Sustainable agriculture and forestry promote human well-being and economic growth.
POPULATION GROWTH AND SUPPLY SHORTAGES OFFER OPPORTUNITIES
By 2050, more than 9.7 billion people will need to be supplied with food, fiber and wood. To meet this global demand, agricultural producers will need to double their production compared to 2010, according to the Global Harvest Initiative’s CAP 2019 report.
Growing demand for raw materials is confronted by a global shortage in the supply of forest and agricultural land, due to a variety of factors across regions and asset classes, from measures to protect vulnerable ecosystems to climate change.
The United Nations estimates that the world’s forest area is shrinking by 4.7 million hectares a year. Although industrial plantation forests account for a relatively small proportion of the world’s forest area, they are increasingly in demand as a verified sustainable source of timber.
The combination of fast-growing demand and limited area supply underscores the benefits of a globally diversified natural capital portfolio focused on sustainable productivity and climate resilience.
GROWING DEMAND FOR CLIMATE SOLUTIONS
As Nuveen Natural Capital’s intensive research shows, forest and agricultural land have the lowest average carbon intensity, i.e. net CO2 emissions per dollar invested, of both alternative and conventional asset classes. Allocating a portion of capital to forest land can offset the more emissions-intensive sectors within an institutional portfolio, helping to meet climate goals without having to forego returns.
Given the growing awareness of climate risks and the increasingly frequent implementation of mitigation and adaptation strategies in investment portfolios, institutional investors’ interest in this asset class continues to grow.
By January 2023, investor members of the Net-Zero Asset Owner Alliance had pledged that their portfolios, which total over $11 trillion in assets under management, would be entirely emissions-free by 2050.
Forested areas represent an immediate investment in carbon sequestration technology, and offer the greatest potential for concrete, measurable climate benefits in a short space of time. Trees can not only extract carbon dioxide from the atmosphere, but also store it for a century or more in the form of sustainable solid wood products.
HISTORICALLY HIGH YIELDS
According to the US National Council of Real Estate Investment Fiduciaries, farmland in the USA has generated equity-like returns and outperformed bonds over the past 30 years, on an annual basis.
In terms of risk/return, farmland and forestry are cheap compared to other asset classes, and can offer high returns per unit of risk. The annual volatility of farmland is comparable to that of global bonds, U.S. 10-year government bonds and U.S. investment-grade corporate bonds – while farmland has produced higher returns in the past. In addition, forest land as an investment has outperformed traditional bond classes, with slightly higher volatility.
What’s more, as Nuveen Capital has found, natural capital has proved resilient even during periods of rising interest rates: Over the past 30 years, farmland and forestry investments have continued to offer investors satisfactory average returns, whatever the phase of rising interest rates.
As an asset class, agricultural investments are less developed, more illiquid and less transparent than traditional asset classes. Investments in agriculture are subject to the risks generally associated with holding real estate-related assets, including changing economic conditions, environmental risks, the cost and availability of insurance, and the risks associated with leasing land.
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Source: Allnews| 25 oct 2023 | Martin Davies, Nuveen
Martin Davies, Global Head
Martin is Global Head of Nuveen Natural Capital, the land asset management division of Nuveen, and is responsible for over $12 billion in assets spanning more than 3 million acres in 10 countries worldwide. During his 30 years in the agricultural sector, Martin has held positions in corporate agriculture, consulting and investment.
Nuveen, the asset manager of the U.S. Teachers Insurance and Annuity Association (TIAA), was founded by Andrew Carnegie. The company offers a comprehensive range of results-driven investment solutions to secure the long-term financial objectives of institutional and private investors. Nuveen manages $1.1 trillion (as of March 31, 2023) and operates in 27 countries.