TIMBER FINANCE FOREST-BASED CONSTRUCTION BASKET
Forest and timber stocks belong in every portfolio because:
- Today’s timber buildings are no longer single-family homes. They are skyscrapers and major urban buildings. The tallest timber high-rise is currently being built in Switzerland at 100 meters high. Around the world, numerous other timber skyscrapers are being planned.
- Disruptive technologies are revolutionizing the traditional use of timber. Timber can now be used to build highway bridges, basements, load-bearing structures, and high-rise buildings, replacing emission-intensive concrete and steel.
- Governments and developers are demanding and promoting urban timber buildings. In Europe and North America – with an eye on net zero targets and the Paris Agreement – numerous building code requirements are being passed to reduce the carbon footprint of buildings which help facilitate the growth of timber construction.
- Timber construction as a Carbon Sink. Institutional real estate and carbon investors are increasingly looking for CO2 storage solutions (carbon removals) for achieving their net-zero commitments. Timber construction can establish itself as a low-cost, scalable solution.
- Timber construction is a negative emission technology. Combined with sustainable, climate-resilient forest management, modern timber construction is one of the most promising negative emission technologies. It was recommended as a CO2 storage technology by the United Nations Climate Council UNFCCC under “Timber in Construction” in 2022.
- Booming markets. The timber construction market has experienced significant growth since 2020. A new cycle of investment and growth has begun, making timber construction even more competitive for the construction industry.
- Stricter investment regulations. New recommendations for institutional investors (e.g., PACTA Report 2022) acknowledge the importance of aligning investment portfolios with the Paris climate targets. New recommendations and regulations, which, amongst others, require the disclosure of exposures to steel and concrete, will further support the timber turnaround.
For which investors is the Timber Finance tracker certificate suitable?
- Investors looking for a new thematic investment strategy, which focuses on the modern forest and timber economy.
- Net Zero Asset Managers focusing on reducing portfolio level emissions.
- For private and institutional investors, looking for diversified and cost-effective investment strategies.
- As a substitute for emission-heavy stocks in the construction industry (steel and cement producers).
- As an addition to pureplay forest investments (Timber REIT’s) or direct investments, thanks to exposure to the subsequent parts of the value chain.
- For employees from the forest and timber industry and their pension funds.
- For long-term growth investors as an entry into the promising timber construction stock market.
The Timber Finance Basket is based on the following concepts.
- Quantitative selection from a universe of 1’600 listed forest and timber companies which generate at least 50% of their sales in association with the production of durable wood products. These products enable the long-term storage of CO2- in urban timber construction and substitute emissions from steel and concrete.
- Qualitative selection of companies and frontrunners that have a well-documented timber construction strategy, are leading contributors to the realization of large timber buildings, or are leading industry players in a country.
Focus on the two most developed and promising timber construction markets, Europe and North America.
The entire forest industry value chain
The basket includes all industry sectors from the forest to frame value chain from securing raw materials in the forest (value investment), to the subsequent processing stages, such as sawmills, forestry machine manufactures, CLT & gluelam producers, timber builders, and real estate developers (growth investment).
CO2 storage is positive for climate
The investment strategy focuses on companies which contribute to the production of durable forest products which are deployed in urban timber construction. As a result, more CO2 can be extracted from the atmosphere by the forest (sequestration) and stored in timber construction.
Sustainable forest management
No timber construction without sustainable forest management! The selected companies must show at least 60% of their sourced wood according to recognized standards (FSC; SFI, PEFC etc.) and/or show a chain of custody of FSC or SFI certification level higher than 80%.
Companies which are primarily involved in the production of paper, packaging, cellulose, furniture, and other short-lived forest products with limited CO2 storage potential. Also excluded are companies are associated with the direct production of coal, oil, gas, steel, cement, and weapons.
The selection process of both the index stocks is supported by continuous analyst and shareholder engagement. This engagement helps drive change at a company as well as an industry.
Further literature can be found here.