This article first appeared in AgriInvestor
By Charlie Sichel, Managing Partner, FLS ® ForestryLinked Securities
The forest has always occupied a special place in our imaginations, serving as the backdrop for many of our most enduring myths.Today, they are also capturing institutional investor interest, especially in the UK’s Local Government Pension Scheme (LGPS) sector. With LGPS pools projected to manage £500 billion by 2030, there’s rising demand for scalable, resilient, and impactful investments. A 2024 Room 151 and Schroders survey found that 20% of LGPS investors are already active in natural capital, with another 45% planning to follow suit.
Forestry – not just domestic, but international – is emerging as a particularly attractive route. It combines potential long-term financial returns with measurable contributions to climate goals. The AvonPension Fund is among those leading the way, earmarking £100–£150 million for natural capital in 2024/25, with sustainable forestry as a central focus.
However, not all forestry investments deliver equal value. For investors aiming to combine strong returns with high-impact carbon sequestration, four factors are key: credible carbon measurement, the type of forestry project, geographic location, and a pragmatic long-term commercial model.
Carbon integrity matters
Forests are powerful carbon sinks. But voluntary carbon markets have drawn scrutiny, with concerns over the credibility of some emissions claims. Compliance with standards such as Verra or Gold Standard should be viewed as a baseline, not a finish line.
From there, managers are advised to go deeper; engage directly with project leadership, scrutinise the project’s initial carbon benchmarking, assess the robustness of ongoing measurement practices, and verify the bona fides of scientific staff or technical partners involved in carbon modelling and reporting.
Afforestation vs conservation
Conventional wisdom implies that older (brownfield) established timberlands are safer investments and that these contribute best to conservation and biodiversity. afforestation or reforestation on degraded or underused land may offer greater benefits. Planting trees on such land maximises “additionality”, the assurance that the carbon gains wouldn’t have occurred without intervention.
Young trees sequester carbon at faster rates duringtheir growth phase. While mature forests are critical for preservingbiodiversity and existing carbon stocks, they offer limited capacity for newcarbon removal. Afforestation also improves soil health, restores water cycles,and creates new habitats, benefits that can be clearly measured and monetised.
Global opportunities mean greater impact
LGPS is consolidating from 86 authorities into eight asset pools, creating larger entities with more capacity for private market investments. While UK-based opportunities remain important, global forestry assets open new doors, especially in tropical regions. Critically, LGPS investors remain driven by financial performance: the Schroders study found just 5% would accept lower returns for local impact investments.
From a biological and ecological standpoint, tropical forests – primarily in Latin America (LatAm), Africa, and Southeast Asia -vastly outperform their temperate counterparts in terms of carbon sequestration. With year-round growing seasons, scalable access to land, richer biodiversity potential, and trees that can grow up to 10 times faster than many OECD countries, these regions are emerging as the powerhouses of global carbon removal.
This was in evidence when pensions giant NEST included Chile and other LatAm countries as among the target regions for its new forestry portfolio. Stable governance, dollarised economies, and efficient transport networks make these regions increasingly investable. For long-term asset owners, the implications are clear: faster-growing trees mean faster carbon absorption and higher timber yields.
A pragmatic commercial model
Forestry investment models must balance carbon removal and commercial revenue. Relying entirely on carbon credits exposes investors to regulatory and market volatility. Instead, diversified models such as “mosaic forestry” offer a more resilient approach.
Mosaic forestry integrates commercial timber plantations with conservation areas. Fast-growing species generate stable income, helping to finance the ecological benefits of protected zones. This approach supports biodiversity and soil restoration while delivering financial sustainability. Mosaic models are well-suited to pension schemes’ long timelines. They offer strong, risk-adjusted returns alongside measurable climate outcomes, an increasingly vital dual mandate. When well-designed, these projects can deliver measurable climate impact and strong, risk-adjusted returns.
A new chapter for LGPS and forestry
The pension schemes landscape is evolving fast. As LGPS funds consolidate into larger pools, their ability to allocate capital to illiquid assets like forestry will grow. While UK-based infrastructure and natural capital remain important, international forestry offers a powerful complement.
For pension funds committed to fiduciary duty and climate responsibility, global forestry may be one of the most fertile opportunities. And this time, the benefits are no myth.
