation on global emissions? What are we looking at here?
OH: So, forestry and forests in general are a fundamental source and sink of carbon, of biodiversity, of natural capital and any tampering with those forests will result in there being a release of that carbon into the atmosphere. What we are seeing is globally, and historically globally, a systemic deforestation of that global source and supply of carbon. I think right now statistically, and statistics vary, but statistically I think we have somewhere in the region of around 4,000m hectares of forest land. We are deforesting somewhere in the region of 10m hectares a year. And what I mean by deforestation is a total fundamental land use change from trees into usually agriculture. So you have then got the issue of if you imagine all of that carbon sink in the wood and in the ground being released into the atmosphere, that’s the first stage.
Then you’ve got the alternative land use usually being a big net emitter of carbon. So I think the real stats that somewhere in the region of 10% of global emissions are sourced from deforestation.
NK: Wow, that’s quite a lot. What are companies doing about this? The companies that you’re investing in?
OH: We at Gresham House are specifically focused on investing in and managing productive forestry. I guess the first thing one should and people should look at is not investing in entities that are generating and sourcing and driving that deforestation. But that’s one side – that’s not where we are. Where we are is in looking at alternatives, and what we like to think of is if you look at that breakdown of forestry, around 3% of that forestry is plantation. Forestry that is there for the specific purpose of production of timber. So that’s 3% out of that 4bn hectares. That 3% of plantation forestry supplies around 40% of the global timber demand. So what we’re driving around is to create a productive timber plantation that is delivering timber, it’s delivering that significant increase in demand for timber, it’s creating an outsized reaction to that, but it’s doing it in a sustainable, long-term diversified basis.
And that’s really what we’re all about, creating opportunities for entities to invest in and be part of that investment in plantation productive forestry.
NK: Okay. So can you explain what kind of things you are investing in? How does it work within your fund?
OH: We are building funds that will invest in the underlying land that may have existing forestry on it, or we’re buying bare land, as it’s called, where we will plant and a forest trees and we will actually plant trees.
For example, at Gresham House last year, we planted somewhere in the region of 8m trees as a business. We feel that’s very positive. We then manage that forestry in a long-term sustainable manner and the variety of different global standards and under our own standards – last year launched our own forestry charter, which is a charter around making sure that we are planting that forestry in a sustainable manner to deliver long-term sustainable materials, delivering biodiversity, making sure that we’re interacting with local communities – and we tend to focus in northern and southern temperate climate so we’re producing softwood timber for the purposes of building materials and whatnot.
NK: Okay, great. And tell me about the price of timber and the demand. Is there a lot of fluctuations in those?
OH: So when you invest in timber, you’ve got to realize it’s a very long-term investment. You know, our average site rotation is 35 years.
This isn’t a new dip in and out. You have got to be committed to investing in the long term, as a result of that, short-term volatility is less relevant to us when we harvest. Unlike an agricultural crop that you have to harvest every year, we have a 15-year harvesting window. So we become delinked from the short-term volatility of the market.
But that’s not to say there isn’t short-term volatility which will be driven by a whole array of factors. When we look at it, we look at it in the longer term. But the fundamental dynamic of it is in our global timber outlook, we have forecast that the global demand for timber over the next 30 years is going to increase by somewhere region about 2.5 to 3 times from today.
And you set that against a consistent supply – so avoid all of that deforestation we’re talking about. There’s going to be a significant supply/demand imbalance.
NK: To sum up what happens if this isn’t addressed, what happens if there are not funds like yours addressing this issue?
OH: Well, the ultimate of that is that we’ve got to be very careful how we balance our outlook. And there are positives and negatives to plantation timber. We need to plant more trees basically.
But within that tree planting aspiration, we’ve got to make sure we balance productive timber with natural plantation. There isn’t a one size fits all to be the right tree in the right place. But I’m very positive. I don’t want to look at the ‘what if it doesn’t’ because it is happening, there is a lot of tree planting going on.
There’s a lot more to be done, but we remain excited. There’s a huge opportunity and a huge growth area for investment and for sustainable investment.
NK: It’s good to hear you’re positive. We always end the Green Dream with this question, what’s your favourite sustainable drink or snack?
OH: I would probably say something that is locally sourced, is non processed, and I have every day, which is porridge. So I would go with something that is, I hope, perfectly sustainable, and will continue to be so.
NK: Great. Thank you. I don’t think we’ve had that one before. Well, thank you very much for your time, Olly.
OH: Thank you very much.
