Why I’m (Impact) Investing in Trees

Last winter, PlanetWatchers approached me to invest in forests. Not exactly in forests per se, but rather in the company’s Saas solution to monitor forest degradation via satellite radar data and analytics.

When I initially thought of “forests” as a potential target for an impact investment, my mind’s eye conjured…well, frankly, Bambi. I imagined her, her friends, and all of the other sensitive animal and plant ecosystems in need of preservation as encapsulated in the UN Sustainable Development Goal 15 — “sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss”. Important? Of course. But not within my investment mandate. While animal wellbeing has become an increasingly critical important issue for me personally, my highly unscientific ranking of impact investment priorities — human health and education, and macro environmental challenges like climate change — was likely to leave poor Bambi to fend for herself.

That is, until I educated myself a bit further. A few short hours of homework suddenly shined a gigantic spotlight on the crucial role that forests play vis-a-vis UN SDG 13: “Take urgent action to combat climate change and its impacts”. As the November Economist article “Negative Emissions Technology: What They Don’t Tell You About Climate Change” highlights, successful curbing of emissions along the rates agreed to in the Paris accord is still insufficient to get to the desired goal — a reduction of CO2 in the atmosphere sufficient to prevent the earth warming more than 2 degrees Celsius beyond pre-industrial levels. Rather, the environmental models that underpin the math of the Paris climate agreement are also assuming that we will also be simultaneously sucking out massive amounts of CO2 from the atmosphere prior to the year 2100.

Nevermind that we don’t quite know how to do that. For all of our conversation and policy focused on clean tech and limiting carbon emissions, there is frighteningly little dialogue on what net emissions technologies (NETs) exist currently or how we should be supporting R&D toward this end. While there are a handful of intriguing solutions, they remain woefully expensive and small-scale given the scope of the challenge at hand. In the end it turns out that the most promising technology for CO2 extraction is an ancient and relatively cost-effective invention known as — drum roll — the tree. Improving our forests’ capacity to store CO2 is a critical component of battling climate change.

Land constraints remain the most significant challenge to the use of forests as a pragmatic NET, particularly with growing food security concerns and pressure to repurpose forested land to farms. In order to offset the 38 billion tons of CO2 we are emitting annually, the world would need about 750 million hectares of additional forest — about 20% more forest than we have currently. Doesn’t sound so bad, right? Until we remember that 750 million hectares is a bit bigger than two Indias. Not likely to happen.

However, can we be leveraging land that is already forested to serve as a more effective carbon sink? It turns out PlanetWatchers does just that. The company helps forest managers — companies, governments, and NGOs — obtain the actionable insights they need to grow more and stronger trees on each hectare of forest under management. In the process, they are effectively increasing the amount of CO2 absorbed by each forest.

As an impact investor, my due diligence process requires testing assumptions around the company’s prospects for social/environmental impact in addition to those for financial return. With PlanetWatchers, I was quickly comfortable on the company’s financial prospects. The scale and significance of the potential environmental impact, however, required some pencil sharpening.

Forests cover approximately 30% of the earth’s surface, or 4.0 billion hectares, down from an estimated 5.9 billion hectares in pre-industrial times. These 4.0 billion hectares are responsible for absorbing approximately 15 billion tons of CO2 each year, equivalent to nearly 40% of global emissions. If we were able to better manage forests for increased carbon stock — even at a marginal improvement of 5% — this would mean an additional 760 million tons of CO2 absorbed each year, enough to off-set 2% of our global emissions (e.g., all emissions from the UK and Australia combined).

In PlanetWatchers’ first pilot, the company’s team found that a large Brazilian forestry company had enormous tracts of land where no trees were growing. The scale of the forest is so vast that the forest manager had had no idea. After sending out a helicopter with boots on the ground to inspect, it was discovered that a weed was competing with the planted saplings, preventing their growth. Even within relatively healthy stands of forests, PlanetWatchers can identify slow-growing areas which may be stunted due to pest damage, soil composition or other factors, enabling forest managers to take immediate action. While anecdotal, these stories highlight the potential that continuous monitoring has for improving the density — and carbon stock — of our world’s forests.

In addition to strong projected profitability, the company’s growth plan has implicit within it improved CO2 extraction equivalent to 0.5% of U.S. annual carbon emissions by year five. Not too bad for a startup. And we get to help protect Bambi to boot.