In this month’s Sustainable Times fund manager Duncan Goodwin considers the importance of forests for sustaining life on earth and how US timber company Weyerhaeuser, a holding in the Premier Miton Diversified Sustainable Growth Fund, is seeking to preserve, enhance and commercialise the natural capital on its timberlands.
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In brief
- Forests play a vital role in storing carbon dioxide and maintaining biodiversity.
- The Premier Miton Diversified Sustainable Growth Fund holds timber company Weyerhaeuser as part of its Biodiversity theme.
- As well as through sustainable forestry, Weyerhaeuser hopes to make money from preserving and improving natural capital.
Weyerhaeuser – a pioneer in sustainable forestry
Forests have been a source of both fascination and fear through the ages. They shelter both natural beauty and predators alike, and can seem alien, inaccessible and wonderful in equal measure. Undoubtedly, they have been a source of sustenance for humans for millennia, whether providing fuel, food or building materials.
Still today timber is vital – common in homes worldwide and often the building material of choice for homes in North America. However, timber companies have not always enjoyed the best reputation, with images of felled trees and stumps as far as the eye can see being seared into the public consciousness.
Weyerhaeuser is looking to not only harvest timber sustainably, but to make a business of managing and maintaining the ecosystems in its timberlands.
It was originally founded in Washington, US, in 1900 by Frederick Weyerhaeuser, who had worked his way up from being a sawmill worker to being the owner of another timber company in the 1800s.
Incorporated with a vast land purchase from Washington State, the business soon gained a prominent position in the US timber industry, which it has maintained to this day. Throughout much of its history it has emphasised the importance of considering timber as a crop which is harvested, re-planted and nurtured. It pioneered sustainable forestry techniques such as selective logging, where smaller trees are not felled but rather left to grow.
Over its long history the company has grown enormously to now own or control approximately 10.5 million acres of timberland in the US, as well as managing extensive timberlands under long-term licences in Canada.
The importance of forests as carbon sinks in the fight against climate change
Forests like those controlled by Weyerhaeuser play a crucial role. Firstly, they act as carbon sinks, which means that they store carbon dioxide.
Photosynthesis, the process by which plants sustain themselves, involves carbon dioxide from the air, water and energy from light being turned into sugar which is used as fuel. The carbon dioxide is locked up in the plants until they decompose in the ground.
By storing carbon dioxide in this way, forests help keep it out of the atmosphere, thus preventing it from contributing to global warming. Forests absorb 16 billion metric tonnes of carbon dioxide per year, according to 2021 World Resources Institute data.
The importance of forest biodiversity
As well as their vital role in storing carbon dioxide, forests are also crucial to sustaining biodiversity. Forests are home to more than 80% of all terrestrial species of animals, plants and insects, according to the United Nations (UN).
Irresponsible disruption of forest ecosystems has several negative impacts. One is species extinction, which can make ecosystems less resilient to shocks. Another is the rise of diseases which are transmitted from wildlife to people (known as zoonotic diseases). These cause widespread deaths in low and middle-income countries, not only among human populations but also in livestock.
Aside from COVID, in the last two decades zoonotic diseases have caused economic losses of more than $100 billion, according to the UN.
Natural capital, the world’s stock of natural resources, as a business opportunity
These dangers and the growing awareness of the role that forests play as stores for carbon dioxide have brought the urgent need to preserve and enhance them into sharp relief.
The Premier Miton Diversified Sustainable Growth Fund team believes Weyerhaeuser has led the charge in seeking to make natural climate solutions, actions that protect ecosystems and improve management and restoration of land, its business.
It has been helped in this by the increasing commercial demand for credible carbon offsets, which are sold to companies which want to offset their own carbon emissions by paying for someone else to extract or keep emissions out of the atmosphere.
This growing demand has given Weyerhaeuser the confidence to set a target of generating $100 million of earnings (technically earnings before interest, taxes, depreciation, and amortisation or EBITDA, a measure of a company’s profitability) from its natural climate solutions business by the end of 2025.
The market for carbon credits
Source: Bloomberg, 20.03.2015 – 15.03.2024 The performance information presented on this page relates to the past. Past performance is not a reliable indicator of future returns.
The final word – investing in biodiversity, the variety of life
Weyerhaeuser’s approach and sustainability credentials are at the cutting edge in harnessing forests’ carbon-busting potential.
For the managers of the Premier Miton Diversified Sustainable Growth Fund, the firm represents an unusual opportunity to invest in both biodiversity but also in innovative climate solutions where credible markets are in their infancy.
The team hopes that Weyerhaeuser’s determination to develop high-quality products for the carbon offset market will drive increased customer confidence in genuine carbon offsets and hope that Weyerhaeuser’s approach to protecting ecosystems and biodiversity will become more of a market standard.
A broader adoption of this approach to carbon offsets and biodiversity should help further drive progress towards a more sustainable future, protecting both forests and our planet for generations to come.
