Fiddich Review Centre
Alternative Investment

Planting trees at to “deliver” for the next generation

One such pledge was to plant 75,000 acres (about 30,000 hectares) of new woodland every year in the UK by the end of this parliament.  By contrast, the UK planted 13,860 hectares of new woodland in the financial year 2021-221.

If Liz Truss wants to deliver and boost the economy, planting more trees is a great place to start. It would have a particular impact in rural areas, and so it has the very real potential to deliver on the Levelling Up agenda too, bringing jobs and economic growth to areas well beyond the M25.

Forestry and wood add £2 billion in annual economic value and employs more than 50,000 people in the UK 2.  About half of this is in Scotland and its share is liable to increase, given that 75 – 80% of new planting happens there, but the North of England is also a major player in UK forestry.

Nevertheless, the UK imports 80% of the wood products it uses, the second largest net importer of timber after China3. Given that commentators estimate that global demand for wood could triple, or even quadruple, by 2050, it’s not a good time to rely so heavily on imports.

Forestry and wood are making a very telling contribution towards environmental targets. The independent Climate Change Committee repeatedly highlights the vital role of both trees in sequestering, or soaking up, carbon, and wood in storing it. Wood is the ultimate sustainable building material and the UK construction industry, a late convert to wood, is moving away from concrete block and steel towards a greener model.

For investors, drawing financial returns from an environmentally friendly activity is proving to be an increasingly attractive combination.

Trees take a long time to grow, but in investment terms, they’re less exposed to economic turmoil and the vagaries of markets than many other assets. Forestry has also been shown to be capable of generating good returns over sustained periods, averaging 8% per annum over the 28 year life of the now-discontinued IPD forestry index4. Furthermore, there’s a growing market in carbon credits not reflected in historical investment returns.

Paul Atkinson, Partner at Par Equity, which manages four commercial forestry investment vehicles for high net worth individuals and institutional investors adds, “National and regional government targets for afforestation, together with growing demand for forestry products and investor demand for natural capital investment opportunities, combine to make a fertile environment for what has long been an established asset class for institutional investors and high net worth individuals. With pension caps having been lowered significantly in recent years, and with an increased awareness of the potential of natural capital assets, there’s a growing appetite for well managed forestry and peatland restoration schemes in the UK.”

A share of a portfolio of forestry assets owned by a forestry fund can be had for as little as £50,000 but still benefit from tax advantages. Such investments can be exempt from inheritance tax after two years, meaning that commercial forestry has the potential to deliver several benefits for the next generation. In addition, neither capital gains nor income tax is levied on timber, whether standing or harvested. Increases in land values realised on disposal would not, however, be exempt from capital gains tax.

Like any investment, there’s no guarantee of a successful return and forestry is classed as a higher risk investment, primarily because fund interests can’t readily be redeemed or transferred. Practical threats to trees include disease, fire and storm damage, which may be exacerbated by climate change. These risks can be mitigated in various ways, such as species selection, insurance and forestry management practice.

About Par Equity

Founded in 2008, Par Equity is an Edinburgh based alternative asset manager. Par has been actively involved in commercial forestry and woodland investment for more than a decade. Par Equity works with its long-time operating partner, Scottish Woodlands, to identify and evaluate potential forestry sites and their management thereafter. 

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