2024 seeing a ‘wave of optimism’ for nature investments, says New Forests

Following difficulties fundraising last year, 2024 has started with a “wave of optimism”, New Forests said, as it continues to expand its client base and move into new regions.

Australia-based New Forests, which has AUD $11 billion ($7.1 billion) invested across Australasia, Asia, Europe, the US and Africa, told Environmental Finance that last year was “very difficult [for] fundraising”, as much of the market “got very conservative”.

Sarah Clawson, global head of investor relations, told Environmental Finance this was largely due to macroeconomic conditions, such as inflation or the war in Ukraine. This “risk aversion” meant discussions with potential investors did not progress as far as usual, as many ended up “sticking with what they had”.

In 2024, however, investors have started acting less conservatively and looking for new opportunities in natural capital.

Earlier this year it raised AUD $450 million on its Australia New Zealand Landscapes and Forestry Fund which invests in forestry broadly, including agriculture, carbon-related projects, biodiversity or renewable energy. This saw investment from funds such as German pension fund Bayerische Versogungskammer and Swedish pension fund Andra AP-fonden (AP2). European institutional investors still make up the majority of its investor base, but it has seen growing interest from Australian investors. This has included investment from superannuation fund giant Uni Super or government-backed the Clean Energy Finance Corporation, which committed AUD $75 million ($48.9 million) to the fund launched earlier this year.

Global interest in, and understanding of, the space is growing rapidly, she said, and investors are now approaching New Forests at a more developed stage. “Many have now done background reading”, Clawson said, “nobody is still asking ‘how do you make money off this asset class’.

The US however remains behind other regions, Clawson said, calling it an “untapped market”. She suggested this might be down to the history of timberland markets in the US, which struggled throughout the ‘80s or ‘90s, so New Forests has to have much more extensive conversations to get across that its offer “is something very different”. “It takes a bit longer to get those conversations started” she said. The US is also typically behind Europe on the sustainability journey more broadly, she said, exacerbated by the fact that ‘ESG’ has turned into a much more politicised debated compared with other regions. She said it is “very complicated” for investors to manage.

It has also seen growth from corporate clients looking for more carbon-related investment opportunities. New Forests invests in nature-based solutions projects in both the compliance and voluntary carbon markets. Clawson recognised the criticism that has plagued the voluntary carbon markets over the past few years, but said this has “actually increased interest in our strategies”, as many corporates are looking for more legitimate opportunities to offset their carbon.

New Forests previously said in a 2021 position paper that companies that are not currently able to reduce their emissions should invest in nature-based solution carbon projects to “prioritise forest protection and reforestation”.

It said this will make a “real difference” to climate change mitigation in the short term. Clawson said it has been approached by a number of heavy emitters as buyers of offsets but New Forests had to

spend a long time thinking about what it means for us reputationally. We don’t want to just open the door to anyone who needs carbon, we need to be intentional”.

It has received investment from TotalEnergies’ nature-based solutions group in one of its funds. She said this went through a lengthy process internally, but was ultimately allowed as TotalEnergies has a “strong approach about how they’re going to get to net zero as an oil and gas major”. By 2050, TotalEnergies plans to generate about 50% of its energy from low-carbon electricity and a further 25% from decarbonised fuels. To ‘eliminate’ the remaining Scope 1 and 2 emissions, and to tackle its 100 million tonnes of Scope 3 emissions, it plans to develop a service that stores around 50 to 100 million tonnes of its customer’s carbon emissions annually as well as an ‘industrial e-fuels business’.

Clawson was positive about the trajectory of New Forests, and revealed it is expecting to double its client base over the next few years. It is also looking to develop a strategy for the Latin America region, as alongside Europe, this region presents some of the “most interesting opportunities” for natural capital investments. It is also currently looking at around 35 transactions in sub-saharan Africa, focused on plantation forestry.

By Genevieve Redgrave, Environmental Finance

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