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Investing in trees and why we should

13 March 2019 in ESG investing, Investing
tree rings cross section - invest in tree blog post image

In this article, we explore the investment opportunities offered by one of the world’s most versatile materials: wood. As we all know, money doesn’t grow on trees, but investing in trees is increasingly becoming a viable option for ESG investors.

Just some of the reasons that emerging technologies have made timber ripe for investment include:

  • Its construction capabilities
  • Sustainable packaging applications
  • Its uses in clothing and textiles
  • Even creating new foodstuffs

Anyone committed to investing in environmentally sustainable sectors should read on to discover the various ways that investing in trees could help secure humanity’s future.

Why invest in trees?

An Amazon Prime documentary called ‘Intelligent Trees’ contains the startling news that trees have the ability to defend themselves from predators in the way animals do. This is not science fiction. Researchers investigating the death of hundreds of kudu antelope in South Africa in the 90s discovered the antelope were killed by the acacia trees that form part of their regular diet – the trees flooded their leaves with lethal quantities of poisonous tannins. The acacias even released ethylene gas into the air to warn nearby trees of the impending danger. The antelopes’ experience holds important lessons for humanity.

If humanity mismanages the world’s forests, who knows? It could suffer the same fate as the unfortunate antelope. 

Why we need to show trees more love 

According to the UN Food and Agriculture Organization, industrialised farming and urbanisation have shrunk the world’s forests by 129 million hectares in the past 25 years, an area equivalent to the size of South Africa. The amount of carbon stored by the world’s forests has consequently fallen by almost 11 gigatons, equivalent to about a third of the amount generated by human activities. This not only makes forestry an investment for your portfolio, but also for the future of humanity.

This has also caused a sharp rise in the concentration of carbon dioxide in the atmosphere. With the world struggling to limit global warming to just 1.5°C from pre-industrial levels and slash CO2 emissions by 45 per cent by 2030, our failure to use timber wisely becomes increasingly dangerous. Trees can be our greatest ally in halting global warming and environmental degradation. Wood provides a cost-effective means to reduce carbon emissions and also restores biodiversity while improving soil quality.  

And hopefully, governments are beginning to take note. The UK is aiming to double its planting of woodland to almost 75,000 hectares a year or about 80 million trees, with the target of 143 million trees by 2035.  

Timber’s carbon-storage properties can be harnessed for use in multiple sectors, including construction, textile manufacture, food packaging and food preparation. And demand will continue to grow because the combination of changing consumer tastes and tighter regulations are forcing manufacturers to cut plastics use and switch to sustainable alternatives. This boosts demand for sustainable wood products, creating attractive opportunities in timber investments. 

Carbon capture investment – the importance of reforestation

But in the last few years, trees’ carbon-capturing qualities have been overshadowed by newer, more complex decarbonisation solutions, such as large-scale Carbon Capture and Storage (CCS) technology. This involves building a large-scale engineering facility to trap waste carbon from industrial power plants and store it underground. Unsurprisingly, it requires a big set-up cost and can also lose up to 75 per cent of carbon to leakage. According to various academic studies, reforestation is among the cheapest carbon-capture methods. 

Trees are cheaper to plant and have 400 million years’ experience in capturing carbon. Carbon does not leak out, unless trees are burnt. Research shows in the first five years of growth, a young willow tree captures 140kg of CO2, which compensates the emissions of one car over 1,000 km.  

When used in construction, wood helps save energy over the life of a building as its thermal insulation properties are 15 times better than concrete and 400 times better than steel. Every cubic metre of wood used as a substitute for steel or aluminium reduces carbon emissions to the atmosphere by an average of 0.9 tons, even when the cost of processing and transporting wood is taken into account, its carbon footprint is negative over its entire lifecycle. A study undertaken in Germany found that the fossil fuel energy required to process and transport wood amounts to just 15 per cent of the total amount of energy that’s locked within it. It’s a no brainer.  

Where is the timber investment opportunity?

Already a versatile, renewable product, new technology is making timber even stronger, more durable and as fire-resistant as steel. This is enhancing its credentials as a sustainable alternative to a wide variety of materials - which has important implications for investors.  

Technology has turned timber into a dynamic, rapidly-growing industry that encompasses not only cardboard, paper and pulp, but also clothing, packaging, personal hygiene products and real estate. The growth of some timber-related industries is remarkable. One of the fastest-growing engineered wood products is cross-laminated timber (CLT) – a building panel made of sawn, glued and layered wood. The market for CLT is expected to expand to US$2.3bn globally by 2025, from the current US$70m, an annual increase of some 15 per cent. 

Some firms are manufacturing innovative textile fibres from refined wood pulp or dissolved wood pulp to produce viscose, tencel and other materials that can be used in everything from gym outfits to fire resistant clothing. Growing demand from emerging economies is fuelling a sustained expansion in the wood-based fibre market, which is expected to grow 5-6 per cent per annum between now and next year.  

New uses for wood are emerging by the day. Xylitol is a good example. The increasingly popular artificial sweetener made from refined wood fibre is set to grow into a US$1 billion by market by 2023, compared with just US$115 million five years ago. 

Is there an investment opportunity in timber?

Timber investment opportunities are compelling and diverse. It may only be a matter of time before it becomes ubiquitous - present in your clothes, the ingredients in your mid-afternoon snack, the packaging of your milk, or the buildings you live and work in.  

And timber investment options are growing. There are ETFs for passive investors providing exposure to companies operating in the space, but there are also more active solutions.

Trees have a crucial role to play in maintaining the delicate equilibrium in nature. They are key in maintaining the health and longevity of the planet. And they are the antidote to some of the biggest environmental challenges our planet faces – such as plastic use and offsetting carbon. So, in our opinion, the more trees, the merrier.

Find this useful? Read more about ESG investing:

If you’d like to know more about timber investment opportunities as part of a sustainable investment strategy, speak to one of our ESG investment specialists now, It costs nothing to do so and there’s no obligation to go further.

New to Canaccord Genuity Wealth Management?

If you are new to wealth management and would like to learn how this can benefit you, we can put you in touch with our team of experts that can help.  

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Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. 

This is not a recommendation to invest or disinvest in any of the themes or sectors mentioned. They are included for illustrative purposes only.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

Photo of Patrick Thomas

Patrick Thomas

Head of ESG Portfolio Management

Patrick set up and is responsible for our range of environmental, social and governance (ESG) portfolios. Patrick chairs the ESG Committee. He also sits on the firm’s Portfolio Construction Committee, Fund Selection Committee and Alternatives Committee. He specialises in managing investment portfolios for intermediaries, trusts, charities and pension funds, specialising in discretionary mandates.

Patrick is a chartered Wealth Manager and a Chartered Fellow of the CISI. 

020 7523 4988

Investment involves risk and you may not get back what you invest. It’s not suitable for everyone.

Investment involves risk and is not suitable for everyone.