Release Date: 05-17-2017
Benchmarking data from Global Impact Investing Network (GIIN) and Cambridge Associates makes financial case for investments with positive social and environmental outcomes
Timberland impact funds seeking to advance environmental and social objectives in addition to financial returns outperform the competition by nearly 2X, according to a new report released by the Global Impact Investing Network (GIIN), an industry association of impact investors, and Cambridge Associates, an institutional investment consultant, last week. This landmark report evaluates the performance of private impact investment funds invested in timberland, real estate, and infrastructure asset classes over a seventeen year period. For the first time, investors can directly compare the financial performance of funds that have an impact investment strategy to other traditional funds in the same sector.
EFM (Ecotrust Forest Management), a Portland-based manager of impact investing funds in the timberland sector, is a contributor to the manager database that was the source for this report. Impact strategies are central to their investment philosophy and allow them to unlock additional sources of revenue—from the sales of conservation easements, carbon credits, and tax credits—that are less available to traditional strategies.
“We are very excited by this landmark report by the GIIN/Cambridge Associates that supports our long-held belief that impact investment strategies in the timberland sector create opportunities for managers to diversify revenue while lowering operating risk and can ultimately create more value for investors and the public,” says Amrita Vatsal, Managing Director of EFM. “We believe impact strategies are here to stay and will continue to be sustained through innovative new business models and public funding strategies that reward land managers for improved stewardship that creates public value.”
The report findings reflect the growing body of evidence that impact investing—investing with the intention of creating positive social and environmental impacts—does not compromise financial performance. “There is a misperception that impact investments always come at a price: lower returns. But this research shows that institutions can align this important part of their portfolios – real assets – with their social and environmental missions, without necessarily sacrificing financial returns,” said Jessica Matthews, head of the Mission-Related Investing Practice at Cambridge Associates.
In fact, the report found that timberland funds with impact investment strategies outperformed traditional timber funds overall, across vintage year, and across all fund sizes. The impact timber funds returned a median 5.9% net IRR to the investor compared with 3.3% net IRR for traditional timber funds, or 260 basis points higher. In addition, smaller funds comprised of less than $100 million in assets under management, across all sectors, out-performed larger funds.
With a 12-year track record of placing more than $100M of private investments in impact timberland funds, EFM has found that impact investment strategies in the timberland sector can not only unlock additional revenues, but create significant positive social and environmental impact – such as protection of rare habitat, increased sequestration of carbon emissions, protection of drinking water filtered by forests, and restoration of critical and endangered species like Pacific salmon. Impact strategies can also deliver significant social and cultural benefit, such as tribal land repatriation, the creation of public assets – like state parks and community forests in underserved areas, and enable rural investments and job creation in economically-distressed rural communities.
Recent EFM impact investments include:
Chimacum Ridge: Supporting community land ownership
In 2015, an EFM Fund acquired the 853 acre Chimacum Ridge property, located on a prominent ridge above an agricultural valley on the eastern side of the Olympic Peninsula. This area, known for its natural beauty and proximity to Seattle, is also experiencing significant pressure from real estate development resulting in loss of working forests and negative consequences for water quality, jobs, and habitat. Working with the Trust for Public Land (TPL), EFM acquired the property from a timber company and enabled the sale of a development easement to the Navy, which wanted to limit land use conflicts around their naval facilities in the area. The easement sale generated $1.2M and compensated EFM for giving up the development value associated with the property, while also protecting the natural resource. EFM has changed the management of the property to meet FSC (Forest Stewardship Council) standards and developed a partnership with Jefferson Land Trust to enable restoration, local wood supply, and stewardship of this important community resource.
Sixes: Tribal land repatriation and FSC-certification
This 3,200 acre property in the heart of the Coquille Tribe’s ancestral homeland in Southern Oregon was owned and managed by EFM between 2006 and 2015 before being sold to the Tribe for long-term cultural and economic revitalization. Renamed “Sek-wet-se” forest by the Coquille, this property became the most significant private land repatriation in the Tribe’s history. During EFM’s ten-year ownership they transitioned management practices to meet FSC-standards and restored critical ecological values, such as significant spawning habitat for Chinook salmon. Brenda Meade, Chairperson of the Coquille Indian Tribal Council commented, “The re-acquisition of the Sek-wet-se Forest significantly advances cultural restoration of the Coquille Indian Tribe. This forest will provide a place for the Tribe to transfer cultural knowledge between generations and expand their sustainable land management practices. We are so grateful for our partnership with EFM and are committed to making this project a success for the Tribe and for Curry County.”
Desolation Creek: Building a restoration economy
In 2014, an EFM Fund acquired the 13,400 acre Desolation Creek property, located in the North Fork John Day River Watershed in Grant County, Oregon. The property was purchased to explore a model that would integrate timber production with valuable ecosystem services – like clean water, wildlife habitat, and carbon storage. The property has outstanding ecological value and contains many miles of stream habitat for Chinook salmon, steelhead, and federally listed bull trout, however the forest health is limited by overly dense, crowded stands of small diameter trees. EFM has worked with two local Tribes and a number of public agencies to bring in over $500K of restoration funding that is creating local jobs, while improving riparian health and reducing fire risk. After decades of minimal activity, the property has supported 180 hours of volunteer activity and 9 jobs in one year alone. EFM is now managing the forest for low impact grazing, recreation, and simultaneously engaging in thinning restoration activity that targets the smaller diameter trees for supplying firewood and biomass markets. Working with local businesses and processors, EFM is demonstrating that restoration of working forests can benefit the land, the local community, and the environment.
EFM is an investment management company that creates compelling investment opportunities at the intersection of working landscapes, conservation, and rural economic development in the western United States. They actively manage or have under contract 72,000 acres of ecologically significant forestland in Oregon and Washington and have a 12-year track record of placing ~$100M in high-impact forestland investments. EFM is a privately held for-profit corporation founded by and affiliated with Ecotrust, a nonprofit that has worked for more than 25 years to advance social, economic, and environmental change. The parent company guides EFM’s mission and sets high standards for social and environmental performance. EFM is a registered BCorp and has been consistently ranked among the Top 50 Impact Investment Fund Managers in the world. Learn more at www.ecotrustforests.com.