Green Returns: The Financial Upside of Woodland Creation

Winter 2024

In a world where tree planting is increasingly prioritised to combat climate change and the biodiversity crisis, we hope to see (and deliver) extensive areas of native broadleaf woodland re-establishing themselves on marginal, open hillsides. This vision of a greener, more biodiverse future is not just an environmental aspiration, but an incredible financial opportunity driven by the rapidly developing market for natural capital products and services. Investors are increasingly seeking high-quality carbon and nature credits as viable alternative assets.

The Emergence of Natural Capital Markets

The concept of natural capital involves recognising and quantifying the economic value of ecosystem services provided by natural environments. These services include carbon sequestration, biodiversity uplift, water purification, and recreational opportunities. By trading natural capital products and services, such as carbon and nature credits, investors can financially support the restoration and management of woodlands while earning returns on their investments.

The Role of Amenity Woodlands

Amenity woodlands, traditionally valued for their recreational and aesthetic appeal, are gaining new importance in the natural capital economy. These woodlands provide critical ecosystem services that can be monetised in various ways. For example, an acre of broadleaf woodland can sequester significant amounts of carbon, which can be converted into carbon credits and sold to companies seeking to offset their emissions. Additionally, these woodlands can significantly enhance biodiversity, providing habitat for numerous species and contributing to the overall ecological health of an area. In time they can also encourage access, enjoyment and ecotourism opportunities.

Trading Carbon and Nature Credits

The trading of carbon and nature credits represents a significant shift in how we fund and value natural landscapes. Carbon credits are generated by projects that reduce, remove, or avoid greenhouse gas emissions, such as reforestation projects. These credits can then be sold to companies looking to meet their carbon reduction targets. Similarly, nature credits can be created by projects that enhance biodiversity or restore ecosystems. Investors can buy these credits, thereby funding conservation efforts and earning a return as the value of these credits appreciates over time.

Value Uplift through Land Transformation

One of the most compelling aspects of creating more woodland is the significant value in the uplift associated with the change in land use. Marginal bare hill land in Scotland, typically valued at around £1,250 per acre, can see its worth dramatically increase to between £3,000 and £5,000 per acre when transformed into amenity woodland. This positive change in state not only enhances the ecological and aesthetic value of the land but also represents a substantial financial gain. By creating more woodland, we are achieving a dual benefit: addressing environmental challenges while also realising significant economic value from previously underutilised land.

Won’t We Have a Saturated Market?

Creating extensive woodland areas raises a valid question: will the increase in supply lead to a decrease in their value? While it might seem that an abundance of woodlands could dilute their worth, several factors suggest otherwise. Firstly, the demand for natural capital products and services, such as carbon and nature credits, is expected to rise significantly as companies and governments strive to meet stringent climate and biodiversity targets. This growing demand can offset the potential devaluation caused by increased supply.

Moreover, not all woodlands are created equal. High-quality, well-managed amenity woodlands that deliver substantial ecosystem services will continue to command a premium. The value of these woodlands lies not only in their physical presence but in their capacity to provide ongoing benefits such as carbon sequestration, biodiversity enhancement, and recreational opportunities. As such, the emphasis should be on creating and maintaining woodlands offering high ecological and social value.

Additionally, the increasing recognition of the multiple benefits provided by woodlands—from improved mental health and well-being to enhanced ecosystem resilience—will likely sustain their value. Innovative financial instruments, such as green bonds and new innovative impact investment products, will further support the economic viability of these projects.

Challenges and Opportunities

However, this new model raises questions about the future value of amenity woodlands where natural capital products and services have been sold, and where management responsibilities remain. One challenge is ensuring the long-term sustainability of these woodlands. Management practices must be adapted to maintain the ecological integrity and productivity of the woodlands while fulfilling the obligations associated with sold credits.

Another challenge is the need for robust verification and monitoring systems to ensure that the claimed benefits of carbon and nature credits are realised. This requires ongoing investment in technology and expertise to track and validate the performance of natural capital projects.

Our approach to these challenges is to never fully realise the value of any individual natural capital revenue stream without leaving sufficient funding within the project to cover all future potential responsibilities.

Future Projections and Trends for Land Value in a Nature-Based Economy

With climate change raging across the globe and biodiversity challenges escalating, the value of land in a nature-based economy is set to increase rapidly. Future trends point to a booming market for lands that deliver crucial ecosystem services like carbon capture, clean water, and positive benefits for people and wildlife. As the climate crisis worsens, those once-overlooked patches of land are becoming home to an entirely new alternative asset class. This shift is driving up the value of amenity woodlands, catching the eye of investors and policymakers eager to harness nature’s power to tackle environmental issues. Expect to see innovative financing like green bonds and new impact investment products making these projects even more appealing. Plus, tech advancements will make tracking and verifying these ecosystem services simpler and easier, boosting investor confidence and making the valuation of natural capital assets efficient. In short, land that helps buffer against climate impacts and boosts biodiversity will be in high demand, reshaping the market and highlighting the critical role of regenerative land management.

Seeing the Wood for the Trees

As we look ahead, the future of amenity woodlands in a nature-based economy opens up a wealth of possibilities and challenges. The potential for transforming underutilised land into thriving woodlands is immense, not just for the environment but also for investors seeking sustainable and impactful opportunities. However, the journey towards realising this vision is complex and fraught with questions. How will we ensure the long-term sustainability of these woodlands while fulfilling our obligations to investors? Can we balance the increasing demand for natural capital products with the need to maintain high ecological and social value?

The answers to these questions are not straightforward, but they highlight the need for innovative thinking and robust management practices. As the market for natural capital products evolves, so too must our strategies for monitoring, verification, and long-term stewardship. The integration of technology, innovative financial instruments, and community involvement will be key to unlocking the full potential of amenity woodlands.

Ultimately, the future value of these woodlands lies in their ability to deliver a multitude of benefits—from carbon sequestration and biodiversity enhancement to improved mental health and community well-being. As we plant more trees and restore more landscapes, we are not just creating financial value but also fostering a more resilient and sustainable world. The question remains: how will we rise to the challenge and seize the opportunity to reshape our economy and environment through the power of nature?