Investors should look for the gold of the future: forests

Probably not many people waking up next Sunday 21 March will be aware that it is the International Day of Forests — but they should be.

Forests are the real gold of the future, and investing in them now can prevent a climate catastrophe.

Usually far from cities, these places we only visit when the weather is nice are one of the main life support mechanisms for humanity. And we have been putting them in danger like never before.

In the past, awareness about this issue and attempts to find solutions have come from unexpected places.

Romania, for example, is home to Europe’s last remaining virgin forests outside of Scandinavia. Plans for sustainable management of the country’s woodlands were put in place even during communism in the 1950s, although various initiatives to protect forests existed well before then.

Awareness of the importance of trees to human life was emphasised as early as 1902, when mathematician and politician Spiru Haret set up “Tree Planting Day”, celebrated every year on 15 April.

Walkers in the woods in Romania could often see signposts reading “in the future, those who will have forests will have gold” and “protect the forest” — highlighting the importance of forests as ecosystems sustaining life.

Shrinking forests

If only this spirit had lasted after the fall of communism in 1989. Unfortunately, it went away, swept on the wave of changes brought on by the newly found freedoms.

Most of these changes improved people’s lives – they had enough food, were able to speak their mind without fear of imprisonment and death, had truly democratic elections (by and large), they could open businesses, travel abroad, etc.

However, at the same time illegal logging became an increasing problem. Cutting down entire forests in many areas in the Carpathians led to landslides, localised droughts and rapid changes in the local ecosystems.

At a global level, forests are disappearing too. Data from the World Bank show that since 1990, the world’s forests have shrunk from 31.6% of total land surface to 30.7% in 2016, the latest year for which data are available.

Annual deforestation is fastest in South America, with Brazil the main country on the continent where the forest is shrinking quickly, according to Our World in Data, which analysed data from the UN FAO Forest Resources Assessment.

In the chart below, “2015” stands for the annual average deforestation between 2015 and 2020.

Brazil was losing forest at a pace of 1.7 million hectares per year on average between 2015 and 2020. It is followed by India, with 668,400 hectares annually, and Indonesia a close third with 650,000 hectares per year.

In some cases, natural disasters such as storms, wildfires or droughts kill forests, but in most cases, deforestation happens because people cut down the woods either to make way for agricultural land or to sell the timber.

Targeted solutions needed

Unless solutions are found to reverse deforestation soon, the damage caused to the climate by the loss of the world’s forests will be irreversible.

Instead of lumping sustainable forestry together with other themes under the umbrella of “climate change,” investors should perhaps push for targeted solutions for this very issue.

Besides subsidising emerging markets to help them to take care of their forests, another solution that could be tried would be the pricing of timber and other products derived from forests’ exploitation in such a way as to include the harmful effects of cutting down the woods.

Of course, this type of surcharge cannot be calculated with accuracy, but some analysis at a global level could be attempted in order to create pricing models.

In a less drastic vein, the creation of special investment vehicles focused on forestry could also help direct funds to try to fix as much of this problem as possible.

These would screen out investments in companies and countries that are actively harming forests, and would seek to invest pooled funds into those that commit to and act on sustainable forest management.

A lot of initiatives are talking place around the world to try to undo at least partially the damage caused by deforestation.

With new ideas coming up all the time – a promising conference on Friday, 19 March will look at the circular bioeconomy, for example – there is plenty of choice for those seeking to invest their money in the real gold of the future: forests.