Private equity and venture capitalists are eying timber and forest-based assets, now considered pivotal in meeting the EU’s Sustainable Finance Action Plan and the EU 2030 Forestry Strategy. That is according to a new EY report, authored by Raphaël Betti and Saurav Chakraborty, the push towards low-carbon construction materials, carbon sequestration, and EU-backed afforestation policies means that forestry is “a niche that is rapidly gaining traction due to its dual promise of financial return and positive environmental impact.”
The report, which reveals that European fund managers raised US$8.7 billion in assets last year, describes timberland as offering “low correlation to public markets”, built-in inflation protection, and strong climate resilience. “With the convergence of risk, return, and environmental impact, the report suggests that timber and forestry funds are no longer peripheral; they are becoming central to the future of sustainable investment in Europe,” it said.
“(And) unlike many traditional asset classes, timberland returns are less correlated with public markets and are supported by biological growth, inflation-linked pricing, and increasing demand for sustainable materials,” Betti and Chakraborty said, “this makes timber and forestry funds particularly appealing in periods of market uncertainty, offering both portfolio diversification and resilience.”
Timber’s Tipping Point — Global Demand Could Outpace Supply
The report comes after Wood Central on Wednesday revealed that global timber is spiralling towards a tipping point, with demand for fibre outpacing supply, and it’s just a matter of…by how much. That is according to Gresham House, which said rising timber prices and a growing focus on ESG make timber assets a strong investment. “From our analysis, future supply is projected to fall short of demand, with the best scenario showing only a 1.1x increase in supply compared to current levels – significantly short of the projected 1.5-1.8x growth in timber demand,” Gresham House said. “This demand-supply gap is even worse under the base case scenario, where projections remain static at current levels, and the downside scenario, which assumes supply will fall below today’s levels due to heightened forest disturbances.”
