Does the age of big data apply to forestry? Absolutely! As a forest investor, forest data helps you make investment decisions. What to grow, where to grow it, and how long to grow it for sets the stage for what forestry data is needed by the investment community. But with the needs of investors today – to understand ESG elements, such as climate, biodiversity, health and safety and indigenous rights – traditional forest mensuration is insufficient. How do we collect and analyze all this data in an efficient way? This article takes a look at the evolution and reasons for forestry data, focusing on why certain forestry ESG data is relevant for sustainable forest investment strategies, and what would be needed in an all-encompassing Forestry ESG data management software.
Forest Data Collection – Before…
In the earlier days of my career, when I worked in operational forest management, data collection consisted mostly of measurements taken in the forest. There was the data required for forest inventory – species composition and abundance, age-class, tree height, DBH, and measuring significant dead and down wood. The purpose of this was primarily to understand the growth and yield of the forest and to value it. There were also regulatory reasons to gather data. Prior to harvesting, such data was necessary to apply for cutting permits, and calculate stumpage payments. Post-harvest data was collected to ensure that the harvesting company had cleaned up the logging debris and in the re-establishment phase, understand when the party with the timber rights could renounce responsibility – proving that a forest was “free to grow”, where responsibility of forest stewardship would transfer back to the hands of the government (where I worked, the province was the primary landowner). In any case, the point I’m trying to make is that forestry data was centered around knowing the commercial volume that was growing, valuing the timber, and meeting regulatory requirements.
The need for collecting forest data gave rise to several forest management software options such as Remsoft, Tigermoth, and Trimble. These programs serve both as a place to integrate growth and yield data (related to certain species in specific biological, climatic and geological growing environments) together with silvicultural regimes (planting, thinning, pruning, harvesting at certain densities) and spatial information. The software can then pump out numbers, giving useful information such as tonnes per hectare, optimum rotation age based on the maximum mean annual increment, and so on.
Earlier ESG data collection in my operational forestry days, were entirely driven by regulatory requirements – if we were designing a harvesting block, and a bear den was identified, it needed to be recorded and a no-harvest area buffer left around it. If we were working in the acknowledged traditional territory of First Nations People, a survey for Culturally Modified Trees (CMTs) needed to be conducted by a qualified representative of the First Nation (this was on the West coast of B.C., where CMT archaeological findings were common). WorkSafe B.C., required operators to follow strict Health and Safety requirements. ESG was not tied to the economic value of the forest in any way.
The Emergence of ESG and Today’s Forest Data Needs from an Investor’s Perspective
Yesterday’s forest data needs have not disappeared, but they have expanded. Forest investors are faced with increased regulatory and sustainability requirements, such as the EU Sustainable Finance Disclosure Regulation (SFDR). Following best practices for the financial sector includes committing to voluntarily to industry standards, such as those set by IFC’s Environmental and Social Performance Standards (IFC ES) the Taskforce on Climate-Related Financial Disclosures (TCFD) and the Task force on Nature-Related Financial Disclosures (TNFD). Further, forest industry-related best practices, such as forest management certification (such as FSC, PEFC, and SFI) requires data pertaining to forest management. And now, access to emerging carbon markets, requires data to keep up with carbon certification standards (VCS, Gold Standard). Because of the additional regulatory requirements, keeping up with industry best practice for sustainable forest management and cognizance of fundamental changes in risk, the following issues require more depth in forest data collection:
Climate change is leading to more prevalent and severe wildfire, drought, and storms that affect forests. Investors considering different regions and assets to invest in want climate data and climate projections as a risk mitigation tool.
Climate change is leading to changing conditions for forest species. Growing forests is a long game, and what you decide to plant today may not be the best species suited to the climate of the location 30 years from now. As above, investors want to understand how the climate is expected to change in an area (is it expected to become warmer, wetter, drier, etc.?) Thus, climate change can influence species productivity in the forest and the outcome of your forest investment.
Investors are increasingly under pressure to measure and disclose their carbon footprint, as such – they require knowing the carbon balance of the forest assets they invest in. Often this ranges from the carbon stored in the forests, through emission events caused by harvesting, transportation, processing, and the carbon stock of the eventual life of the product. This is also required for investors wishing to access carbon markets with the carbon certification of their forest assets.
Loss of biodiversity
Though biodiversity loss is still emerging as a threat to financial performance of investments in several asset classes, investors are increasingly becoming aware of the importance of maintaining and improving biodiversity in the forests they invest in. For investors in the know, they will want data on the baseline biodiversity conditions (whether that be genetic diversity, ecosystem diversity, species diversity and so on) and be able to measure this over time. As biodiversity markets emerge, requirements will strengthen.
Investors have diverse needs when it comes to the social information they seek from forest investments. This ranges from occupational health and safety (I wrote about this in my last post), to documented Free, Prior and Informed Consent with indigenous stakeholders, to gender diversity and more.
Especially a concern in emerging markets, where enforcement of responsible business conduct is lacking, investors in these regions often require investees to demonstrate a high level of corporate governance – this data may take the shape of having policies and procedures in place for various operations and reporting on compliance of such systems.
What’s more, investors are increasingly becoming aware that ESG-tagged investment strategies are out-performing conventional strategies. Having data related to the items above can support meeting the myriad of requirements AND set an investor on the right path for improved financial performance.
How do we collect ALL this Forestry ESG Data?
As I was working with a client on ESG integration into their new forest investment strategy and the investment process – he became very overwhelmed. He specifically referred to a forest management software program (as I mentioned above) and asked if ESG data requirements could be integrated into either the same or a similar management software, where it would facilitate data collection for all parties involved.
Unfortunately – this does not exist (if you know of a product that exists, please let me know)! Until now, Forestry ESG data management platforms are very siloed. There are platforms that can capture forest carbon data, such as FLINTpro, platforms that capture forest biodiversity data, such as Restor, and platforms that support general ESG reporting, such as Sphera. but there is no one-stop-shop.
As such, ESG management in the forest sector still largely exists in excel spreadsheets, word documents, and flashy sustainability reports with infographics. Investment companies are choosing their battles, and opting for data platforms that can be streamlined, such as forest carbon accounting – where models based on widely recognized assumptions are easier to quantify and “home-growing” the rest. It’s not perfect, but it works – for now. My concern, as evidenced by my client, is that the patchwork approach will either be too inefficient to maintain, or it is championed by one person on the team, who knows where the different spreadsheets live, SOPs for data collection are in their head, and when they eventually leave the organization – no one will know how to keep it up. In other words, ESG value is at risk of being lost.
The Future of Forestry ESG data
I must start this section with the disclaimer that I am no tech wizard. However, functionally – I know that the tools available for a mythical Forestry ESG data management system exist. Forest management software programs can be upgraded to include ESG data management, or there can be an ESG platform that is compatible with Forestry management software, where they can share data and ultimately avoid double data entry. Ideally, the ESG data management platform would include the following:
- Data entry to support the early stages of the investment process – ESG screening and due diligence support, transition planning, and ongoing ESG management
- ESG risk and impact assessment
- Stakeholder assessment
- Various E, S, and G elements – with optionality for investment firms to choose metrics that are relevant to them and their strategies. Methodologies for data collection would be built-in to take away the guess work and improve data quality and comparability across an investment portfolio
- Easy to use data entry functions for investees
- Reporting templates and dashboard for easy ESG performance assessment – bonus points if metrics can be linked to financial performance and not stand-alone in a separate report. ESG integration, is just that – and until forestry ESG data is integrated with mainstream financial performance, it will be difficult to understand what ESG factors are reducing risk and adding value.
Managing Forestry ESG data in the absence of adequate software
Let’s go back to remembering why investment managers need to collect forestry ESG data in the first place.
- Regulatory reasons, such as SFDR and others depending on your jurisdiction,
- Voluntary reasons, to keep up with best practices in both the financial and forest sectors,
- Risk management – both material and non-material ESG risk avoidance and mitigation,
- Value generation – understanding where managing for ESG factors can benefit financial performance,
- Impact generation – having the evidence that supports where your forest operations can generate the strongest ESG benefits.
In the absence of a one-stop-shop Forestry ESG data management platform, I can help you navigate which data is important for you to meet your investment objectives. If you would like to have a conversation about how to integrate ESG data into your forest investment strategy, please reach out.