A consortium of APG, on behalf of its Dutch pension fund client ABP, the UK’s Pension Protection Fund (PPF) and Australian superannuation fund UniSuper have acquired Forico and one of the largest forestry operations in Australia. APG, PPF and UniSuper will each own a 33 percent stake in the business. Ben Avery, Senior Portfolio Manager at APG, discusses the transaction and positive environmental impact.
• APG, on behalf of ABP, has acquired a direct interest in Forico, one of the largest forest managers in Asia-Pacific.
• As of 2022, the acquired forests sequestered 123 million tonnes of carbon dioxide equivalents from the atmosphere.
• Forico recently became the first company in Australia to obtain FSC Ecosystem Services certification, providing independent endorsement of how its operations are achieving measurable positive impact on fighting biodiversity loss and ultimately climate change.
Forico is a leading Australian forest management company and operator of assets along the forestry supply chain. The company manages one of Australia’s largest plantation estates and vertically integrated forestry operations. The acquisition includes 170,000 hectares of freehold land, comprised of 90,000 hectares of plantation forests responsibly managed under leading globally recognised certifications, and 77,000 hectares of native forests managed exclusively for conservation, biodiversity and cultural values.
What are some of the highlights of this investment?
“The transaction is one of the largest investments into the forestry sector completed to date in Asia-Pacific. The acquisition includes the largest freehold land portfolio in Tasmania and one of the largest plantation forest estates in Australia. To put the size of the portfolio into context, the estate is around seven times larger than Amsterdam. Forestry assets of this size rarely transact and so we were attracted to the dual benefits of a large-scale sustainable investment with positive environmental impact as well as compelling risk-adjusted returns. Directly investing in an operator like Forico provides us access to a leading forest management platform, and the significant plantation resource offers commodity exposure capable of delivering an attractive return for our pension fund client ABP. We also like the vertical integration of operations, industry supply/demand tailwinds and the structural features of the Australian forestry sector. The country has high quality, sustainably managed production forests and its major supply regions like Tasmania provide competitive access to growing regional markets, so we expect to remain long term active participants in the Australian market.”
The estate consists of vertically integrated assets and operations. What does that mean in terms of a forestry business?
“The forestry business acquired owns and operates assets along the entire supply chain. This includes one of Australia’s largest tree nurseries where seedlings are developed for growing trees with optimal genetics and wood specifications. In addition to the nursery, the business operates 90,000 hectares of commercial hardwood and softwood plantation forests and significant infrastructure assets, including two large processing mills and facilities with port access for full supply chain integration from seed to ship. The scale and scope of operations is quite unique in an Asia Pacific context and vertical integration provides greater control over each step of the supply chain.”
How does this investment have a positive environmental impact?
“Responsibly managed forests provide many environmental benefits, including the critical role that trees play in the carbon cycle by consuming CO2 as a fuel source to grow through the process of photosynthesis. This process is one of the only known pathways with existing installed capacity to remove greenhouse gases like carbon dioxide from the atmosphere at scale. For example, the forests we are acquiring as part of this investment sequestered 123 million tonnes of carbon in 2022. In comparison, the total emissions for all of Netherlands in 2021 was the equivalent of roughly 168 million tonnes. To make another comparison, the carbon balance stored in these forests in 2022 is equivalent to the annual emissions of roughly eight million people in the United States, or taking 27 million vehicles off the road annually, so this investment provides us with significant positive exposure to carbon sequestration capacity. These benefits continue even after plantations are harvested as carbon remains stored within end-use wood products such as construction timber and packaging products. After plantations are harvested, new trees are sustainably replanted and the process of growing trees and carbon sequestration starts all over again. Over each future plantation cycle, the net result is an increasing amount of overall carbon removed and stored from the atmosphere, providing ongoing positive impact.”
In what way does this investment contribute to the circular economy?
“A trend closely linked to decarbonisation is the transition to a circular economy. This term generally refers to a shift away from using finite resources that end up as waste to more efficiently using renewable resources and recycling materials. A circular bioeconomy emphasises the use of renewable natural resources in an effort to displace unsustainable or high emission materials. By investing in Forico, we are supporting both decarbonisation and the transition to a circular economy through the dual benefits forestry assets provide both in terms of removing and storing carbon from the atmosphere and as a substitute source of low embodied carbon renewable material. For example, products derived from forests can displace many of the materials widely used across the economy, including concrete and steel used in construction markets, plastics, chemicals and fuels. We’re seeing growing opportunity in the markets for substitute bio-based products and closely looking at a variety of ways to support the continued growth of these markets through the forest products sustainably produced by Forico.”
The recent UN Biodiversity Conference (COP15) highlighted the need for action to halt and reverse biodiversity loss. How does this investment contribute to the biodiversity goals agreed at COP15?
“While the core business of Forico is to sustainably produce forest products, a large part of the acquired estate is native forests managed for biodiversity conservation. Production forests are typically the primary focus of our investment strategy, however when we considered the whole envelope of sustainability across all of the environmental assets managed by Forico, we recognised a unique opportunity to acquire and become stewards of significant natural infrastructure with assets such as trees, soil, air and water all essential to a wide range of services important to society. As we stepped through the economics of the transaction, we identified pathways to create value from these natural assets both in terms of the production of sustainable forest products and by sustainably managing the environmental assets for positive impact. This includes the core business of timber production as well as operating the assets for improved climate regulation, carbon sequestration and biodiversity conservation outcomes. So with this investment we’re taking a blended approach by embedding impact initiatives like biodiversity conservation together with the sustainable production of renewable materials to ensure we can deliver reliable investment returns. It’s an innovative approach we are taking with our capital allocation to deliver both attractive risk-adjusted returns and nature positive impact, aligned with decarbonisation ambitions of the Paris Agreement and biodiversity goals agreed at COP15.”