A Walk in The Woods: How Forests Grow Solid Returns
In a twist on the old adage: “It’s seeing the forest for the trees,” Ecotrust Forest Management (EFM), a privately-held forestland investment and management company, is making a positive environmental, social and financial impact through its sustainable, climate-smart strategies.
The forests that it manages produce a full range of goods and services — logs for mills, clean water for communities, carbon sequestration and biodiversity — for the benefit of all stakeholders, through its brand of climate-smart forestry which forms the basis of its investment and stewardship philosophy.
EFM’s investment management services are offered to accredited investors through three investment funds, Ecotrust Forests, LLC and Ecotrust Forests II and III. ImpactAssets donors can also make impact investments in Ecotrust Forests III through The Giving Fund. In addition, EFM’s advisory practice helps landowners improve forest management practices and access emerging ecosystem markets.
Bettina von Hagen, EFM’s chief executive officer (pictured above), details the firm’s unique vision, value and purpose and how, specifically, impact investors can benefit.
You started your career in traditional banking — what drove you to impact investing?
I went into banking after getting an MBA at the University of Chicago, and initially loved the excitement of structuring deals and helping businesses succeed. However, it was in the early 1990s against a backdrop of what was called the Timber Wars in the Pacific Northwest — a moment in which the future of forest management in the region was being decided and intense public and private debate. I was in the middle of that, given the bank’s clientele, and deeply concerned about how the issue was being framed as environment versus jobs, while ignoring more holistic solutions like climate-smart forestry, that held the potential to improve both forest health and job creation.
One of my favorite clients, a recycled-steel mill, came to me with a financing request for an iron facility in the Venezuelan rain forest. That was close to my backyard, as I grew up in Peru, and had a very good idea of the potential impact of a project of that kind on the forest and on indigenous communities.. It was a challenging moment because, on the one hand my job was to advocate for and provide financing that my clients needed. On the other hand, I understood the deep environmental and social consequences that might come from this particular investment.
I went to the chairman of the bank with my concerns. Surprisingly, he didn’t kick me out of his office. Instead, he encouraged me to create a task force to evaluate the bank’s environmental decision-making. I was thrilled, but it was a tall order. This was 25 years ago, and the notion that a corporation had a responsibility to the environment and communities it served was still a foreign concept and not universally shared by the Bank’s senior management team.
Around that time, Spencer Beebe was starting Ecotrust. The kind of ideas that the organization was espousing around a 100 percent solution — which is that every decision in which we engage as humans should advance financial, environmental, and social well-being — really resonated with me.
Who inspired you as an impact investor?
Obviously, Spencer has been very pivotal in terms of the creation of Ecotrust, which then gave rise to EFM and many other initiatives. Beyond that, I am deeply inspired by the entrepreneurs that fundamentally understand the pivotal and strategic role that businesses have as a force for good, such as Yvon Chouinard of Patagonia, who made a deep and early commitment to organic cotton and continues to lead the industry through a deeply honest and continuous improvement process. I am also continuously inspired by organizations like ImpactAssets that are seeking to democratize impact investing. The idea that we can shape our world through our investment and buying decisions is liberating and profound, and can serve as an “aha” moment for people who are desperate for ways to participate in fighting climate change and improving social equity.
The inspiring idea is that we can’t engage in “business as usual” extraction in one spot on the earth and protection in another. The world is finite, the population is growing, and every action we take should contribute to enhancing the resources we depend on while addressing human needs.
What was the impetus for you and Ecotrust to start EFM?
Spencer and I were thinking along the same lines, “Why isn’t everybody thinking about this other way of approaching forests, fishing or farming; one that would really create enduring wealth?”
The launch of EFM was further spurred by three elements:
The first was that forest conditions were getting worse. Forests were much more intensively managed on the private forest side, and you were seeing the decline of northern spotted owl, marbled murrelets and Pacific salmon. Those are indicator species for the condition of our forests and water.
The second was the emergence of impact investors, or investors who care about what happens with their money and the kind of environmental and social consequences it enables.
The third was the mounting evidence that style of forest management delivered significant financial, environmental and social benefits at lower financial and ecological risk.
How do you describe EFM’s style of management, specifically?
We are focused on the natural forests of the west. They produce the goods and services I just described; carbon, biodiversity, water, timber, non-timber forest products, places to hunt and forage and reflect and recreate, scenic backdrops for our cities. They also play a role in climate and soil formation And other essential ecosystem services. We have developed a “5 R’s”climate-smart forestry framework: Increasing Rotations, creating forest Reserves, Retaining trees in harvest units, Restorating degraded habitats, and building Relationships with surrounding communities. These strategies result in a 50–70% increase in carbon over 20–30 years. At the landscape scale, this could be a huge strategy to achieve drawdown — the reduction of atmospheric carbon, and there is no better place for this strategy than the carbon-rich forests of the Pacific Northwest.
We think it’s a financially smarter strategy to manage a forest for the whole range of goods and services it produces rather than for a single product. We think it not only yields more reliable returns, it’s also an approach that creates lower financial risk throughthe diversification of products and services.
Is there a project that would help exemplify the strategy?
EFM purchased a 5000 acre property on the Oregon Coast that has significant salmon habitat and great potential for elk, amphibians, and other forest species. Over a 10 year period we have improved the condition of the property by extending rotation ages, expanding riparian buffers and practicing variable retention harvests that leave trees in the harvest units while generating a steady stream of FSC certified wood. In addition, on steeper areas of the property, we have set aside carbon reserves and sold carbon offsets to General Motors, creating income from standing trees instead of harvesting trees in a sensitive habitat.
In a more recent initiative, we have harvested conifer needles and salal berries and are producing a line of fruit spreads from wild foraged forest products that are tasty and healthy and help value the importance of a vibrant forest understory while also creating local employment. These wild, foraged forest products are being produced under the brand name “Canopy and Understory” and are just beginning to show up on grocery shelves in Portland and will be on our website soon.
How do you educate investors about this type of strategy and investment philosophy?
We do investor tours in the forests annually and periodically. We usually incorporate some type of forest management project. For example, we’ve had investors mark trees for future harvest to understand how they’re selected, or we’ve had them do pollinator surveys, or plant trees to improve the function of salmon streams.
It’s powerful, and we often have investors who bring their children. For investors who are trying to help their children understand what impact investing is about, forests are just a wonderful setting to do that. It is very powerful to be in the forest and literally see the differences that this type of approach can make on the ground especially when we go back to forests we’ve been managing for 10 years or longer. They’re a very visible way and visceral way to illustrate our investment strategy. It beats an analyst call.
Originally published at real-leaders.com on September 20, 2018.
