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Institutional Trees… A New Species?
June 14, 2013 Sustainable Asset Management (Investorideas.com renewable energy newswire) It has long been understood that trees are a very important part of our planet and they remain one of the few natural resources that touch all our lives on a daily basis, whether a piece of wood in the home, the floor we walk on, a book we are reading, or even the feint rustle of leaves in the air as we stroll along; we all benefit from trees. We need them, and yet we all know they are under threat. Despite the efforts over the years of governments, politicians, business magnates and even celebrities, the growing commercial demand for timber, crop land for food and biomass, combined with other demands on forest resources & related products, mean that large natural forests remain under serious threat; some of the most treasured species are in danger of extinction. More recently trees and timber have become a mainstream part of our everyday investments. Hedge funds and pension funds have long been investing in forestry & timber plantations along with their associated supply chains; these have even outperformed stock markets for over a century. During the last decade pioneering companies like Asia Plantation Capital have made plantations and trees more accessible to both large and smaller investors who can now buy plantations and have them managed on their behalf to reap the future returns from this amazing natural resource . In fact many analysts, the United Nations and a growing number of those same business magnates now agree on one common solution that always succeeds; “Show a man how to make money from a problem and let the money solve it”. One shining example of this is the threatened agarwood tree. Harvested in the wild to near extinction due to traditional uses now exasperated by modern trends and high global demand for fine fragrance and medicines produced from this rarest of trees and the natural oil it produces, Oud. Despite the fact it was made illegal to harvest in the wild by international convention (CITES) more than ten years ago, commercial demand today has the species as a wild natural tree teetering on extinction. A combination of science, research, practical experimentation and a huge amount of investment has been salvation for the agarwood tree, now a shining example of an international environmentally successful and commercial project which has the ability to; safeguard and protect the species; supply global demand in a sustainable way whilst generating revenue; guarantees the future of a rare species whilst benefiting the economies of fragile forest communities often dangerously driven to illegal logging simply to feed and care for their families. Asia Plantation Capital (APC) has not only become the market leaders in sustainable agarwood, along with other plantation industries such as teak, but also major campaigners, lobbyists and educators to the global markets on its importance. Sponsoring and supporting related industry events such as IFEAT (the International Federation of Essential Oils and Aroma Trades) annual conventions, and reintroducing the agarwood species to Sri Lanka where it had all but been wiped out in the wild by illegal loggers, as well as taking the largest promotional stand at the recent UN World Teak Conference held in Bangkok showcasing their advanced plantation monitoring systems. One company that has spotted APC, and more importantly studied and researched its agarwood plantation model, is Singapore based Sustainable Asset Management. After almost six months of due diligence, inspection visits, meetings with end users and Institutional Investors, Sustainable Asset Management (SAM) has developed what they believe is one of the most carefully structured and balanced forestry investment products available today for HNWI and institutional investors looking at exposure to the asset class as part of a risk balanced portfolio; that’s right, trees are now a risk assessed asset class! Adam Sprague, Head of Risk Analyses at SAM, clarifies “we decided some time ago that we wanted to find a solid and structured investment wrapper for forestry and plantations which meets all the criteria of stringent institutional and high net worth sophisticated investors. We are working on teak projects, biomass, palm oil and various other proven forest sector and timber related assets; but whilst they are good none of them had the credentials of directly protecting an endangered species as with the agarwood story, and as part of the process creating a new sustainable industry which benefits the investors at the top of the chain all the way down to the local communities on the ground; a net new economy in fact. Whilst most investors will confirm it’s the bottom line that really matters, i.e. how much return you can get for your buck, being able to invest in a product that not only provides all the required financial benefits and security but becomes a real force for good is hard to find.” What SAM have done is listen to their institutional clients and create a product that mixes limited numbers of mature CITES approved agarwood trees, in themselves relatively hard to find and valuable from the outset, with new plantings thereby creating a 7 to 8 year investment horizon which has capital growth and income throughout. A unique financial product in a sector where returns are usually either annual and low, or long term and potentially high. This is a balanced structure of income and future returns creating a risk weighted portfolio product with an income of around 8% and variable final IRR of 12 to 24%. The product is available to funds and sophisticated HNWI investors only in minimum tranches of US$500,000 and presently SAM have access to around US$50million in inventory only which will be managed by APC with leverage from their proven from soil to oil programme. About Sustainable Asset Management: Sustainable Asset Management is a private Singapore based company funded by Africasia Private Equity. Africasia focus on providing seed capital and funding for companies within the agricultural domain. Sustainable Asset Management now advises on and deals with all the project evaluation and due diligence of businesses Africasia considers investing in, as well as offering the same service to private investors, institutions and alternative fund managers. www.sustainable.com.sg About Asia Plantation Capital Asia Plantation Capital is an owner and operator of a diverse range of commercial plantation and farming businesses across the Asia-Pacific region and globally, part of the Asia Plantation Capital Group of associated companies. Their focus is on multicultural and diverse plantation projects geared to the domestic and commercial demands of the countries in which they operate. Working closely with and supporting fragile local communities is an underlying core principle of the APC business, providing social and cultural support as well as investment to move these communities away from traditional deforestation and illegal logging activities as a main income source. Established officially in 2008, although operating privately since 2002, the group now has plantation and agricultural projects on four continents with operational projects at various stages in Thailand, Malaysia, Laos, India, Cambodia, Sri Lanka, Mozambique, The Gambia, North America and Europe. www.asiaplantationcapital.com For further information please contact: Mark Wills – Managing Director Sustainable Asset Management Park View Square, 600 North Bridge Road, #12-04, Parkview Square , Singapore 188788 Tel: +(65) 6299 4998 // Email: mark@sustainable.com.sg // www.sustainable.com.sg Stuart Andrews – Public Relations at Sustainable Options Ltd 1 Bromley Lane, Chislehurst, Kent , BR7 6LH , United Kingdom Tel: +(44) 7921 264557 // Email: info@sustainableoptions.eu SUSTAINABLE OPTIONS LTD 1 Bromley Lane, Chislehurst, Kent , BR7 6LH , United Kingdom Tel: +44 (0)7921 264557 www.sustainableoptions.eu Disclaimer: The following news is paid for and /or published as information only for our readers.Investorideas.com is a third party publisher of news and research. Our sites do not make recommendations, but offer information portals to research news, articles, stock lists and recent research. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities . All Investment involves risk and possible loss of all investment. Disclaimer in full , Investorideas.com Disclosure Please read individual disclosures for featured stocks. Continue reading
America’s New Energy Export Is…Trees?
By ERICA PETERSON Enlarge image Credit Σ64 / Wikimedia Commons When we talk about exporting energy sources to other countries, the conversation tends to center on fossil fuels. Here in Kentucky, it’s all about coal, and even as the nation cuts back on coal burning, many mines are hoping that burgeoning economies in Asia will help fill in the economic gaps. But the BBC Newshour had an interesting story this morning about another fuel that America is exporting: wood. Trees that are grown in the Southeast are being sent to Europe to fuel biomass boilers, and there’s a debate about whether that process actually helps the European Union further its stated goals of reducing carbon dioxide emissions. The EU has a renewable energy standard, mandating that 20 percent of energy has to come from renewable sources. And biomass–and wood-burning–technically fits that definition. As the BBC reports , some of the trees being turned into wood pellets and exported to the United Kingdom come from tree plantations. These farms mainly raise trees for timber, but the twisted trees that don’t make good boards can be ground up and turned into pellets. But BBC Correspondent Roger Harrabin reports that if the market grows enough, it could attract wood from other places. I drove with environmentalists at dawn to a gorgeous swamp forest in North Carolina. The birdsong was entrancing, and a scarce prothonatory warbler – known as the swamp canary – danced before our TV lens. The wood fuel industry has not advertised that it also takes trees from natural forests like this to boil kettles in Britain – but that’s what happens. Most of the swamp forests in south-east US are in the hands of small private landowners and they face few restrictions on what they do with their assets. And environmentalists argue that the ultimate irony is that a renewable energy standard that was meant to help slow and reduce the effects of climate change could end up contributing to the problem. The British government will shortly announce its rules for the sustainability of “biomass” burning for power. It will set a standard for emissions created from the cutting, drying and shipping and timber but it will make a working assumption that burning the wood has nil CO2 emissions as new trees will suck up the CO2 emitted by wood burning. Critics say this is simplistic as it fails to recognise that it will take maybe 50 years for new trees to absorb the CO2, whilst politicians agree that emissions need to be cut immediately to prevent carbon over-heating the planet. It also fails to account for the fact that in the US the forest stock has been increasing and this process offsets the growth in carbon emissions from homes and industry. Burning American trees in the UK reduces America’s “carbon sink”. Foresters argue that this doesn’t matter much as long as the total biomass sent for export is no greater than the wood used in a single large pulp mill. But these numbers will grow fast. Plus, whenever anything is exported via ocean liner, there are carbon emissions associated with transportation. While Louisville is lacking the trees it needs (and this fact landed the city the #2 spot on Grist’s list of the top 10 American cities most “screwed by climate change”), Kentucky has a lot of forest land. Some groups like the Kentucky Sustainable Energy Alliance say biomass could be one way to help move the state away from coal (but it’s important to note that the term “biomass” could mean anything from mature trees to switchgrass ). Meanwhile, the Mountain Association for Community Economic Development has a program that incentivizes forest owners to maintain their forests by paying them for all of the carbon dioxide their trees sequester. Continue reading
Certification Uncertainty
By Anna Simet | May 06, 2013 Sustainably sourcing biomass fuel isn’t something that’s taken lightly in the U.K., and the country is proving it by developing the first nationwide mandatory biomass sustainability standards. As its Renewables Obligation continues to ramp up, the amount of biomass that power utilities will require may significantly increase, and the U.K. is determined to ensure that feedstocks are sourced responsibly. The RO, a policy mechanism similar to a state renewable portfolio standard in the U.S., requires licensed electricity suppliers in the U.K. to source an increasing amount of electricity from renewable sources. Biomass, particularly imported wood pellets, are an attractive replacement for facilities using coal, and imports from North America are increasing at a rapid rate. Currently, the country sets general restrictions for biomass materials sourced from land with high biodiversity value or high carbon stock, including primary forest, peatland and wetlands. But this approach has proven untenable over the past two years, according to Suz-Anne Kinney of Forest2Market, as there has been some disagreement over definitions, and because current forest certification schemes alone are not sufficient to meet the criteria. The U.K. Department of Energy and Climate Change proposed new sustainability criteria last September and a comment period wrapped up at the end of November, but the official standards are yet to be released. As proposed, a biomass power facility would have to demonstrate that 70 percent of the wood used to manufacture the pellets it procures has chain-of-custody (COC) certification, from the forest of origin to the final user. “In order to demonstrate compliance, a supplier must provide independent COC certification of the timber or timber products by one of the major certification schemes,” explains Kinney. “In the U.S., especially in the South where the majority of industrial pellet mills are or will be located, widespread certification of this type is not common. As mills purchase wood from dozens of different dealers, brokers or loggers who buy the timber from hundreds of landowners, the scope of any project to increase certification will require significant resources.” So the big question is: will part of the criteria include this requirement of third-party verification of raw material? While it may sound suitable on the exterior, such a requirement may pose significant challenges to U.S. biomass exporters, and some believe sets unachievable expectations. Certification and Ownership “The problem is that there is a very low percentage of timberland that is actually certified, so it would be very difficult to procure 70 percent of material from certified forests,” explains Seth Walker, RISI bioenergy economist. “In the U.S., less than 25 percent is certified, and in the South, it’s 22 percent. Actively managed and harvested timber, less than a quarter of it is certified.” According to Robert Simpson, senior vice president of Sustainable Forests & Forest Product Certification at GreenWood Global Consulting, sourcing 70 percent of pellet feedstock from certified sources “will be impossible, unless you have a very large supplying force nearby,” he says. “If you’re depending on many ma and pop forest owners, it’ll be very difficult.” And that’s largely the case for biomass sourcing in the Southeast, where about 67 percent of commercial-value forests are privately owned. The forest industry owns another small portion, Simpson says, and the federal government an equal portion. “Interestingly, out of the 134 million acres of procurable and useable forestland in the Southeast, only 3 percent have long-term management plans,” says Simpson. Furthermore, only 13 percent have formal management advice. That’s very minimal compared to Europe, according to Simpson, where 77 percent have some type of professional forest management advice. That leads buyers in the European Union to wonder why forest owners in the U.S. aren’t certified, when the forests of Europe are regulated and strictly managed. In the U.K, about two-thirds of land is privately owned—very close to the portion that is privately-owned in the U.S.—but both countries differ from the norm, as it is estimated that of the 3.9 billion hectares of the world’s forests, 86 percent are publicly owned. If the U.K. policy comes through as proposed—requiring forest certification—or if an end user demands a high percentage of certified material anyway, it just won’t be found, says Simpson. “It’s not there, especially for the larger facilities.” He recommends smaller family forestland owners contemplating certification to look into group certification, which goes fairly quickly and is less expensive, as it allows multiple forest owners to become certified as a group and share financial costs. Essentially, the motivation behind the standards stems from the carbon accounting question. “If you cut down trees and don’t replant, the carbon story is very different [than if trees are replanted],” says Walker. “There are really two reasons why the U.K. likes certification and sees it as ideal, but at the same time, they know the forests in North America are managed pretty well, and there aren’t any major issues with deforestation or bad practices.” That’s evidenced by the increasing/stable forest area cover in most U.S. regions. “We have growth exceeding removals, so it’s a pretty good story, but it’s tough to put that [sustainable] stamp on it,” Walker says. One of the main reasons for that is there is a great history of family-owned forests, especially in the Northeast and the Southeast; in the Pacific Northwest there is more federal, state and consolidated land. “So, the Smith family in Virginia has 50 acres of forest and a forester comes in every 10 years and maybe cuts 12 of the 50 acres, in 20 years a thinning, then in 40 years do a clear cut and then replant,” explains Walker. “Someone like that isn’t going to have any incentive to go through all of the red tape to get that land certified. The biggest indicator of whether land will be certified sustainable, in the U.S., is whether it is owned by a large land owner or financial landowner.” Looking Ahead If forest certification isn’t required, what might be the alternative? “Right now, each of the utilities have to audit their own supply chain, so there might just be some due-diligence requirements, as far as the forest stock around the areas they’re procuring fiber from for wood pellets,” suggests Walker. There could also be group certification [requirements] where an entire state would become certified to meet necessary standards. “That hasn’t happened on a big scale yet, but it has happened on smaller scales,” says Walker. For example, FSC worked with a large group of Wisconsin landowners for certification and brought 31,000 new participants into the certification program, more than 2 million acres of privately owned land. “The major conservancy and the SFI (Sustainability Forestry Initiative) are working together to find gaps in the certification program and see if they can fix them,” Walker adds, one of which is the small landowner problem. The National Wildlife Federation is one of those groups working to recruit smaller forest owners to get certified under FSC, and suggests one way to alleviate the cost to smaller landowners is by sharing the cost with the buyer. “We know that in the Southeast and other regions of the country, not all forest owners can afford to get certified, and so we believe that pellet manufacturers and other bioenergy facilities could help cover the cost of assuring regulators and the public at large that their bioenergy sources are truly sustainable,” says F.G. Beauregard, NWF Southeast Sustainable Bioenergy manager. So whether forest certification will ultimately be required is unclear, but in the meantime, what can pellet exporters be doing to prepare for what might potentially be enforced? The first thing is getting chain of custody under these certification schemes, according to Walker. COC verifies company systems for tracking and handling materials used in FSC-certified forest products within the company’s operations. Another major preparation measure is securing a supply contract with a large landowner, particularly a financial landowner. “Despite the majority of the actively managed timberland being owned by smaller landowners, there still are very large tracks owned by financial landowners, and those are mostly certified,” says Walker. “So, it is possible to get most or all of your timber from a certified source, if you’re located in the right place and can set up the right agreement.” So, are the standards likely to remain as proposed? “My hunch is no, because there has been so much invested…it would really almost halt the industry, a strict standard like that,” says Walker. “Again, part of the issue is the whole carbon balance, carbon is actually the main issue; they [utilities] have to show a net reduction of carbon over coal. They’re concerned about sustainability on one hand, not wanting to promote any sort of bad forestry practices, but they also want that stamp that says whichever forest the wood came from is managed and has a plan to be replanted.” Author: Anna Simet Managing Editor, Biomass Magazine 701-751-2756 asimet@bbiinternational.com Continue reading
