Sustainability and climate change are intrinsically linked, and in the forestry industry, they’re coalescing trends that are reshaping the industry.
New Forests has been at the vanguard of the sustainable forestry movement for the past decade. And in 2021 that growth continues, they’ve established a distinct business unit focused on Impact and Advocacy, and they’ve brought on two new hires, while also installing a new CFO.
OnImpact spoke with the Managing Director of Impact and Advocacy, Radha Kuppalli, about growth in the team, the origins of New Forests’ impact approach, as well as institutional investor appetite for a growing array of forestry assets.
Radha Kuppalli has worked at New Forests for almost 16 years, since its early days, and in 2021 she’s building out the team.
Jo Saleeba has joined as Head of Sustainability, moving from HESTA where she led the responsible investment team, and prior to that she was the inaugural CEO of the Investor Group on Climate Change (IGCC). Jo will replace MaryKate Bullen, who was with New Forests for 12 years as head of sustainability.
“What’s been most interesting, and rewarding, is that the vast majority of those putting themselves forward for these roles are purpose driven. They’re very clear that they want to join an organisation that aligns with their values,” Radha says.
“The sustainability role was actually quite challenging to fill. We needed to find someone who had a global perspective, who understands where forestry fits for institutional investors and their global asset allocation. And of course, understanding how investors are going to be thinking about forestry from an impact perspective. It’s a unique mix of skills.
While many candidates were quite operational, we needed someone who could think about strategy and where the industry’s going. That’s what was exciting and really unique about Jo. She had been at HESTA for eight years as head of responsible investment so she’s built that skillset.”
A new Head of Communications has also joined the team. Lauren Stewart has 20 years’ experience working across investment, banking and corporate markets in the Asia-Pacific region and Europe. Most recently she ran Communications for BNY Mellon Investment Management across Asia-Pacific.
“And again, finding a communications professional that has a global perspective, who understands institutional investment and the asset owner perspective, but who is also purpose driven, was a unique set of skills and we’re glad to have her on board.” Radha says.
The finance team also has a new head, with Adrian Williams taking the role of CFO at the beginning of the year. He was previously CFO and COO at AMP Capital.
“It’s become really clear in these interviews and conversations, that candidates really appreciate New Forests’ purpose-driven approach and that we have a track record. We’ve done the hard work, we haven’t just sort of suddenly found religion and adopted the impact title. This is what we’ve been steadily building over 16 years. We’re building a new way of investing and in doing business,” Radha says.
Forestry and sustainability haven’t always been synonymous. In the past, in some instances, short-term thinking and exploitative practices led to poor outcomes for the land, for local communities and for investors. New Forests is working to shift these perceptions and lead the industry in a new direction. It’s partly this history that makes the company’s approach so impactful.
“We started with a philosophy that if we want to protect and enhance nature, you have to create economic value for it,” Radha says.
“We’ve been quietly building a large scale forestry asset management business. And we now manage about a million hectares of forestry assets and conservation areas, as well as processing plants and carbon projects.
We want to manage landscapes where we embed sustainable production alongside conservation outcomes and community benefits. And we’re working across landscapes as diverse as New Zealand, Laos and Northern California, all with the same philosophy.
[The Sustainable Landscape Investment framework] is the framework we put together seven or eight years ago. At the same time, the GIIN [Global Impact Investor Network] was emerging, so we started looking through the IRIS metrics, and we ended up putting together a basket of about 80 metrics across our six thematic areas [related to the Sustainable Landscape Investment framework], and that was then integrated into our asset management reporting.” Radha explains.
It sounds simple, but at the time, almost 20 years ago, this would have appeared as quite a radical approach, and a huge divergence from traditional forestry. So why did New Forests make the shift? Was it demand from investors, or was it an inherent appreciation for the long-term benefits of a sustainable approach?
“We asked ourselves the simple question: who are we? And how are we going to manage this huge estate we now hold?” Radha says.
“We came together in 2014. We were 30 people at that time, and we had this sustainability workshop over 2 or 3 days. This is really the genesis of our sustainable landscape investment approach.
What’s interesting is that I think we were actually ahead of our clients for most of this time, and since then, it’s just been a steady evolution together. But right now, what’s most exciting is this combination of a huge agenda on climate, a huge agenda on biodiversity, as well as a significant agenda on the Sustainable Development Goals. It’s a challenge, but it’s also an opportunity,” Radha says.
It’s important to remember that New Forests is an asset management firm. They need to balance the needs of investors on one side, with managing almost 1 million hectares of land on the other. And it’s distinct from the very blinkered view of timber producers of the past.
By all accounts, demand for timber investments, as well as carbon credits, has been strong. It’s led by institutional investors who are attracted to the large deal sizes and reliable cash-flows. But looking deeper than that, why do people invest in forestry assets?
“It’s largely because of the low volatility of returns, but timber is actually quite unique. It’s an appreciating asset due to the underlying biological growth. It’s not like growing a tomato, or a watermelon where, at the end of the season, you need to harvest. For us, we can actually hold back on harvesting. During Covid, for example, we had a real decline in timber prices, so we just pared back on the harvesting. The tree actually gets a bit bigger, and the growth in that downtime helps you to make up for lost ground,” Radha says.
“Certainly, one of the things that we’ve seen in the last 18 months is that there’s increasing interest from institutional investors for forestry. It represents a kind of climate solution, which they’re trying to get their heads around. They’re puzzling with how to make that internal case for forestry as a climate solution, including all the issues around the carbon market and getting the [carbon] accounting framework in place.
The Canadians and the Europeans have been super active. I think they tend to have more of a global mindset, across their ability to invest internationally. A lot of these public, defined benefit, pension schemes are looking for asset liability matching, so they’re looking for assets with good cash yield. Whereas in Australia, you’ve got a defined contribution system. And so superannuation funds tend to chase returns if they’re investing in private assets,” Radha says
“In Australia, I think there’s also an overhang from the managed investment schemes collapse around 2009. But beyond that, we are seeing some of the bigger Aussie supers coming back around to forestry. They’re seeing the great returns that we’ve had. In Australia and New Zealand it’s been around 11% net nominal returns across the portfolio. And also, they see the powerful alignment with climate solutions and the bioeconomy. There’s a real opportunity there.”