Gwen Busby: I am based in Portland, Oregon, and have been with Nuveen for twelve years. During this time, I have witnessed the growth and development of the Natural Capital asset class, as well as the emergence of broader investment opportunities beyond traditional timberland and farmland in both developed and emerging markets. Our Natural Capital team has long been part of Nuveen and thus TIAA, the U.S. pension fund for teachers. Nuveen Natural Capital manages a globally diversified portfolio in the segments of timberland and farmland. We are invested in North and South America, Europe, Australia, and New Zealand.
Hans-Joachim Seyfarth: I studied mathematics and joined 18 years ago MEAG. Since 2008, I have been establishing the forestry topic. Since 2009, we have been investing in forestry for our parent company Munich Re, and since 2014, also in agriculture. We have a portfolio of approximately 3.2 billion Euros in the USA, Australia, New Zealand, and Europe, with some small investments in South America. We manage these with a ten-member team. MEAG, as the asset manager of Munich Re Group, has around 345 billion Euros in assets under management, of which approximately 285 billion Euros come from Munich Re Group and about 60 billion Euros from our private and institutional clients.
Constantin von Wendt: I am a lawyer by trade and come from a family with a background in agriculture and forestry. Since 2013, I have been a partner and managing director at Salm-Salm & Partner. The company was founded in 1990. We were probably the first managers in Germany to offer forest investments. Even before my time, in 2009, three large family offices asked us to help them with forest investments. Forests were not an established asset class in Europe then, as they were in the USA. Since 2010, we have been purchasing forests and agricultural operations for our clients, first in Europe, but soon in the USA as well. Today, U.S. properties make up 70 to 80 percent of our portfolio. For the last four years, we have also been investing in forests in New Zealand. We currently manage investments in Natural Capital worth 1.3 billion euros. Our clients are institutional investors, including European pension funds and increasingly insurance companies, as well as family offices.
Axel Hesse: I have been interested in sustainability and sustainable investing since my banking apprenticeship. About 14 years ago, we developed the first global standards for financially material, industry-specific ESG indicators (SD-KPIs) on behalf of the German government as part of accounting regulations. In 2016, we then collaborated with the American standard-setter SASB, which has now been incorporated into the International Sustainability Standards Board (ISSB). From this, I have come to believe that nature as a factor is relevant not only for illiquid assets but also for many more liquid securities. Today, we work as a data provider for globally standardized ESG KPIs and provide 14 years of history for 19,000 companies that are used as proxies for the ISSB by banks and asset managers.
How do your organizations define Natural Capital?
Hans-Joachim Seyfarth: My department only received the name „Illiquid Assets Natural Capital“ at the beginning of this year. We spent a long time thinking about the terms „Natural Capital“ and „Natural Resources“ until we realized that resources primarily refer to natural products or raw materials, such as wood or apples. In contrast, we understand Natural Capital mainly as the land on which a forest grows or the soil that allows food to grow.
Gwen Busby: In our view, the Natural Capital asset class encompasses land-based investments such as forest areas and farmland, which are traditionally focused on sustainable timber and agricultural production. The asset class is expanding to include nature-based solutions aimed at addressing global challenges such as climate change, biodiversity loss, and pollution. In all cases, these are investments in the land, air, and water of the Earth, as well as in its entire biodiversity and the flow of benefits or ecosystem services derived from these Natural Capital assets, such as clean air and water, pollination, climate regulation, as well as the production of food, fiber, and wood.
Constantin von Wendt: I agree with both statements. However, we still do not have a uniform definition of Natural Capital in the European market. Only a few investors, such as MEAG, operate in this area with their own portfolios built around forest and farmland investments. Our clients classify such investments very differently. Some categorize them under infrastructure or real estate, while others consider them as equity investments. Ten years ago, most investors in Germany did not recognize timberland and farmland as separate asset classes. However, in recent years, this attitude has gradually changed, although not every asset owner shares it yet. Some include forests and farmland in connection with ESG in their asset allocation. However, many are increasingly recognizing the ownership of land and the many associated opportunities. For me, land, meaning the ground, is the basis of this asset class. I would not refer to it as an investment in timberland or farmland if someone leases a piece of land somewhere in the world and operates forestry or agriculture on it.
Gwen Busby: Nuveen has been investing in Natural Capital for over 35 years. Historically, the focus has always been on the commodity production of timber and agricultural crops. Over time, we have grown and focused on delivering quantifiable nature and climate benefits as well. This has been supported by the development of environmental markets for carbon sequestration and storage, as well as the restoration of wetlands and rivers. Back then, it was about commodity production targeting the land. Climate, nature, biodiversity, water, and the restoration of natural resources play a significant role here. By this, I mean that investments in Natural Capital are investments in the entire ecosystem, meaning the entire range of services, in the natural products of the land, such as timber or wood. Of course, aspects such as climate and water quality are also included.
Hans-Joachim Seyfarth: For us at MEAG, land is the key of our investments. This applies to both our internal as well as institutional clients for whom the Natural Capital asset class is attractive. We include not only timberland and farmland but also carbon, biodiversity, and today, water and critical minerals. So it is also about raw materials. Additionally, we are currently exploring what investment opportunities exist in order to invest in water or critical minerals. We are not invested in these areas yet, and we are not interested in the stocks of mining companies. There are institutional investors who explicitly exclude such investments. We do not.
Axel Hesse: The term Natural Capital as an asset class is still narrowly defined at present. In our SD-KPI standard from 2010 to 2015, we had only 4 percent of our data and KPIs that could be categorized under Nature or Natural Capital. However, this narrow spectrum—and thus the definition of the asset class—will significantly expand in the coming years. Just consider the interplay between tropical rainforests and the use of artificial intelligence. Two-thirds of all cancer-related pharmaceuticals worldwide are based on plants from rainforests. For genetic resources, we will need more sustainable raw materials in the future. This changes our view of the Natural Capital asset class, but also of Brazilian government bonds.
Is the available data on Natural Capital growing significantly?
Axel Hesse: It is definitely increasing and also improving qualitatively. We are talking about asset classes such as stocks, corporate bonds, and government bonds. We are currently also working on ESG standards for government bonds and corresponding indices. Even though we primarily treat Natural Capital today as an illiquid asset class, I see that it significantly influences liquid asset classes.
Gwen Busby: We always look at the key performance indices for timberland and farmland in the USA. Australia also has a similar index for private investments in farmland. For the public markets, there are various commodity indices that also include timber REITs. So there is always good data, but still no complete historical overview of the global market. Such indices show, for example, the risk-return profile of Natural Capital. We can compare them with traditional equity and bond indices or real asset classes. Indices were important facilitators in the 1980s and 1990s in the USA to recognize timberland and farmland as asset classes. Before that, they were seen as a niche strategy with a lack of scalability. As the carbon intensity of portfolios comes more into focus for investors, there is more data on CO2 or greenhouse gas emissions per invested million dollars.
Hans-Joachim Seyfarth: From my perspective, such indices help timberland and farmland investors to map the sectors in their risk model. In Europe, this asset class is still too small in terms of volume for establishing an index of its own.
How does the business model for timberland work?
Hans-Joachim Seyfarth: Timberland as a business model works similarly to real estate. Land always has a property manager, an asset manager, a number of assets in a specific region, and possibly a fund manager depending on the investment model. These structural parallels to real estate regarding the business model help explain timberland to investors who are not yet familiar with the asset class.
Gwen Busby: The business model for timberland is to invest in land and generate an income return from the yields of the assets and capital appreciation from the sales of assets through sustainable management and—in some cases—restoration. The markets provide us with incentives for how we should manage the land. If there are markets for CO2 reduction or restoration and they add value for our clients, then we manage the land according to these values. We create a connection between how we manage and outcomes, aligning ourselves with what the client objectives.
Mr. Hesse, what business models for timberland can be realized in Brazil?
Axel Hesse: In our company, we are still in too early a development stage in the region around Manaus to speak of a mature business model for managing rainforest. This also applies to the region itself. Nevertheless, there is much movement in this region and throughout South America regarding timberland. I have already mentioned the use of artificial intelligence in the extraction of genetic resources, as well as the development of innovative products of all kinds. I am not sure whether this would fundamentally change the business model for timberland investments, but the value of the Amazon rainforest would certainly increase. We should look at how to make the Amazon rainforest compatible as a global commons for various business models in order to protect it.
Mr. Seyfarth, through which investment vehicles can one invest in timberland?
Hans-Joachim Seyfarth: Investors usually gain their first experiences with timberland through commingled funds. Of course, the size of an investment also plays a role regarding investment form and vehicle. If I, as an investor, want to invest a limited amount of capital — say up to 100 million Euros — I am more likely to enter the asset class through commingled funds with other investors. Investors who want to invest more capital can also make the investments themselves, but they need expertise for a direct investment. They can also enter through a separate managed account. Investors have full control over the asset if they want, but use the services of an experienced asset manager. Other forms of investments include co-investments and club deals.
Gwen Busby: Investments in timberland also occur through public equity, i.e., REITs. Forward-looking investors build exposure in Natural Capital and gain diversification benefits, quantifiable within a modeling framework. When looking at public equity allocations from the perspective of portfolio diversification, we continually find that private investing in timberland and farmland yields higher risk-adjusted returns. In the USA, ownership of timberland has shifted over time from publicly traded companies to private capital investors, but sometimes ownership can also shift in the other direction. I rarely see mixed public-private strategies from asset managers for institutional portfolios…
Hans-Joachim Seyfarth: … because these are difficult to map for investors…
Constantin von Wendt: … and because public and private share the same market, the same products, and the same land. Publicly traded REITs not only have land investments in their business model but usually also operations and processing, such as the operation of sawmills or wood processing plants. In terms of value, this may split into 60 percent actual forest and 40 percent processing. REITs thus have a strong public equity component and are not a pure Natural Capital investment. If an investor wants to invest in operations in the form of public equity, they should be aware that this comes with significantly higher risks and requires additional expertise, such as for managing a sawmill.
Hans-Joachim Seyfarth: As investors, we must continually ask ourselves before making an investment decision whether we truly want to make that investment. After all, an investment in wood processing or the packaging of kiwis could have an undesirable effect on the risk profile of a portfolio that may have only contained timberland assets until now. One might then deviate from the desired effect of the asset class.
Mr. von Wendt, do family offices invest differently in timberland than institutional investors?
Constantin von Wendt: Definitely! Family offices typically do not invest through funds. They prefer direct investments. Most families want to be on the land registry themselves. Additionally, their investment horizon is usually very long. They think, in terms of forests and agriculture investments, across generations. Forest or agricultural funds are usually not evergreen funds; their terms end at some point. We are responsible for direct investments and fund investments for clients.
Axel Hesse: One motive for investors to invest in timberland remains the uncorrelated risk.
Hans-Joachim Seyfarth: In the fall of 2022, I was asked several times — more than ten years after MEAG’s first timberland investment and six months after the outbreak of the Russian war against Ukraine, following the first interest rate hikes and declining stock and bond prices — what price drops and devaluations we should expect in timberland. But, the situation proved that the low correlation remains intact and that the exposure has a positive impact on the portfolio with an average return of 5 percent per year over ten years. The asset class simply did what it was supposed to do in 2022 — timberland just like farmland.
Which world regions are currently suitable for Natural Capital investments?
Hans-Joachim Seyfarth: We often talk about North America, but we focus on the USA for institutional capital investments, less so on Canada. Smaller family offices and wealthy private investors find Canada appealing for timberland. However, investors should be cautious here. In Canada, we are no longer dealing with the U.S. dollar but with another currency. For investors with obligations in Euros, a third currency after the U.S. dollar means significantly more complexity. And in Canada, one still depends on the USA as a wood buyer. As an investor, I should ask myself whether I need exposure in another country if the risk profile remains similar.
Constantin von Wendt: As a result, the risk-return ratio in Canada does not add up. Besides the currency, distances, slower growth, and the timber market are real obstacles in large parts of Canada. We do not invest in Canada. An interesting indication that we are not alone in this view is the fact that brokers—no matter where they come from—only offer Canadian timberland assets in Europe, especially in Germany, because no one wants to buy them in the USA and Canada. So it is better to stay away. Timberland investors should always keep in mind how their assets will look not only tomorrow but in ten or 30 years.
Gwen Busby: Canada faces several challenges regarding institutional investment in forests. These include the risk of wildfires, drought risks, and limited opportunities for private ownership in some parts of the country. A large proportion of forests in Canada are public forests, and the right to fell trees is strictly regulated. We even see many if the large Canadian companies increasingly focusing their investments on the USA in part for many of these same reasons.
What location conditions are required for institutional timberland investments?
Constantin von Wendt: The prerequisites for me are high property protection and the rule of law. The forest must still belong to the investor in 20, 50, and 100 years. And I need a clear answer to the question of who will buy the product I produce and offer. What does the local timber market look like? How many buyers do I actually have within a radius of 150 kilometers? This is a tough selection criterion and excludes—at least for now—many countries as target regions for timberland. In the 2000s, some European fund providers launched globally mixed timberland funds. None of those exist today—neither the companies, nor the funds, nor the clients. Regions like Brazil, Argentina, or Central America have struggled to establish themselves in the timberland market to this day.
Gwen Busby: Brazil is considered an emerging market and has all the characteristics and risks of such a country regarding currency, macroeconomics, and political stability. The opportunities arising from the well-developed forestry sector and incredible growth conditions are countered by potentially high cost risks such as currency trading. In fact, Nuveen is invested in Brazil, as we are globally in many places. This allows us to diversify within the timberland portfolio.
Hans-Joachim Seyfarth: To reiterate generally: A country must allow private land ownership. It must be stable as a state — politically, legally, and macroeconomically. Additionally, the country must have a professional timber market. And there needs to be a solid timber investment market where you can buy and sell.
What are the most important markets for timberland worldwide?
Hans-Joachim Seyfarth: The USA is the most important and largest market globally. The southern USA is, for me, the gold standard for timber. It is also the benchmark for timberland management and the timber industry. The US investment market also works: we can buy and sell there. The second-largest market is Australia and New Zealand—also very professionalized. Following that are the Scandinavian and Baltic countries. After that, there is a long gap, then South America.
Gwen Busby: We are looking for favorable growth conditions worldwide. Climate plays a larger role for the timberland asset class than for real estate or infrastructure and often has more influence on the performance of an asset. We continuously track climate change events in the regions we are looking at. We pay attention to the investment environment and macroeconomic development. Property rights regarding forests and land are fundamental foundations for our engagement. For agriculture, a base of operators is needed. We need access to markets, whether it is a domestic market or an export market. The competitive position of a country in the global market is also a selection criterion. The respective national currency and volatility compared to other important global currencies are also always a factor.
How does the Natural Capital asset class perform compared to other illiquid asset classes?
Gwen Busby: The requirements and goals of the investor also play a role here. Inflation hedge is a positive characteristic of Natural Capital. The asset class has a good risk-return profile. Many investors also associate investments in Natural Capital with an impact. In fact, the asset class often provides a significantly greater opportunity for a positive impact than real estate and infrastructure. With Natural Capital, an investor has the potential to increase carbon stocks or reforest areas that need it. The historically low volatility is noteworthy. Timberland assets in the USA have performed well in recent years, while the stock and bond markets have been volatile. During this strong market volatility, the asset class has shown a high degree of stability. The U.S. stock markets were very volatile, with the average total return for the last two years being barely positive at 1.8 percent. U.S. bonds, global stocks, and bonds performed negatively in 2022 and 2023. In contrast, returns on U.S. timberland rose by 11 percent with a cash yield of 3 percent. Returns for U.S. farmland increased by 7 percent with a cash yield of 3.3 percent.
Constantin von Wendt: It is important to distinguish between farmland and timberland. Timberland performs stably, almost like a government bond, but with additional benefits such as high inflation protection. Farmland is more volatile because it is exposed to global competition in larger markets. Agricultural products are traded much more globally and shipped around the world. This brings more volatility to the agricultural market. Nevertheless, this asset class is fundamentally very stable due to the land base.
Do other locations for timberland offer similar returns as the USA?
Hans-Joachim Seyfarth: Regardless of the region, timberland and farmland can achieve an average IRR of 5 to 6 percent in a global portfolio over the long term. The task of timberland and farmland is to further stabilize a globally diversified portfolio, providing an even more solid base for a portfolio. When looking at the composition of a portfolio by segments and durations, differences naturally show up. We currently have a share of about 1 percent timberland in our portfolio. Our entire alternatives portfolio, excluding real estate, amounts to approximately 10 percent.
Gwen Busby: The majority of our investors expect that the timberland portfolio will have a solid anchoring, providing stable returns, with consistent cash yields. To achieve this, we focus on building globally divserified portfolios – geographically distributed across different continents, northern and southern hemispheres, emerging and developed markets. This includes rapidly growing markets outside the USA that are accessible within the core markets. Regarding impact, there has been a shift among many asset managers to incorporate these strategies. Even outside the USA, there is now a growing number of new investment opportunities both impact focused and with a more traditional production focus.
How important is impact investment for investors in relation to timberland?
Hans-Joachim Seyfarth: For our parent company Munich Re, the return must first be risk-adjusted. In the second step, the potential impact of an investment is considered, meaning both the avoidance of negative and the achievement of positive effects.
Gwen Busby: Regarding impact investment, we look for opportunities to develop carbon projects, mitigation banks, as well as opportunities for restoration and land conservation. In some cases, there are trade-offs between carbon value and the trade value for timber. We have not encountered any institutional investor willing to sacrifice returns for impact. Investments in carbon, restoration, or conservation projects must earn their way into the portfolio.
Constantin von Wendt: ESG no longer solely dictates the discussion in capital markets—at least in Europe. In recent years, ESG has indeed driven the intent to invest in forestry and agriculture, but performance expectations always had to align. Sustainable management of the acquired land is extremely important to all investors. Additionally, we must not forget that issues such as CO2 reduction or solar and wind energy cannot exist without land. For example, we are currently developing over 80 wind turbines and solar projects on land we manage, with a total volume of nearly two gigawatts. Land remains the most important foundation for human life. How we manage the land is crucial for the health of the climate, and will always impact the value of the land.
Hans-Joachim Seyfarth: If we look back 15 years, the options for wind and solar have not been there as they are today. This confirms the thesis that land continually opens up for new possibilities of use.
Axel Hesse: The EU regulation for sustainable finance is overwhelming and counterproductive. However, I like Article 6 of the Sustainable Finance Disclosure Regulation because it is the mainstream paragraph. It requires investors, among other things, to describe how they integrate sustainability risks into their investment decisions. Investors can choose whether to integrate them or not. I appreciate Article 6 because it allows for achieving a higher risk-adjusted return by integrating ESG. However, the reality is that many ESG strategies we have seen—Article 8 and Article 9 funds—are best-in-class approaches or have long exclusion lists, but they often result in risk-adjusted underperformance. The market cannot and must not accept this. Particularly American investors are feeling headwinds regarding ESG and do not want to hear anything about it. However, they become attentive when we report our outperformance of 0.7 percent per annum compared to the S&P 500, which we achieved through overweighting or underweighting according to financially relevant ESG KPIs.
Do you integrate risk-adjusted factors into your timberland strategies and measure an impact on risk-adjusted returns?
Gwen Busby: ESG data is important to investors to identify potential reputational risks early. They want investments that meet their demands and obligations regarding ESG performance. And they want to track the net impact and ESG performance over time. It is important to clearly distinguish between exclusions, ESG matrices and reporting, reporting standards, and environmental markets. Markets generate incentives and opportunities for higher returns. Europe tends to be more focused on disclosures, exclusions, and reporting requirements. The extent to which exclusion criteria actually benefit nature, the climate, and biodiversity is a good question. But when you create a market, an incentive, and a price, and the pricing environment is good, then the benefits for nature and higher returns will become evident, which will bring more capital into the asset class.
Constantin von Wendt: The ESG factors that are now being introduced into all asset classes have always been an essential part of forestry. This does not need to be reintroduced. The original idea of sustainability comes from forestry. It was developed over 300 years ago in Germany. Everything I see that must be integrated into our risk management and daily operational work due to legal ESG criteria is already being implemented. In the core countries for timberland, ESG risk adjustments have always been applied and are part of the investment decision. Some proponents of a new ESG approach—such as EU representatives and some members of the Green party—argue that the best forest is the forest that is left untouched. Accordingly, forests should not be actively managed. I find this perspective problematic. Where is the wood for our roofs, houses, and furniture supposed to come from if the forest is not managed? In light of climate change, it should be clear to everyone that sustainable forest management is essential. Using more wood is an important tool for sustainably reducing CO2 emissions and sequestering more CO2.
Hans-Joachim Seyfarth: Our timberlands are usually certified by FSC or PEFC, i.e. a certificate for sustainable forestry management. That aligns not only with our strategy, rather it is required by the market as well as investors.
What risks are associated with Natural Capital?
Hans-Joachim Seyfarth: One must in the first place look at the consequences of climate change for forests and farmland, but also at natural risks and their impacts. We have already mentioned other risks. The necessary infrastructure as well as customers are also of the essence. Moreover, there are concentration risks if one owns too many properties in the same region.
Gwen Busby: The list of risks can be supplemented with geopolitical and political risks, trade regulations, impact regulations, rising returns on timberland, and climate. Of course, many risks can be diversified through a global, versatile portfolio. Scaling across the asset class plays a role. The size of individual land transactions can be quite large. This is generally true for timberland and partly for farmland. It is about aggregating a diversified portfolio to diversified sources of risk. Another risk is missing return targets.
Constantin von Wendt: I consider market risks to be just as relevant as climate risks. What happens to my investment if a sawmill dictates the price alone because it buys up other sawmills? Assuming the climatic conditions are fine, the value of a forest depends 100 percent on the regional timber market. In the extreme case, if all sawmills close and no one wants my wood anymore, the value of the forest is zero.
Gwen Busby: To hedge against market risks, diversification across products and operations that can be sold is helpful. This builds a buffer against market risks. Such diversification of uncorrelated income streams helps improve risk-adjusted returns. This applies to the ownership level as well. Diversifying income streams helps improve risk-adjusted returns. This also applies to the portfolio level with its various market-related KPIs.
Constantin von Wendt: An important element of risk management depends on where I buy. Of course, I must conduct my due diligence beforehand. But as an investor, one must also have patience until the market opens up a good buying opportunity. It is better to wait five years for a suitable asset than to buy the wrong asset in the short term.
Gwen Busby: In fact, the purchase value cannot be diversified away.
Axel Hesse: I believe that such Natural Capital exposure should have its place in a well-diversified institutional portfolio. The exposure should be further expanded, especially by investors pursuing mature mainstream ESG strategies.
Constantin von Wendt: We have seen sufficient liquidity in the market for years. Many U.S. investors repeatedly sell forests. The buyers are often U.S. investors, but they are increasingly coming from other continents as well. We see a lot of European, Japanese, and Australian capital flowing into the global timberland market.
How will the timberland market develop for institutional investors in the medium term?
Axel Hesse: Many new factors are currently influencing the Natural Capital asset class. More sustainable forest certification will increasingly determine momentum over the next few decades. Water and biodiversity will also increasingly occupy us within the asset class. Climate change will exacerbate this. We have not yet reached the peak of ESG; rather, we must fully integrate it into real risk management. This must yield positive risk-adjusted returns in the long term. The vast majority of investors invest their assets for the long term. This speaks for the Natural Capital asset class.
Constantin von Wendt: Impact is good and important. At the same time, attractive, secure returns should be generated. ESG and impact are inherent in a well-managed timberland or farmland investment. The asset class offers a stable return of 5 to 7 percent IRR, low correlation to other asset classes, and high inflation protection. However, you need experts with a lot of experience to find, acquire, and sustainably manage the right assets in the long term. At the same time, the asset class is driven by the shrinking supply, as the amount of cultivable land worldwide is shrinking day by day.
Hans-Joachim Seyfarth: Timber prices will likely continue to rise worldwide over the coming decades due to increasing demand and a supply that is not developing accordingly. Interested parties should therefore consider rather quickly if they wanted to get involved.
Gwen Busby: The share of investors entering Natural Capital or expanding their exposure has steadily grown over the past few years. New investors sometimes take their time to realize their first investment. This is a learning process about the asset class. The rapidly growing demand for wood also drives demand for timberland. Both demands will intensify when I think of global population growth and the increasing need for wood and food. The industrial transition towards emissions reduction and net zero is also a driver for the asset class. With Natural Capital, investors can position themselves very well with a decarbonized portfolio without risking missing their risk-adjusted return.
Summary
Key Facts
- The Natural Capital asset class is primarily based on land-based investments such as timberland and farmland.
- First-time investors typically invest in timberland through funds. Experienced investors also enter directly or through separate managed accounts, co-investments, and club deals.
- The USA is the largest market for timberland, particularly the southern region. The second-largest market is Australia and New Zealand, followed by Scandinavia.
- REITs often have operations and processing, such as sawmills, in addition to land investments in their business model.
The share of investors entering Natural Capital or expanding their exposure has steadily grown over the past few years, as noted by Gwen Busby. New investors need time to familiarize themselves with the asset class and realize their first investment. Additionally, Gwen Busby sees a rapidly growing demand for wood and food due to global population growth, which also drives timberland and farmland. The industrial transition towards emissions reduction and net zero is also a driver for the asset class.
According to Hans-Joachim Seyfarth, the Natural Capital asset class—both timberland and farmland—has done what it is supposed to do, especially in the crisis year 2022: it has proven that the low correlation with stocks and bonds remains intact and that its exposure has had a positive effect on the institutional portfolio with an average return of 5 percent per year over ten years.
Constantin von Wendt points out that family offices invest differently in timberland than larger institutional investors. Family offices typically do not invest through funds but prefer direct investments. According to von Wendt, family offices usually want to be on the land registry themselves and have a very long investment horizon, often spanning generations.
For Axel Hesse, the term Natural Capital as an asset class is still narrowly defined at present. However, he predicts that the narrow spectrum and thus the definition of the asset class will significantly expand into the liquid area in the coming years, referring to the interplay between tropical rainforests and the use of artificial intelligence.