Region: Europe and Central Asia
Country: United Kingdom
Topic: Emission Reduction Program
Keywords: Emission Reduction Program
Document Link(s):
Document Summary:
Foresight Sustainable Forestry (FSF) is the only investment trust listed today that provides investors with exposure to the UK’s natural capital and sustainable forestry sector. The Investment Manager, Foresight Group LLP, drives returns by investing in afforestation projects. This takes relatively lower grade agricultural land and transforms it into more valuable forestry once fully planted and the trees are established. Returns are also generated by investing in and upgrading existing forestry sites, with the intention of harvesting and selling the timber they produce, and by tapping into the nascent market for carbon credits, which afforestation sites generate.
Document Details:
Foresight Sustainable Forestry (FSF) has reported its results for the six months ending 31/03/2023. Despite numerous macroeconomic headwinds, the trust proved resilient, with its net asset value (NAV) increasing from £180.6m to 186.6m. The trust’s shares also rose by 1.9% over the period.
The increase in NAV was mainly driven by revaluations of the trust’s afforestation sites – plots of land that are converted into forestry. Completion of planting at four sites that had been acquired by the trust was a key driver of returns. This provides validation of the argument managers Robert Guest and Richard Kelly of Foresight Group have made since IPO in November 2021, namely that converting plots of land into forestry should prove accretive to NAV.
FSF’s managers invested £30m in 15 new sites during the period, 10 of which were afforestation sites. The managers have now fully invested the capital FSF raised from a £45m equity placing in June 2022 and did so six months ahead of their target date. However, the managers have not used their gearing facilities and are prepared to deploy further capital if more attractive acquisition opportunities arise.
Approximately 107,500 pending issuance units (PIUs) were created by FSF’s afforestation investments during the period, contributing a £1.9m increase to NAV. PIUs are converted into UK Woodland Carbon Units (WCUs) – often generically referred to as Verified Carbon Units (VCUs) outside of the UK – in periodic tranches over time once tree growth and the resultant carbon sequestration has been verified. After verification and conversion has taken place the units become usable as credits for offsetting an entity’s residual carbon footprint. The contribution of voluntary carbon value to the NAV uplift is a sign of the role carbon credits can play in driving returns for FSF. The managers forecast that the remaining 31 afforestation properties in the portfolio still in development will create another c. 850,000 PIUs, as these properties are planted.
In December, FSF also became the first investment company to receive the Voluntary Carbon Market designation from the London Stock Exchange. The VCM accreditation shows that FSF’s carbon credits are subject to high quality oversight and verification. FSF’s Board plan to allow shareholders the choice to either receive carbon credits from 2030 onwards as in specie dividends to offset their unavoidable emissions, or to receive an equivalent dividend in cash.
Updated: January 11, 2024
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