Money can grow on trees
Money doesn’t really grow on trees—but one German company, Forest Finance, offers something similar: sustainable forest and agroforestry projects to investors keen on restoring forests and fighting climate change, while making a return on investments. REVOLVE caught up with the company’s founder, Harry Assenmacher, to learn more.
Forest Finance celebrates 25 years of doing business in 2019. How did the idea of forest investment come about, and what have you achieved?
The idea stems from a rather personal practicality. Many years ago, my pension did not look very good and I wanted to build something that could become a part of it later. Back in the 1990s, I had worked for the German Association for Environment and Nature Conservation (BUND) and had been in contact with forest enterprises in the tropics. One was in Panama, where I had been invited to see their projects. I learned the concept of establishing “mixed forests” – where only a selection of mature trees is cut and sold – allowing for a functioning forest to always remain. I liked this approach and used it to reforest the first three hectares of land I owned in Panama. The idea of creating a forest was welcomed with enthusiasm by friends and colleagues, and more people wanted to do the same which led to the idea of offering forest financing in Germany.
We initially offered a product with at least one hectare of forest, but I wanted to offer small-scale investors the possibility to become a forest owner. I created the TreeSavingsPlan that was offered online in 2003 already. Our mission was – and still is – to buy degraded land and to reforest it with local species to recreate indigenous forest. We are the first company in Panama, whose forests are FSC-certified since 1997.
Our mission was – and still is – to buy degraded land and to reforest it with local species to recreate indigenous forest.
In 2007, we bought a forest management company in Panama and went from forest investors to forest managers. At this point we developed our own forest investment products which led to the addition of cocoa plantations (i.e. agroforestry) to our portfolio and Green Acacia in Colombia. Since 2018, we now offer our newest agroforestry product: investments in organic agriculture for producing olives and dates in Morocco.
After 25 years, we have managed the investments of over 20,000 clients with a total investment of nearly $100 million. We are active in Panama, Vietnam, Colombia, Peru and Morocco, and have reforested more than 8,000 hectares of land and have sustained over 2,000 hectares of protected area, including mangroves in Panama. We have planted over 10 million trees globally.
Creating and maintaining forests has helped provide local jobs. We have also expanded the value added of our activities and use our harvest to produce finished boards and craft products at our wood processing centre in Panama. We are proud of our other products, such as chocolate and praline from our cocoa plantations that are sold at our coffee house in Panama City.
We have also had our share of difficulties and lessons learned. We had to refine our forest management and schemes over the years having learned that certain tree species do not harmonize with each other. But we have also learned which tree species do harmonize and so we combine them more often. It is crucial to incorporate these lessons into our products to optimize them. The necessity and need for harmony holds true for our staff and collaborators as well. As a company with activities in four continents, it is important to develop international teams of diverse individuals who must cooperate in very different places — this is not always easy.
How does sustainable investment work in the forest industry? Is it always sustainable? And how big is this business?
Sustainability is our guiding principle and at the core of the Forest Finance philosophy. The framework we use are the UN Sustainable Development Goals (SDGs) which we have been committed to for many years. We have implemented 8 of the 17 SDGs and we are working towards pursuing more. In 2018, we received the German CSR Award 2018 in the category “Global Responsibility” and continue to ensure that our social, economic and ecological objectives are of equal weight and importance and complement each other. We make sustainable investments in forests and agroforests. Our approach is different from big forest investment funds whose plantations aim for optimal exploitation and return on investment. In their case, monocultures and total deforestation are part of their business model – an approach that has nothing to do with sustainability or sustainable investments.
We have reforested more than 8,000 hectares of land and have sustained over 2,000 hectares of protected areas […] we have planted over 10 million trees globally.
All our projects aim for long-term sustainable results, such as the development of forests or a local forest scheme. With our forest-saving scheme, when we harvest after 25 years, the forest will remain as a functioning eco-system with animals, insects, biodiversity – and other key functions of a living and sustainable forest such as water storage, soil protection and minimum erosion.
In fact, one can destroy entire landscapes by growing trees. The planting of trees alone does not create a liveable ecosystem if you do not create a forest in accordance and harmony with the local conditions. Our projects contain around 20% of land that we leave untouched as protected areas. Here nature can develop and is not influenced by economic processes.
Forest Finance offers a variety of financial products. Who are your clients and what financial products do they choose?
Our clients are people – like you and me – who want to participate in making small but significant ecological investments. Some clients increase their investments over the years. We also have foundations and institutional clients in our portfolio, but the focus is on private investors.
Most clients do not buy specific products; they rather choose multiple products to diversify risks and opportunities. These products range in terms of duration, location and forestry concept. Our mixed forest products have a 25-year term and originate in Panama. Agroforests with fine cocoa are produced in Peru and Panama. In Morocco, we have started our newest product with organic cultivation of olives and dates, with a low maturity of 6 years.
The return on investment can range between 0-10%. We are talking about a natural product that develops over a long period of time. Looking at the longer-term price developments for wood and cocoa, and taking average growth rates into account, we realistically expect returns between 4-7%.
So far, we have paid out more than $7.5 million in gains to our investors. However, the large returns are still pending for most projects as the main income will be generated at the end of the projects.
What are the risks?
As a natural product, there are many risks that can lead to a total loss. But we believe that most risks are calculable. We have never had any damage from fire and have been able to limit insect infestation thanks to our mixed forest systems. In Vietnam, we had two consecutive violent storms which are still a concern to us today and will be in the future. Looking back at a quarter of a century of successful business development, we notice that larger agroforestry investments are only suitable for high-risk investors who have a long-term vision and the necessary liquidity.
What are the advantages of forest investments and how does climate change impact your business?
Our motto is: “Building Forests” – this is our biggest added-value. Through our work, ecosystems are created, trees grow, CO2 is extracted from the atmosphere, biodiversity preserves habitats and humankind receives an attractive ecosystem. One disadvantage of this investment is that it is long-term. Wind turbines or solar panels bring a faster return on investment. In the case of forests, the trees must grow before reaping profits which, in my opinion, is much more natural and beautiful. That’s also why we are directly affected by climate change. Heavy rainfall or long periods of drought affect the growth on our lands. And of course, no one can predict exactly where and how quickly climate change will occur in the future.
Are your projects mainly advancing bio-products or sustainable forestry? Or preservation and conservation for tourism? Or all of the above?
Our offers are always sustainable forest or agro-forestry projects. Some of them are also directly oriented towards organic-biological forestry and agriculture. Part of our cocoa area in Panama is being transformed into organic production areas, and the olive and date project in Morocco has been producing organic agricultural products from the beginning. Organic farming is not possible everywhere due to poor soil quality; however, we align ourselves with the SDGs and operate climate-friendly agriculture and forestry. The 20% protection areas play a major role in biodiversity. We do not promote tourism, because the negative environmental influences are too big. Of course, many customers like to visit the planted areas. In Panama, we have built a nature trail within the protected forest together with a local school, and now school groups can take guided hikes through the forest and observe animals and plants.
Cocoa production is very water and nutrient intensive which could be contradictory to forest preservation. How does Forest Finance square that circle?
Our cocoa forests are not monocultural production sites; the cacao trees are part of a mixed forest concept. In this respect, there is no danger of confusion with the industrial production plantations for soybeans, palm oil or cocoa. Another important distinguishing criterion is the area’s structure. While several thousand hectares of jungle in Peru were once cleared by an English corporation to establish a mono-cocoa plantation, we develop concepts for existing areas using existing vegetation.