Study: Forestry finance market could soar to $800bn as net zero goals multiply

But supply chain deforestation threatens to undermine vast market potential for nature-based climate solutions, PRI warns

Corporate demand for carbon removal and offsetting will establish forests as a major new asset class that could generate $800bn annually for investors by mid-century, according to the UN’s Principles for Responsible Investment (PRI).

The forest finance market, historically small and managed by the public sector, is set to balloon into a trillion-dollar market over the coming decades as a growing number of corporates make investments in afforestation and reforestation projects that help them meet their net zero goals, according to PRI research today.

The research – which forms part of a new guide to negative emissions and land-use released by the PRI today – predicts the value of assets in the nature-based offsets market could swell to “well over” $1.2tr by mid-century, a figure that even outstrips the current total market capitalisation of oil and gas majors.

Major forest-related climate commitments from some of the world’s largest companies – including Shell, BP, Total, Apple, Microsoft and Amazon – highlight how corporate net zero agendas are already turbocharging demand for carbon credits from nature-based climate solutions, it notes.

Yet even prior to the explosion of net zero commitments from companies over the past 18 months, the value of forestry and land-use CO2 credits had been growing. The value of such credits traded in the voluntary offset market tripled to $172m between 2017 and 2018, while the share of forestry and land-use related offsets grew from 52 to 64 per cent of the total voluntary market, it notes.

But while reforestation and afforestation have emerged the earliest feasible negative-emissions technology investment opportunity for companies looking to offset their carbon, the report also notes that technological solutions could also grow to be a hundred-billion-dollar market. Direct air carbon capture, use and storage (DACCS) and bioenergy with carbon capture and storage (BECCS) technologies could generate a further $625bn by 2050, it estimates.

Fiona Reynolds, chief executive of UN PRI, urged investors to take steps in the near-term to take advantage of investment opportunities in the bourgeoning forest market. “Policy and business momentum have now advanced to a critical mass for forests to begin emerging as a new asset class,” she said. “Investors can act now to unlock investment opportunities and to take an increasingly leading role in financing.”

It follows a number of high-profile investments in nature-based climate solutions from major corporates over the past year. Shell has invested in projects geared at planting five million trees in the Netherlands and regenerating a 800 hectare forest in Australia; BP is protecting a 40,000 hectare forest in Zambia; Apple is protecting a 11,000 hectare forest in Columbia; and Amazon plans to spend $10m on restoring 1.6 million hectares of US forest, according to the report.

However, the PRI warns that for investors to take advantage of the burgeoning market, they must take an active role in tackling deforestation, which not only harms the climate but constrains the total investible nature-based solutions market. Rates of deforestation have doubled during the pandemic, it notes, and as such investors must take steps to end investments in companies with deforestation in their supply chains.

“Afforestation activities are the most viable first move, but to ensure success actors must simultaneously focus on ending deforestation,” Reynolds said, adding that global forest laws need to be vigorously enforced and tightened.

The guide urges investors to take a stand in promoting sustainability standards for BECCS, warning that overreliance on the negative-emissions technology will push the world to its planetary boundaries on water and land availability. It also urges investors to promote a global standard for nature-based offset market.

“With more and more companies setting net zero targets, investors also need greater transparency about the negative emission technologies businesses will rely on to get there,” Reynolds added.

Elsewhere, the analysis highlights a number of emerging business models as holding the most promise for facilitating private investment in forest finance, ranging from green bonds, forest insurance provision, carbon off-taker guarantees, sustainable farming agreements and carbon farming agreements.

Distressed asset purchases – where investors buy and restore deforested or degraded public and private land to benefit from the carbon stock it produces – and a ‘stewardship model’ where an investor leases deforested or degraded land, are also included in the shortlist.

Allison Spector, director of sustainability at global investment manager Nuveen mused that private investors could “open the door” for major forest-related investments worldwide that could help companies meet their net zero targets and steer a Paris-aligned future.

“We believe there is a powerful role for forest-based natural climate solutions,” she said. “Yet the feasibility of implementing these strategies across the vast forestlands of the world is yet to be demonstrated and is predicated on an end to deforestation.”

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Hydrogen vehicle start-up Riversimple revs up £150m funding round

Funding will support construction of two plants in Wales where two-seater hydrogen fuel cell ‘eco-coupe’ and lightweight commercial delivery van are set to be produced

UK mobility start up Riversimple has announced plans to raise £150m over the next three years to support the construction of manufacturing plants that would produce some of the UK’s first hydrogen-powered cars and vans.

The firm announced yesterday that the investment round aims to help the company commercialise a two-seater hydrogen-fuelled road ‘eco-coupe’ dubbed the ‘Rasa’ by 2023, as well as a lightweight commercial van designed for last mile deliveries one year later. It will also serve to accelerate the UK’s hydrogen fuel cell car market, which remains nascent despite progress by the zero emission technology in other transport markets, such as passenger buses.

Riversimple said it is currently in conversation with the government about potential sites for two new manufacturing facilities in Wales, which it estimated would generate up to 220 jobs each and churn out roughly 5,000 vehicles annually.

The announcement marks a major gear change for the mobility start-up, which so far has relied on crowdfunding and grants to see it through the research and development (R&D) phase for its vehicles.

Riversimple founder Hugo Spowers emphasised that “now is the time” to focus on zero emissions alternatives to fossil fuel cars, with imminent phase outs of combustion engine vehicles being plotted by governments around the world, including the UK.

“Hydrogen fuel cell vehicles are the only zero carbon solution that offers customers the convenience that they have come to expect: three minutes to refuel and a decent range,” Spowers said. “They represent a once-in-a-lifetime opportunity for the UK to take a leading role in the future of the auto sector, harnessing the unrivalled skill base that we have in automotive technology.”

Spowers and his team are working closely with the government to get its hydrogen-fuel vehicles to market, with Rasa cars currently being hand-built in Monmouthshire ahead of a government-sponsored trial set to kick off when Covid-19 restrictions lift, the company said.

And in addition to the Office for Low Emissions Vehicles supporting its Rasa test run, the firm is also a partner in the £4m Milford Haven Energy Kingdom project, a hydrogen cluster in Pembrokeshire backed by government research agency UK Research and Innovation.

The funding round is the result of a new partnership between the start-up and corporate finance firm Gambit Corporate Finance LLP, Riversimple said.

“With desirable vehicles and an innovative business model, we see Riversimple as a catalyst for the hydrogen economy, driving the net zero agenda in Wales where the fuel cell was invented, and beyond,” said Frank Holmes, partner at Gambit Corporate Finance LLP.

The company intends to operate a ‘mobility as a service’ business model favoured by mobility giants such as Uber and Lyft and some e-scooter providers. Customers would pay a single monthly fee for vehicle, maintenance, insurance, tyres, fuel, refurbishments, and software upgrades. In a first for the automotive sector, this business model would be “fully integrated right through the design of the car,” Riversimple said.

However, hydrogen cars remain controversial in some quarters, with analysts divided on whether hydrogen could emerge as a convenient ‘drop in’ replacement for petrol and diesel or whether the passenger vehicle segment is destined to be dominated by fast improving battery vehicles, with hydrogen more likely to be reserved for heavy transport and industrial processes.

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