The Church Commissioners for England fund has a long track record successfully investing in forestry.
Aleksi Ehtee is a trained forester that started his career working in forest management. He then moved into timberland investment management, moving to the institutional investor side with the Church Commissioners for England.
He has been with the Church Commissioners for seven years, overseeing its timberland portfolio. Its fund has over £10 billion AuM, with approximately one-fifth allocated to real assets.
Timberland makes up just under 4% of the fund, and he focuses solely on this asset class. Its portfolio is institutional grade and is accredited highly sustainable, in well-established timber markets with assets concentrated in Scotland and the US.
The portfolio belongs to the endowment of the Church Commissioners for England, which is distinct from the Church of England’s pension board or local church funds. The Church Commissioners for England’s activities support the mission of the Church of England and in particular those areas most in need of financial assistance.
Supply is not expected to keep pace with demand, which strengthens the investment case.
Aleksi Ehtee, Church Commissioners for England
How has forestry evolved as an investment class in recent years?
Ehtee: Timberland has been a recognised asset class for decades but has gained more traction recently. The Church Commissioners have been invested in timberland since 2011. This makes us a relatively early mover in the space from an institutional perspective – at least in the UK.
What does investing in timberland entail? Do investors own and manage forests directly?
Ehtee: It depends on the resources and expertise investors have or are willing to develop. Some choose fund investments, where minimal in-house expertise is required, while others prefer separately managed accounts or joint ventures, which offer greater control over purchases, management and disposals. Investors who seek long-term exposure may opt for direct ownership. We use a combination of fund investments, joint ventures and separately managed accounts.
The Church of England is a moral institution. Are the investments in timberland primarily made for ethical reasons, or is the focus on achieving competitive returns?
Ehtee: Timberland has an attractive risk-return profile. The Commissioners have a fiduciary duty to generate sustainable investment returns, which is the primary reason for our involvement. That said, timberland also delivers social and environmental benefits. It has a low correlation with traditional assets such as stocks and bonds, making it a great portfolio diversifier. Additionally, timber prices have historically been correlated with inflation, making timberland a useful hedge.
Our primary focus is financial performance, but we aim to generate social and environmental benefits alongside returns. Our investments follow ethical and sustainable principles, meaning we avoid certain investments while favouring others that align with our values. Timberland is attractive because it offers strong financial potential while also delivering positive environmental impacts.
Where do the returns come from? Are they mainly from timber sales or other sources including carbon credits?
Ehtee: The core returns come from the biological growth of trees, which continues regardless of financial market conditions. There’s also timber price appreciation, which tends to track inflation, and land value appreciation.
Carbon credits can play a role, but our core returns come from traditional timberland activities. However, we are exploring renewable energy opportunities, such as wind energy projects in Scotland, which can generate steady income while coexisting with forests.
In addition, some developers are required to minimise the environmental impact of their projects, creating a market for environmental mitigation. Timberland owners can restore wetland habitats or provide other ecological services that developers need to offset their environmental footprint. This can provide returns on top of timberland revenue sources.
Timberland investments are long-term by their nature. Do you ever sell, or do you hold assets in perpetuity?
Ehtee: These are perpetual assets. If structured correctly – such as through separate accounts – there’s no need to sell. Timberland can generate sustainable cash flow indefinitely through responsible harvesting and replanting. We view these as long-term investments rather than short-term trades.
With the growing interest in timberland, are there enough forests available to meet institutional investor demand?
Ehtee: We have seen increased institutional interest due to timberland’s financial, environmental and social characteristics. Long-term timber demand is expected to rise, driven by population growth, urbanisation, housing shortages and decarbonisation efforts. Timber is increasingly used as a sustainable alternative to carbon-intensive materials like concrete and steel. However, supply is not expected to keep pace with demand, which strengthens the investment case.
How do you measure sustainability and impact?
Ehtee: When we acquire forests, they may not always be sustainably managed. After we take ownership, we ensure they follow best management practices and look to bring them to highest sustainability standards through positive interventions. All timber harvested from our portfolio is certified under standards from bodies such as FSC or SFI. Sustainable management is a priority for us, and it’s increasingly important for asset owners and end consumers, who want assurance that the products they use come from responsible sources.
Aleksi Ehtee was speaking at PMP’s Inside the Deal conference. For upcoming events click here.