How do you profitably invest in a sustainably harvested forest while directing efforts toward clean water protection, flood control, habitat for fish and wildlife, soil building and carbon storage?
Industrial timberland is managed solely for the wood in the trees, but Ecotrust Forest Management, based in Portland, Ore., invests by putting its focus on entire forest ecosystems. It's creating markets around forest diversity by selectively harvesting trees rather than clear-cutting, and also selling everything from carbon credits and development rights to edibles such as honey or salal for floral bouquets.
This diversified approach to managing a forest renders the land more resilient, both ecologically and economically, said Ecotrust CEO Bettina von Hagen.
Since its inception in late 2004, Ecotrust Forest Fund I, with $30 million under management, had average gross returns per year through December 2012 of 10.6 percent compared to 8.17 percent during the same timeframe for the NCREIF Timberland Index. It won't update returns because it will be reopening the fund to investors in the next three to six months. The fee is 1.25 percent.
Ecotrust has raised $60 million for a second fund, which closed in December. It currently has 30,000 acres under management.
And in late May, Ecotrust closed its first property sale to the Coquille Tribe in coastal Oregon, allowing the tribe to repatriate a piece of its ancestral homeland.
Investors include the Packard Foundation and Patagonia Inc. founder Yvon Chouinard, and the Russell Family Foundation (TRFF) has invested as part of its reinvestment strategy after divesting from coal.
"Our trustees wanted to accelerate movement toward the new sustainable investments and bring that market to scale," said TRFF CEO Richard Woo. "In many ways, it's reinvesting in an old technology: forests, which really have an impact on the current conditions of climate and resilience.”
Forest economics revolves around that fact that, as trees grow, their financial value also grows. A tree grows fastest in its teenage years and, after it reaches maturity, both its physical growth and financial value grow at a slower rate. It's a classic S-curve. Traditional investors seeking to maximize short-term gain harvest trees at the end of that growth spurt, wiping out their balance sheet every 35 to 40 years, when they extract 100% of a plantation's trees during a clear-cut.
But in the Pacific Northwest, a habitat for prized tree species such as red cedars, redwood and spruce, this type of short-term strategy literally misses the forest for the trees. These trees have been cut and turned into Douglas fir plantations to produce 2x4's to compete with pine plantations in the south that will always be the low-cost producer.