New research released by SLM Partners, alongside the announcement of a €200 million European regenerative forestry fund, reveals the quantified climate benefits of regenerative continuous cover forestry.  

SLM Partners, an international $760 million natural real assets manager with 100 per cent of land under or in transition to regenerative management, has launched the new SLM Silva Fund II, a €200 million ($210 million) fund to invest in sustainable forestry and carbon in Europe.

Building on its earlier Irish forestry fund, this new fund will continue to invest in Ireland, while broadening its scope to the UK and selected EU countries, the firm said in a statement. The fund will aggregate fragmented forest properties and implement continuous cover forestry (CCF) management to optimise financial returns and environmental outcomes. While most returns will come from timber, the fund will also seek to monetise the carbon and biodiversity benefits of this approach, the firm continued. The fund is not open to retail investors.

“Monoculture plantations are not just ugly to look at, but they are bad for business and biodiversity, and they are exposed to all sorts of risks. Continuous cover forestry is a compelling alternative – delivering a quadruple win for local people, forest owners, climate and nature,” Paul McMahon, managing partner at SLM Partners, said. “As governments and investors scramble to unearth new carbon capture technologies, we must ensure we take better care of the carbon sinks we know work. Regenerative agriculture has made headlines in recent years, but the mainstream adoption of regenerative forestry is now more urgent than ever."

“Conventional forestry continues to increase carbon emissions, reduce biodiversity, degrade soils and water and leave our commercial forests ill-equipped to cope with climate change,” Darius Sarshar, principal at SLM Partners, added.

According to an online definition, the term "regenerative agriculture" is a conservation and rehabilitation approach to food and farming systems. It focuses on topsoil regeneration, increasing biodiversity, improving the water cycle, enhancing ecosystem services, supporting biosequestration, increasing resilience to climate change, and strengthening the health and vitality of farm soil. The term has become more familiar in recent years amid concerns about the need to protect wildlife, absorb carbon dioxide, and make farming more resilient. This news service interviewed SLM last year about its approach.

White paper
SLM Partners also published a white paper last week revealing the potential of regenerative forestry to help solve the European climate and biodiversity crises while delivering upside to investors. The paper casts doubt on business-as-usual rotational forestry in favour of quadruple-win regenerative approach with social, financial, climate and biodiversity benefits.

Carbon modelling on SLM Partners’ Irish forestry portfolio, supported by the European Investment Bank and the LIFE programme, revealed that regenerative continuous cover forestry (CCF) could sequester 20 per cent more carbon than industry-standard clear-fell forestry over 20 years. 

Across the 1,763 hectares of forest surveyed, CCF would sequester 214,871 tonnes of CO2 more than clear-fell forestry over the period. Carbon credits generated across the 1,763 hectares modelled would be worth €8 million in today’s carbon price, the firm said. SLM research also found that CCF produced a net real internal return rate of 6 per cent, compared with 5.5 per cent for conventional clear-fell management.

SLM Partners is raising capital for a new fund to emulate and scale this impactful strategy across the UK and Europe, aiming to transition 19,000 hectares of forest to regenerative management – more than 10 times the size of its Irish portfolio.

Unlike prevalent clear-fell based, or rotational, forestry – often on display in monoculture conifer plantations where trees are planted, cut down and replanted – regenerative CCF harvests only a portion of trees from within forest stands at any one time, the firm continued.

It maintains canopy cover and promotes natural regeneration, leading to the development of permanent, biodiverse and more natural forests – which is the type of woodland the public wants to see. One study in the UK showed that species richness was 1.5 times higher in CCF stands than in unmanaged areas, and bird abundance 30 per cent higher.

Currently, the EU’s land use, land use change and forestry (LULUCF) sector absorbs more greenhouse gases than it emits, with the forests covering 45 per cent of its land acting as a net carbon sink. However, over the last few years, declining afforestation rates and large areas of underused or neglected forests have led to a sharp reduction in net carbon removals, the research shows.

The reliance on rotational forestry compounds this problem. When forests are clear-felled, large amounts of carbon are released from trees and soils. Artificially replanted forests then take decades to grow back. In countries such as Ireland, where forests tend to be around the same age because of a wave of afforestation in the 1990s and early 2000s, the use of clear-felling will cause the forest sector to shift from being a carbon sink to a net emitter by 2035. Ireland is facing a carbon cliff. 

The addition of revenue from carbon markets – both existing voluntary markets and regulated markets under discussion in the EU – could further tip the balance away from the outdated practice of rotational forestry, the firm said.

European forests are also facing new threats from storms, pests and diseases magnified by climate change. Storm Éowyn was just the latest extreme weather event to cause havoc in the British Isles, and the spruce bark beetle cost Germany 2 per cent of its total forest area between 2018 and 2020. Mixed forests managed under CCF are more resilient to these risks than monoculture plantations. The EU and the UK, recognising the risks and opportunities in forestry, have set a supportive policy environment for CCF with the EU’s Nature Restoration Law, the Forest Strategy for 2030 and the UK’s Net Biodiversity Gain regulations.

By investing in regenerative forestry strategies, SLM Partners believes that investors can not only contribute to their own environmental goals but tap into a relatively untapped market as part of a diversified portfolio. As carbon markets evolve and regulatory support increases, investing in sustainable forestry in Europe is becoming an attractive option for capital deployment in natural assets with a significant potential upside.

See more commentary here on SLM Partners, regenerative agriculture and forestry.

Founded in London in 2009, SLM Partners has offices in the UK, Australia, the US and Ireland.