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Trees: an Asset Class with Sky High Benefits

ForestFinance invests in the forest for environmental sustainability, social good and financial returns

For years, it was accepted that protecting forests was the job of charitable organizations. A German environmentalist named Harry Assenmacher came to feel that this was a faulty assumption. “To do good things for the environment you have to change the economic system,” he said.

When ecologists turned their focus to reforestation as a tool to reverse climate change, Assenmacher decided that any meaningful large-scale reforestation project would need to be financed by a company, not charities.

That was the seed of ForestFinance, the firm he founded in Bonn. It sells “sustainable forest products” as an investment class, akin to stocks and bonds.

The firm invites investors to buy shares (i.e. trees) in forests that are ethically and sustainably managed.

In Panama, Colombia, Peru and Vietnam, the company’s partners plant new forests on fallow grasslands that were once tropical rainforests. These are not mono- culture tree plantations, which deplete the soil, but rather mixed-species forests, designed to provide habitats for wildlife and offset CO2 emissions. ForestFinance also adds a mix of tree species to existing monoculture forests for more biodiversity.

ForestFinance has competitors, but Assenmacher says they tend to do monoculture tree farming, which doesn’t focus on biodiversity or social impact. ForestFinance also guarantees fair wages and good working conditions for its employees, who are often indigenous people. The company’s projects have received certification from several bodies: the Forest Stewardship Council, the UTZ program for sustainable farming and better workers’ conditions, and the Gold Standard for carbon emission reductions.

Investment products include long-term and short-term plans. In the TreeSavingsPlan, customers lease a parcel of land on which trees are planted.

Twenty-five years later the trees are selectively harvested, leaving the forest intact ; investors earn money off the sale of timber. The plan costs €396 (US$450) over one year, and anticipates annual returns of 6 percent over 25 years, for revenues of €1,740 per share (payments are not made annually).

For those who prefer not to wait so long to see returns, there’s the PureCocoa, a one-time investment of €3,250 to lease 1,000 square meters of land in Peru, for sustainable, single origin and fairly-produced cocoa. Payouts begin in as early as five years.

Investing in forests is not without risk, including fire, drought and insects, so ForestFinance offers insurance for the first five years after planting, when trees are most vulnerable.

But Assenmacher’s bigger risk was attempting to create a company of this kind back in the 1990s. At first, he tried it out as a private individual, investing a few thousand euros to buy and reforest land in Panama as a kind of personal pension fund. A “few very brave friends and family” members joined him, each investing a little bit.

Those early investors have received small payouts for harvested wood and carbon credits, though the bulk of their returns will come in five to seven years. Meanwhile, people who invested in GreenAcacia have earned approximately 6 percent a year.

Satisfied that his experiment could work, Assenmacher officially founded ForestFinance in 2005. It grew much faster than anticipated, collecting more than $100 million from 17,000 clients. More than 90 percent of them are in Germany, with newer investors elsewhere in Europe. (In 2013, ForestFinance created an offshoot in France.)

Assenmacher says that any criticism of his company generally comes from the conservative investment community (since ForestFinance profits tend to be lower than those of traditional stocks) or from environmental activists who feel that trees should not be used to earn money. To the latter, he responds: “If you want to save the environment, you have to find a way of sustainable production.”

By Nina Siegal for Sparknews

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