Europe’s forest assets, long overlooked, are emerging as a key pillar in the EU’s new green agenda. That’s according to Paul McMahon, managing partner of SLM Partners, who writes in IPE Real Assets: “The forestry sector is a little-known source of strength within the European economy. Although the EU has just 5% of the world’s forests, it produces 20% of the world’s roundwood each year.”
This quiet strength, he said, is now translating into global influence, as Europe moves from being a net importer to a net exporter of roundwood and fuelwood. Over the past decade, the EU has reversed its trade position, recording a net trade surplus of 15.4 million cubic metres in 2023. This shift, McMahon said, reflects both internal policy momentum—particularly the transition toward a low-carbon, circular economy—and external pressures, including geopolitical tensions and trade disruptions.
“Despite unpredictable trade flows, Europe is showing clear signs of a structural increase in domestic timber demand, driven by its transition towards a low-carbon, circular economy,” he notes. The fraying of transatlantic relations—especially in the face of President Trump’s tariff threats—has also led European investors to concentrate more on domestic opportunities.
“The forest products industry is an important part of the European economy today and a crucial pillar for the transition to a low-carbon economy in the future,” McMahon writes. “At the same time, this sector is not immune to trade uncertainty and geopolitical risks. As Europe looks to rely more on its own resources, there is an opportunity to better utilise the continent’s forests through investment and active management.”
Sanctions imposed on Russia and Belarus in 2022 disrupted traditional supply chains in the Baltic Sea region, causing roundwood prices to spike and prompting European producers to seek new markets. Meanwhile, EU exports to the United States face uncertainty due to new tariffs imposed by Washington, with Brussels threatening retaliatory measures that could include American forest products. In 2023, the EU posted a €3 billion trade surplus with the U.S. in wood, pulp, and paper products—flows, McMahon said, that could be disrupted by escalating trade tensions.
Yet Europe is not merely weathering these challenges—it is capitalising on them. “The EU emerged as the second biggest exporter of softwood logs and lumber to China in 2024,” McMahon said, underscoring the continent’s growing role in Asian markets and its ability to pivot amid global trade realignments.
This rise in timber exports is also being driven by Europe’s climate ambitions. With 40% of the continent’s greenhouse gas emissions coming from the construction sector, wood is increasingly seen as a sustainable alternative to carbon-intensive materials like concrete, steel, and aluminium. Paper, cardboard, bioplastics, biochemicals, and biomass are also gaining traction as substitutes for fossil fuel-derived products. Research indicates that total demand for wood fibre in the EU will grow by 25% by 2050, creating a 173 million cubic metre’ fibre gap’.
Despite this projected demand, Europe’s forests remain underutilised, McMahon said. In 2022, only 66% of the net annual increment of wood was harvested. Much of the untapped potential lies in privately owned forests, which account for 60% of the EU’s forest estate. With an estimated 16 million private owners—two-thirds of whom hold plots smaller than three hectares—fragmentation has hindered efficient forest operations. “Working with managers with boots on the ground, [institutional investors] can finance aggregation strategies that acquire private forests and introduce active management,” McMahon said.
The SLM Silva Fund, which has invested in Irish forestry since 2018, serves as a model for how capital can support sustainable timber production. Europe remains largely untapped by institutional capital, with less than 1% of global forestry investment directed to the region.
However, aggregation alone is not enough.
As it stands, commercial forestry in Europe is still dominated by single-species, rotational systems involving clear-felling and replanting—an industrial model increasingly unpopular with the public. McMahon advocates for a shift toward multi-functional or regenerative forestry, particularly silvicultural systems such as Continuous Cover Forestry, which can unlock timber resources while delivering benefits for carbon sequestration, biodiversity, and public amenity. “The European forestry sector is already in a strong position,” McMahon said. “Yet, Europe can achieve greater resource security by making more of its forestry resources, especially those that are privately owned. Institutional investors can play a role by financing aggregation strategies that support active, regenerative management.”
