364 Paul McMahon - Why regen forestry is natural capital’s Trojan horse for institutional investors - Investing in Regenerative Agriculture and Food

Episode Transcript
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Speaker 1 (00:00):
Like the most hardcore Excel jockey, who never
sees the sun, you know, shouldbe convinced.
the evidence is there, so eventhe most cynical investor
doesn't care at all aboutwalking through a mixed forest
where you can see wildlifeinstead of everything mowed down
underneath should be investingand it shares many of the same
principles around working withnature, not against it

(00:20):
understand the ecology, biology,trying to harness these natural
cycles, still being commercialand profitable.
There was actually a greatstudy done in Storhead, a forest
in England, where they compareda part of that forest which we
actively manage, usingcontinuous cover, versus another
part which is just beingbasically protected and not
being managed at all.
And the part that was beingmore actively managed had higher

(00:42):
biodiversity value, so morebird species were recorded.
So that was being more activelymanaged had higher biodiversity
value, so more bird specieswere recorded.
So that was fascinating.

Speaker 2 (00:48):
Which is such a philosophical shift.
Are we the active, positivekeystone species or not?
Like in many cases, we're not,but we could be if we choose to,
and we don't have to sacrificenecessarily financial returns.
This is the Investing inRegenerative Agriculture and
Food podcast, where we learnmore on how to put money to work
to regenerate soil, people,local communities and ecosystems

(01:11):
, while making an appropriateand fair return.
Welcome to another episode.
Today, paul McMahon is back andthis time we talk about forestry
.
Paul is one of the co-foundersof SLM Partners and has been
absolutely monumental that maybe a very big word, but still in
the space of agriculture andputting significant capital to

(01:31):
work there but has also beenactive in forestry and just
published Investing inContinuous Cover Forestry CCF in
Europe, and I was reallylooking forward and I'm really
looking forward to sit down andspend some time on let's, the
tree side of things, but not theones that get nuts out of them
or fruit or still productivetrees, but not to eat.
So, paul, welcome back to theshow.

(01:53):
This is the fourth time was2016, 2021, and last year we
talked about your, your updatedwhite paper, and this time,
another white paper, but nowforestry.
So welcome back.
Thanks again.
Great to be here again and todive straight into the matter.
Not compared to agriculture,but what triggered you actually

(02:14):
because you've been investing inforestry for quite a bit why
forestry and why Europe in thatsense, when you started with the
Forestry Fund a while back?
What triggered you to add anextra layer of complexity to
already not an easy sector,which is agriculture?

Speaker 1 (02:30):
Yeah, and Esalen Partners, as we're better known
as an investor in regenerativeagriculture, and we currently
manage about $750 million inassets, of which the vast
majority is in agriculture,which is interesting.

Speaker 2 (02:44):
We've been tracking, let's say, the space, and I
encourage you, we have a nicesheet.
We tried to keep a sort ofoverview of the space, but it
sort of feels like your growth,because you were episode number
three and your co-founder, TonyLovell, I think, was number two
or four or something like that,and then, let's say, the rhythm
of you coming back to thepodcast also reflects, I think,
in the assets under managementand the space in general.

(03:06):
Like there's a nice hockeystick curve there which is
absolutely needed.
It's still super underinvested,but at least we're getting to
the billions, we're getting tothe high hundreds of millions
and yet we're getting to somesignificance.

Speaker 1 (03:20):
Yeah, I know you always ask that question what
would you do with a billiondollars?
We're not too far away, youknow.
We're slowly, slowly gettingthere, but we have been used for
a while, as you know that westarted in 2009, raised our
first fund in 2012, focusAustralia.
I'd say the first year was very, very slow growth, but there's
been a bit of a hockey stickover the last yeah, I think,
three to five years, where we'veseen that increased interest in

(03:41):
natural capital, regenerativeagriculture, forestry,
land-based investments.
But I think you know we're sodeep into regenerative
agriculture really saw thepotential, you know, 10, 15
years ago, really got excited bywhat was happening on the
ground.
You're working with greatfarmers, regenerative farmers
all over the world, who aretrialing, improving systems you

(04:03):
know as being more profitable,better for the environment and
they could be scaled up.
Um, but then we we startedlooking at forestry and what
really struck us was we when wecame across a group of foresters
in ireland actually, who wereleaders in continuous cover
forestry.
It's really the quick.
It's a form of regenerativeforestry and very much
equivalent, you know, I think ofthe forest sector to
regenerative agriculture in thefood sector and it shares many

(04:26):
of the same principles aroundworking with nature, not against
it, understanding the ecology,biology, trying to harness these
natural cycles still beingcommercial and profitable, but
also thinking about theenvironmental impacts as well
around carbon, biodiversity,water, these sort of public
goods.
And so it really resonated withus that these groups, even
though they'd never really metor spoken to another, were

(04:47):
speaking the same language andcoming from the same
philosophical underpinnings, sothat really resonated.
I think that was certainly onereason we started getting
excited about forestry, and thesecond part was maybe some
personal bias.
I'm from Ireland.
I grew up in Ireland.
I have a sort of deepattachment to the landscape
there, could see what washappening in terms of
afforestation, but done in amore, let's say, monocultural,

(05:10):
industrial way, and sort of anitch told me there must be maybe
a better way to do things.
And so when I started pokingaround in Ireland, we found some
great foresters, we saw someopportunities and then we
actually raised a fund in 2018to invest in forestry in Ireland
.
So it really comes out of thatexperience and that's been a
very successful fund and a verygood experience, and so it

(05:33):
really opened up our eyes toopportunities in forestry in
Europe in particular.

Speaker 2 (05:38):
And do you remember the first time it landed sort of
forestry?
I mean growing up in Ireland,which has, I think, sort of
forestry.
I mean growing up in Ireland,which has, I think, a different
relationship to trees than therest of the world or to many
places, and has been a placewhich has been deforested, I
think, incredibly, and there'ssome efforts, of course, to
restore that.
Do you remember when, like theforestry, but more from the
commercial side and thecontinuous side, like landed on

(06:00):
your lap, you're like okay,let's check it out.
Lap you're like okay, let'scheck it out.
Or you were like, okay, we'reinto grazing, okay, maybe a bit
of agroforestry, but let's,let's focus.
Or what?
What happened when you youmaybe got an invite to visit a
forest like that?
Or the first time you you saw,oh wow, this could be actually a
potential, significant,institutional, investable, uh
piece of piece of deposit.

Speaker 1 (06:19):
Yeah, well, I really started, uh, seeing it out of my
um childhood bedroom window.
You know, just growing up inIreland, where I grew up in
South Dublin, you looked acrossthe Wicklow Mountains and, you
know, growing up in the 1980s,seeing these plantation forests
kind of springing out of nowhereactually and really
transforming the, the skyline,you know, around Dublin.
So I've always, I've alwaysgrown up with it and be very

(06:41):
curious about it.
And then I, as a from theinvestor point of view though,
you know, we started digging in,we started to see some of the,
the benefits of Irish forestryor how you know this could be a
very, a very investableopportunity.
You know, but just to give alittle context, that the history
of Irish forestry, quiteinteresting one.
Like, if you go back a hundredyears, ireland was down to a one

(07:02):
percent forest cover, like wehad almost no trees left, so
they'd obviously completelycleared, mostly for cows and
sheep, for grazing and for theforest agriculture.
There's been a gradual processof afforestation over the last
100 years, first driven by thestate and then actually by
private landowners, farmers,who've been given very generous
grants by the government toplant new trees, mostly focused

(07:23):
on conifer plantations, mostlysick of spruce and non-native
species.
So monoculture plantations,managed on quite short term
rotations like 30, 35 yearrotations.
Where they're planted, they'remaybe thinned a couple times,
they're all chopped down, thenreplanted, this kind of
rotational forestry system.
So that's where I grew upseeing the development of that.
Um, uh and, and you know, andthere's a lot, I think, backlash

(07:45):
against that system in our owntoo, where it's, it's very ugly
to look at, it's quite poor forbiodiversity, um, uh, and then,
you know, when these trees areall chopped down, it's quite
cataclysmic.
It looks a bit like like thebattle of the psalm or
armageddon.

Speaker 2 (08:00):
You know, it's very ugly and destroys a lot of huge
patches of tree, these hugepatches of land where and then
next door is still a standingthat maybe will be cut down in
another five-year cycle orsomething, and everything is
like raised to the groundExactly everything's jumped down
yeah, and sometimes you know itcould be 10, 20, 50 hectare
blocks, so a big, big area'sbeen cleared.

Speaker 1 (08:17):
So there's a lot of opposition to that, and people
know that it's not optimizingfor carbon storage, for
biodiversity, it can pollutewaterways, it's extremely
unpopular, very low immunityvalue.
So, yes, it produces lots ofcommercial timber, which is
important, but it doesn'tdeliver on these other
environmental benefits, and so Ithink that that was what really
drove me to dig further, likeis there a different type of

(08:39):
forestry, one that can stilldeliver that commercial timber
which we need to build houses,to make furniture, need to build
houses to, um, you know, tomake furniture, to build pallets
and paper and packaging,everything else but can also
store carbon, be good forbiodiversity, provide beautiful
habitats, look good in thelandscape and provide all the
other sort of functions thatforestry needs to deliver?

(09:00):
And so that's what that was ledus to discovery of continuous
cover forestry as an alternativesystem that really works.

Speaker 2 (09:08):
And so just to describe because I've seen a
backlash also in other places inFrance recently big posters of
these sort of mosaic ones.
You see foresters standing andyou see these huge pieces,
patches of completely clearedpieces of wood, and then, of
course, course has to regrow andit's a really weird imbalanced
system.
And so when you just to give usan understanding of for the

(09:31):
layman or laywoman, what's thedifference if you would walk
through a continuous cover, likeif you describe it to investors
, because you have to explainthis to institutional investors
which might be used to forestryto a certain extent but then
you're saying there's a betterway which actually has better
results and more resilience, etc.
How do you describe a forestlike that?

Speaker 1 (09:49):
So I think the clue is in the name.
So, continuous cover forestry.
The first principle is it triesto maintain permanent forest
cover, so you're never clearingthe entire forest.
Instead, you're keeping thatpermanent forest cover intact.
You know, in perpetuity you doharvest, but when you know, in
perpetuity, um, you do harvest,but when you come in and harvest
, you're harvesting individualtrees or groups of trees, so
you're never clearing wholeareas.
You're taking out individualtrees or groups of trees, um, uh

(10:13):
, and by doing that you open upgaps, you let in more light and
you promote natural regeneration.
And that's another key, keyfeature of this.
Instead of having to replanttrees, um, you trees grow, seeds
, seeds fall on the ground, newtrees, uh saplings form, and
then you create a condition soif those saplings to grow, to
fill in the gaps and to becomethe next cohort, that the next

(10:35):
generation is coming through.
So natural generation is a keyprinciple as well.

Speaker 2 (10:38):
So you don't have to, you don't have to read to a
certain extent.
I think there's some, butthat's just that concept of
imagine the forest willregenerate itself, of course,
the types that can grow thereand want to grow there and will,
and then you do the selectionof, instead of going in there
with your stick or whateverrobots we're inventing at the
moment, but starting to plantthe seedlings, which is an

(10:59):
incredibly costly endeavor.

Speaker 1 (11:01):
Exactly.
It's expensive because you'rekind of fighting against nature.
You had a forest ecosystem, youcleared it all and now you just
have to reestablish it.
So you know it's your cause ofbattling against the elements,
whereas if you continue to havea forest, you keep the forest
ecosystem intact, you have theright conditions, it's not too
bright, it's not too dark, it'sand very easy.

(11:28):
It's quite technical, but byvarying the amount of light
that's coming through the canopyyou can actually determine
which species will regenerate.
So if you more light demandingspecies, like certain conifers,
you might open up the canopymore, even more shade trawler
species, maybe like an oak, youcan have a kind of tighter
canopy.
So it's very interesting howthe light effectively determines
what grows back and and howquickly.

Speaker 2 (11:40):
So you're manipulating sounds like a very
technical job.
That sounds like a verytechnical job.
That sounds like a verytechnical job, which is, I think
, one of the tricky parts.
This is much more skill neededand knowledge heavy than
chopping the whole thing downand just replant it with a
monoculture plantation.

Speaker 1 (11:55):
Yeah, it takes probably a higher level of
forest management expertise.
We always say that conventionalforestry, industrial forestry,
is rotational forestry is reallyforestry by numbers.
You know it's been wellestablished.
It's very predictable.
You use certain yield tables.
You can predict the wood flows.
Um, your, your actions arepreset effectively, whereas with
the continuous growth forestryis much more adaptive.

(12:17):
Um, yes, there are some rulesand principles that you're
following, but you're reallyadapting to the forest and how
it's, how it's evolving, howit's behaving, and making
decisions based on that.
Again, very similar toregenerative agriculture that
adapts of management.
You know you're always adaptingto what's actually happening,
what you're seeing in front ofyou.
It definitely takes a higherlevel of skill, but it's also
much more rewarding, I think aswell, for the foresters who

(12:38):
manage to master those skills,because it's much more
satisfying to have that feelingof nurturing or being a
custodian or steward of thatforest and help you evolve in
that direction.
And I think what's exciting is,when you get through these
processes of transformation,regeneration, you eventually get
to a much more natural type offorest, so much more regular

(12:58):
forest.
You have big trees, you'velittle trees, you've
medium-sized trees, you'vedifferent species of trees, so
it's not just a monocultureanymore.
So it's a much more natural,diverse forest and much closer
to an original forest, but stillproduces predictable, stable
flows of timber, which is whatwe need for our economies and
for industry as well.

Speaker 2 (13:17):
Yeah, there's so many directions to go to, but let's
stick with, let's say, theemergence of it.
How do you?
And the predictability whichsometimes is an intention, but I
think, just to double click onthe resilient side of things,
because you said, let's say, therotational force, which sounds
good, but rotational simplymeans you rotate through, you
cut everything down and replanthas been very predictable.

(13:37):
That's changing right, likeit's no longer is, at least in
Europe, so predictable as itused to be for the last.
And you need long-termpredictability because these are
short-term cycles, as you saidbefore.
30, 35 years is, of course, aneternity in the current chaotic
landscape we're in.
So what has been happening to,let's say, the standard practice

(13:58):
in forestry in terms of returns, in terms of predictability,
pest, disease, weather like isthat?
Is it still as stable and doesit fit nicely in the Excel
sheets as it used to be?

Speaker 1 (14:10):
No, it's a great question, because I think what
we're seeing is that forestryall over the world now is
severely challenged by climatechange.
This is the big threat that'scoming down the track.
You know that the conditionsthat did exist were quite stable
for hundreds of years are nolonger stable, so we're seeing
increases in extreme weatherevents, we're seeing droughts,

(14:32):
we're seeing wind and storms,and the home zones of trees are
changing.
So forests are effectivelymigrating north in Europe In the
same way the greatest southwith the ice ages, you know,
maybe 10, maybe 10-15 000 yearsago.
Um.
They're now moving north as theclimate warms, um and and the.
If you have a monoculturalplantation, a single species, uh

(14:54):
sing, um very limited geneticdiversity, that's much more
vulnerable, you know, to thesekinds of uh physical risks.
You know whether that's a bigstorm coming through and blowing
everything down, which wedefinitely see in Ireland, the
British Isles or whether it'spests and disease, like the bark
beetle, which has ravagedCentral European forestry.
For example, germany lost 2% ofall its forests to bark beetle

(15:17):
between 2018 and 2020, and thatwas linked to drought conditions
.
It's two years.

Speaker 2 (15:22):
It's like a two-year period.
One beetle species wipes out 2%of Europe.

Speaker 1 (15:27):
Like that's incredible, like it wouldn't
have fit in any model andeffectively this Norway spruce,
which grows very well furthernorth, had been planted further
south in Germany, and as theclimate has warmed and these
drought conditions came in, thattree was super stressed.
And when trees are stressed,they're vulnerable to pests and
disease, and so that's whatwe're seeing, and so there's an

(15:47):
absolute imperative now to makeour forests more resilient to
these changing conditions.
And how do you get resilience?
The key is diversity.
You need to have forests withmultiple species, with genetic
diversity within each species,so that they can adapt, you know
.
And so, yes, some trees willfall by the wayside and not make
it, but other trees willactually flourish, and if you

(16:09):
have these more diverse forestsin the first place, they will
naturally evolve and adapt andturn into these, you know,
healthier, resilient forests inthe future.
So that's an absolute keynecessity, I think, for this
century.

Speaker 2 (16:21):
And do you see that?
Let's say, because one thing isseeing that in the field,
seeing that in the forest,seeing that with foresters,
seeing that with people that areon the ground.
The other is the institutionalinvestors that are often quite
far from the field, literally inagriculture, quite far from the
forest.
It might be in London WallStreet, it might be in Mumbai,

(16:41):
it might be in many other places, but not necessarily in an
Irish forest.
Do you see that notion of that?
The current system of forestryis struggling, at least, and
will continue to struggle,because none of this is going to
go away.
Do you see that?
Starting to land, or is that ahard sell?

Speaker 1 (16:57):
let's say I think people are waking up to it
because the evidence isunavoidable.
For example, in January Irelandwas hit by probably its most
devastating storm ever forforestry, storm Owen, which blew
down about 3% of all theforests in Ireland.
You know, in one event in oneday.
But if you look all acrosscontinental Europe there's
similar stories.

(17:17):
2005, sweden was hit by StormGudrun which destroyed tens of
thousands of hectares offorestry.
Very interesting storm gudrunwhich destroyed tens of
thousands of hectares offorestry.
Very interesting studies thatcame out of that showed that um
the least, sorry, the mostresilient forest, with those
with the most diversity and theones that blew over the most
were the, the single speciessort of spruce stands.
And there's some amazingresearch also from austria where

(17:37):
they looked at, I think, for umacross 40 000 hectares over a
25 year period and what wasbeing damaged by both wind and
pests and disease, and againthey were finding that the
forests with more diversity,managed using continuous cover,
were the ones that had, I think,a third less damage than the
more monocultural,single-species towns.
So I think we're seeing theevents.

(17:57):
Forest owners and investors aredealing with the impacts, but
then we're also seeing theacademic research to show which
types of forests are survivingthese events best right now and
you can extrapolate that intothe future.
There's also been, I think, abig movement from academia.
But then, coming to policy atthe EU level, the EU launched a
new forest strategy, 2030, whichreally calls into question the

(18:21):
more simplistic kind ofcliff-fell rotational systems
and calls for more diversecontinuous cover managing
approaches.
And actually in 2023, thecommission launched a closer to
nature forest guidelines whichagain really champions
continuous cover as a as aresilience of the long-term
sustainable forest manager.

Speaker 2 (18:38):
So I think there's a huge shift going on within
forestry right now and that'sthat's bubbling up to to the
institutional investment worldas well rich almost suggests or
sounds like the regulation sideof things in forestry, let's say
at least in europe, is moreadvanced in the forestry side
than agriculture in terms ofpush and in terms of um, or at

(19:00):
least it sounds like.
This is like there's a seriousregulation push and there's a
serious demand side as well,which we'll talk about, like
forestry products and the woodside of things, but all the
different ones, but like theregulation, probably after 20,
30 years of lobbying of thepioneers seems to be getting
there.

Speaker 1 (19:16):
Yeah, I think the last five years we've seen that
shift, you know, and I thinkit's coming from the Brussels
commission level.
We're seeing it's in nationalgovernment levels too.
Uk Ireland, slovenia, poland,many countries have specific
policy now to promote continuouscover.
I would say, though, that thepolicymakers are going gently,
I'd say you know, there's a lotof more voluntary measures,

(19:37):
incentives rather thanrequirements, and that's
probably not a bad thing, butmaybe learning from some
mistakes in agriculture.
If you use too much stick, notand that's probably not a bad
thing, but maybe learning fromsome mistakes in agriculture if
you use too much stick, notenough carrot, you can alienate
people, and the reality is wealso need the foresters, who
have the training and the skillsof the UC system.
So it's going to be a processof evolution.
It's not a sudden overnightchange.
But, yeah, we're veryencouraged by the policy level

(19:59):
support that's now coming forthese alternative systems.

Speaker 2 (20:01):
And is it possible to transition, let's say, an
existing forest that has beenmanaged rotationally to a
continuous one?
Of course it depends on thecontext, depends on a lot of
things, but already you have tocut it down and start over.

Speaker 1 (20:15):
Yeah, no, absolutely you can.
And it's called transformationto continuous cover forestry,
and that's really what we'redoing in Ireland.
So we and so we run a smallfund.
We raised about 30 millioneuros in 2018, back by the
European Investment Bank andother investors.
We've acquired, I think, over80 forest properties in our own
since 2018.
We built a portfolio just under2,000 hectares in size and we

(20:37):
bought most existing forestry.
So most existing forests,typically 15 to 25-year-old
forests, and most of them wereSitka spruce monoculture
plantations, because that'swhat's there.
So that's what we're startingwith.
So we start with those forests,but then there is now a
well-defined way that you cantransform those forests, and it
involves coming in and thinning.

(20:57):
You're thinning actually alittle bit more heavily than you
would normally.
You're getting more timber outof the forest earlier, which is
good for IRRs and cash flows.
You open up the canopy, you'reletting in light and you're
promoting the conditions fornatural regeneration, and that
will start happening aboutprobably year 25, year 30, you
know, in the spruce forest inIreland.
And once you get thatregeneration, then you can start

(21:20):
switching your focus to takeout larger trees.
And then you can startswitching your focus to take you
larger trees and then youreally come in and thinning
every four, three or four orfive years, taking out maybe 20
of the volume of the forest on aperpetual basis, just
constantly thinning, thinning,thinning and gradually take out
the more mature trees uh, youknow which are, which are ready
for harvest.
So, yeah, it does take decades,it's not a quick process, but
we started that now, um, and youknow, come back in 50 years and

(21:44):
hopefully those forests willlook very different, much more
diverse and much more mixedspecies and diverse structural
forests and how have investorsresponded to that?

Speaker 2 (21:55):
like, in a sense, and also structures.
I don't know the structures inforest, like.
Are they set up to be that longterm in terms of 50 plus years?
I'm imagining yes, because itdoesn't make sense to constantly
sell and buy portfolios likethat.
You just pay a lot of money tolawyers, which is unnecessary.
What are the structures thatare really long-term and does it
make sense to starttransforming these current

(22:17):
assets that are a bit threatened, of course, by climate and
storms like you just had?

Speaker 1 (22:21):
Yeah, well, I think you could separate the financial
structure from the nature ofthe asset.
You know forests are forever,you know so they're going to
keep going, they'll be thereforever.
But financial structures, thereare options.
Yes, you can have perpetual,evergreen vehicles where there's
never any intention to sell,and that's certainly an option.
But you can also have moreclose, short-term, closed-end
funds 10 to 15 years which iswhat we've used in Ireland, for

(22:43):
example, where you'reeffectively the building up a
portfolio, aggregatingproperties.
You're beginning that process,transformation.
You put in place um, thesystems and processes and
showing things and moving theright direction, um, and then it
is possible to even exit,because it is also the value of
those forests and so the capitalvalue is very important, um,
like year 10, year 15, year 20,whatever it is, and I think

(23:05):
there is well established waysto value forests, so you don't
necessarily have to hold theseassets forever either.
So I think there's flexibilityon the structural point.

Speaker 2 (23:14):
And have you seen that, let's say, the health of a
forest or the potential of aforest is being valued
differently now, with all theknowledge we have in the
academia and the papers that arecoming out?
Let's say, the work you put inin this Irish forest, is that,
of course, hypotheticallyspeaking, is that going to be
rewarded?
Or is it just going to be likethe next one in portfolios?

(23:36):
Are buyers starting to value,okay, what's the potential?
And, just like soil, health isstarting to get into some, let's
say, valuations.
But we still see that verylittle in agriculture.
How is that in forestry?

Speaker 1 (23:48):
I think in forestry there's a well-established way
of valuing forests which isrelatively simple, where you
effectively you model out futuretimber volumes, so what you can
expect to harvest in the forest, all from a very long-term
basis like a hundred year model.
So we're looking very far intothe future.
You're then assuming what youcan sell the forest.

Speaker 2 (24:07):
Herbal farmers are like listening to this and
thinking, oh my God, how do Imodel?
Yeah, this is a whole differentworld.

Speaker 1 (24:13):
It's very long-term thinking, exactly so you're
modeling at timber volumes,maybe a hundred years.
You're assuming timber prices,some linked inflation, you're
assuming the cost of managingthe forest and then you're
effectively getting your cashflows and then you're using a
discount rate and that's a verycritical point of this because
the disc rate has a hugeinfluence using a disc rate to
get a net present value of thosecash flows.

(24:35):
So the fundamental basis ofvalue forest is no different
from.
We can continue to discoverforestry and conventional
forestry.
Our model is just a little bitdifferent because discover
forestry and conventionalforestry.
Our models just look a bitdifferent because, instead of
having a rotational forest modelwhere in year 30 everything
gets chopped down and andliquidated and turned into cash
and then you've got to wait 30years for the next harvest event
, we had this continual uhharvesting.

(24:57):
We're harvesting all the time,effectively taking you off a few
percent, few percent peoplesend you know every few years,
and so the model looks different, but the principles of how you
work out the value is actuallythe same.
Now what I think may changethings is well, what about
monetizing some of theenvironmental benefits of
continuous cover, which we canget into a bit more, but, for
example, carbon being maybe mostevident or closest, let's say,

(25:22):
to monetization.
So there's clear evidence thatcontinuous cover forestry stores
more carbon.
It locks more carbon into thestanding carbon stocks because
the forest is never going to beclear, so you have higher
average standing carbon stocksin the trees.
You tend to have more carbon inthe soil because you're
avoiding those very destructiveclear fill events where a lot of
carbon gets oxidized andactually released from from the

(25:44):
soils.
So you're giving more carbonthe soil.
You're producing a higherproportion of um, higher value,
wider logs, which goes more intoconstruction, timber and
furniture, some long-lived woodproducts, as opposed to being
burned for energy or turned intopaper and pulp.
So you have more carbon inactually wood products.
So you, you've more carbon inthese different carbon pools.

(26:05):
And so, yeah, continuous coverforestry stores more carbon.
And if you take a conventionalforest which is managed in a
rotational forestry, convert tocontinuous cover, that can
qualify something calledimproved forest management.
So it's a particular kind ofcarbon methodology and that
delta, you know, can allow youto generate carbon credits and

(26:26):
if you can generate and sellthose carbon credits, that could
generate a new source ofrevenue for your forest that
wasn't there, which you then putinto your model, and that does
lift the values and that'sexciting and that's beginning to
happen.
So, but at its core, we stillneed that timber model.
You know, you have to believewe could use high volumes of
high quality timber over verylong periods of time, and that's
what's going to drive the valueof the forest and we need that

(26:49):
demand for timber, and so let'stalk a bit about that shift.

Speaker 2 (26:53):
I think there's a massive shift in terms of
bio-based building, uh, by wasteeconomy, like there's a lot of.
There seems to be a lot ofextra demand in in europe at
least, I don't know too muchoutside, um for um, for timber
and timber products and timberderivatives, or whatever we want
to call them.
And just like, what do you seein the demand side?

(27:13):
Is that being met?
Is it relatively easy?
Do we need a lot of extramanaged forest?
Does it need to come fromoutside?
What do you see on that side?
Because if the demand is notthere, of course prices,
especially long-term, are goingto be under pressure and it's
going to be challenging for themall.

Speaker 1 (27:28):
Yeah, so, historically, timber demand has
been linked to gdp and so it'sbeen somewhat cyclical, um
linked to things like housingstarts and construction activity
.
But we, we, we are in themiddle of this structural shift.
You know the structural upwardshift of demand for timber which
has been been driven by themove towards a low-carbon
bioeconomy, and Europe is in thevanguard of this.

(27:51):
To the European Green Deal.
It's trying to achieve net zeroby 2030, 2050.
And that's going to drive changethrough a lot of sectors.
For example, construction,moving away from very
carbon-intensive concrete, steeland aluminium to wood-based
building and that's going to bea huge source of demand.
Moving away from plastics tobiomaterials, you know, and

(28:14):
forms of paper and packaging aswell.
And then also bioenergy, youknow, as a form of renewable
energy where you're takingresidues and lower-value
residues from the foresteffectively and burning that for
energy is also a very importantpart.
So the studies show that demandfor timber in Europe is set to
grow by about 50% between nowand 2050.
So it's going to be a biguplift in demand and so we're

(28:36):
very bullish about timbermarkets and we think timber
prices are going to be strongbecause of that shift to a low
carbon bioeconomy.

Speaker 2 (28:46):
And specifically, I think, in terms of storing
carbon, and you might getrewarded for that or not, and
but like the larger trees, thelarger logs, like you talked
before, are it's more likely itends up in furniture or it ends
up in buildings, um, compared tothe smaller one.
Of course, when you're thinningat the beginning you might have
a lot more smaller ones, butyou start to select over time
for larger and larger trees andof course, how to remove them is

(29:10):
a whole different ballgame.
But it becomes selecting forquality and selecting for larger
, which also gets better price,not just because you have more
tonnage of trees.
There is a limitation ininfrastructure there, right?
Not all countries or forests orareas are.
Are, um, let's say, equippedyet to saw larger ones.
I remember from the white paperthere's a challenge in

(29:32):
infrastructure, just as isprocessing, let's say in
agriculture.
And how, how difficult is it toto fix that?
Does it need massive new sawingequipment very expensive, or is
that relatively easy to toovercome to get these bigger
logs in?

Speaker 1 (29:45):
yeah, well, in any forest management system you
typically have three types oflogs coming out of the forest.
So the highest base use isalways going to be saw logs, so
wide amateur saw logs that cango into make construction timber
, so sawn timber, furniture andthose long-lived, high-quality
wood products.
The next category is what'scalled pallet or fencing, so it

(30:06):
could be medium-sized trees, arethen the pallets for for
transport or fencing.
And then the final category is,like the thinnest trees, the
logs or branches are.
It's called pulp, and thatcould go to make and pulp and
paper and packaging in certainparts of the world, of europe
certainly in finland,scandinavia, very strong
industries or panel boards, sothings like NDF or other kind of

(30:29):
composite board materials.
So there's three differentcategories and very clear
differences in pricing.
So saw logs typically sell forat least three times more than
pulpwood.
So you always want to try andgrow as much saw log as you can,
like specialty coffee,basically yeah.
So saw logs is where the moneyis, basically yeah.
So soil logs is where the moneyis.
And so one of the beauties ofcontinuous cover forestry is
that it tends to focusharvesting on those bigger trees

(30:50):
and so you're getting a higherproportion of soil logs to those
higher values.
Now it is true that even thesoil mills in certain parts of
Europe, especially when we seethis in the UK and Ireland, in
certain parts of Scandinavia,they've been set up actually for
relatively small, large soillogs, logs, so your trees that
have been cut really prematurely, that maybe 30, 35 years in the
british isles, um, kind ofjuvenile trees.

(31:13):
So they're set up to processrows and soil logs which aren't
too big and with continuouscover.
You let trees grow longer soyou will have bigger trees and
big, wide logs coming off theforest and so you will need to
adapt maybe some of the soilmill machinery to deal with
those.
But in other parts of Europethat happens naturally.
So in Germany and continentalEurope they're used to dealing
with big logs and big trees andactually they get they pay very

(31:34):
good prices because you get amuch higher quality product.
If you can take a big saw logyou can make into wider timbers
and cut it in different ways andso, and so you need to retool a
little bit the sawmills, butthere's no reason why they
should.
The bigger saw logs should notbe processed and attract a very
high premium in the market.

Speaker 2 (31:52):
And just for me to understand our layman, there's
an interesting sentence in thewhite paper on that Ireland and
the UK is an ideal place becauseyou have one of the fastest
growth rate of trees.
First of all, is that true?
Yeah, otherwise it wouldn't bein the right paper.
But my imagination would alwaysbe go to the tropics or go
south because there's moresunlight.
But why continental Europe, andespecially the, let's say,

(32:14):
north, north, central and maybeeven the Nordics, is so
interesting in terms of treegrowth?
What makes trees grow so fastthere?

Speaker 1 (32:23):
Yeah, so within Europe we have temperate
forestry, which I'd include.
North America, ireland and theUK really stand out.
We have the best growth ratesfor trees, mainly because of the
weather.
We have very mild winters, sothe trees grow for most of the
year and it's always moist.
It's always wet and humid.
If you look at continentalEurope, look at Scandinavia and

(32:44):
North America very cold wintersand so the trees shut down for
maybe you know best part of halfthe year.
So the growth rates in Irelandwould be three times what you
see in Scandinavia, or most.
That starts to add up.

Speaker 2 (32:56):
Yeah, many parts of North America Over 100 years.

Speaker 1 (32:58):
Yeah, it's comparable to similar to New Zealand, I'd
say Maybe not quite the level ofthe tropics, but when you look
at temperate forestry, Irelandand UK really are kind of world
beakers when it comes to forestgrowth rates Fascinating.

Speaker 2 (33:11):
And so you've been talking to a lot of
institutional investors,obviously, about this since you
raised the other fund.
Now you're launching a new oneas well, significantly larger.
What is different this time?
Are they more receptive?
Because, in forestry, 30million is great, but it's a
small fund.
As you said yourself, you needa few hundred at least to not

(33:32):
that, you need a few hundred.
Let's say, the forest canabsorb a lot more in terms of,
and a lot more forests need thattransformation.
So how's been the reception on,let's say, the institutional
investor side?
And, of course, we're in acrazy chaotic time.
It's the end of april 2025 andhow is?
How has the investor journey orthe investor roadshow been
until now?

Speaker 1 (33:52):
yeah, so I think there's a lot of new investor
appetite for the sector.
I think a lot of investorseurope are coming from a point
of view thinking about naturalcapital as a theme at the moment
, and that includes agricultureand forestry as well as more
pure nature-based solutions suchas carbon biodiversity projects
.
So we're seeing moreallocations being made by

(34:14):
institutions into naturalcapital as a whole and within
that, forestry is often thegateway drug to natural capital
because it is a morewell-established sector.
People have been investing inforestry institutionally since
the 1980s.
The billions of dollars havebeen invested as track record.
There's plenty of evidence ofhow it can perform.
So I think it is sometimes aneasier sell actually than

(34:36):
agriculture for someinstitutions who are coming to
the space for the first time.
So we are seeing increasingallocations, increasing interest
in the space.
Yeah, so we are looking toraise a new, larger fund more
like 200 million euro fund toinvest in multiple European
countries.
So you want to keep investingin Ireland, which you really
like, but also expanding to someother geographies as well

(34:57):
within Europe, and we've lookedall across Europe and looked at
all the different nationalcharacteristics and tried to
pick six or seven countrieswhich have the right
characteristics good forestresources.
Ability to use continuous cover.
Ability to generate returnsyeah.
And so a bunch of criteria, andso we have a very well-developed

(35:19):
strategy for that.
So that's going to be our focusnext year to raise that fund.
I think, when it comes to thecontinuous cover piece as well,
what's so exciting about this isthere's so much more evidence,
new evidence available on theeconomic superiority of
continuous cover compared torotational forestry.
That just didn't exist, youknow, maybe 10 years ago.
So we wrote a white paper onthis topic in 2016,.

(35:41):
We drew largely in research inthe UK and Ireland.
We've just published this newwhite paper in February of this
year, where we draw on researchfrom all around Europe, and I
was personally even struck byjust how compelling the story is
Like.
Put all the environmentalbenefits to one side, everyone
agrees on that, but just lookingat the pure economics the
studies coming out of the UK,out of Ireland, out of Finland,

(36:03):
out of Croatia, out of Germanyshowing that continuous cover,
in almost all scenarios, isdelivering a higher internal
rate of return than rotationalforestry.

Speaker 2 (36:12):
Even the most cynical investor doesn't care at all
about walking through a forestwith a mixed forest where you
can see wildlife instead ofeverything mowed down underneath
should be investing, should atleast look at it, because
there's no reason from the andthis is only now imagine with
more climate weirding because Ithink that's if you start to
model that in, which is superdifficult.

(36:33):
But especially if you want aforest to be around forever,
even in your rotational forest,yeah, you need to start looking
at these weird storms that wipeout 3% of your forest overnight.

Speaker 1 (36:45):
Absolutely yeah.
So, like the most hardcoreExcel jockey who never sees the
sun, you know, should beconvinced.
You know the evidence is thereand I think you make a very
important point.
There's the kind of raw returns.
You know that internal ratereturn you can get if you invest
in forestry.
Manage it well, get those cashflows in timber maybe some
carbon, but then there's therisk of just returns those

(37:07):
castros and timber maybe somecarbon, but then there's a risk
of just returns.
Are you actually reallyunderstanding risk?
Because if you go invest in theother systems rotational
forestry there's all thesehidden risks you probably aren't
quite aware of yet around windand disease and pests.
That's coming down the trackwith climate change, whereas
this alternative system givesyou more resilience and
adaptability to that.
So I think that's harder toquantify, but maybe as important
that long-term resilience tosuch a long-term asset like

(37:30):
foraging.
We're talking 100-year terms orlonger.

Speaker 2 (37:34):
Yeah, and I think it's that sort of no regret one
to invest in in a certain sense.
We had a I'm blanking on thename who we had talking about
institutional capital.
We were talking more watercycles but, like, even if it
doesn't plan out, let's say, thecarbon credit side, or it
doesn't pan out, uh to to beenvironmentally way better,
which we've seen in this case,like we've seen the research,

(37:56):
still it is a better bet to docertain things.
And for institutional,especially long-term capital,
you need to start and, of course, you're making models and
scenarios.
But we're living in such aweird world now in terms of
climate, but also in terms of,of terrorists, in terms of and
like europe needs to look at at,like the commission likes to
say.
What is it a strategic autonomy?
Um, and yeah, we need to grow alot more in general, um, on on,

(38:20):
let's say, the larger continent, and so and just to jump,
because europe has this hugeuntapped resource.

Speaker 1 (38:27):
you know, like I think we have about 180 million
hectares of forest in Europe.
About 45% of the continent iscovered in woodland of some sort
, so it's absolutely enormous.
It's massive.
Not managed, but, aliyah, thestudies are showing that quite a
lot of these forests are beingunderutilized or undermanaged.
And actually the amount ofharvesting is taking place it
probably is, I think, about lessthan two thirds of what's

(38:49):
possible effectively in Europeanforests.
And why is that is oftenbecause we have a very
fragmented forest estate.
So about 40% is owned by bystates, that 60% is privately
owned.
Most of the private owners ownvery small blocks.
So it might be a few hectareshere, a few hectares there.
There's an aging demographic.

Speaker 2 (39:06):
What do you do with that?

Speaker 1 (39:06):
People have left the countryside, moved to the city,
so there's a lot of neglect.
There's a lot of neglectedforests.
So just by coming in andactively managing the forest we
already have today, we couldmassively increase wood flows
which will go into constructionand furniture and paper and
packaging and bioenergy for thatlow-carbon bioeconomy.
And then on top of that, ofcourse, we need to plant more
trees.
So afforestation is a hugeimperative.

(39:29):
There is a lot of potential inEurope to plant new trees on
marginal farmland which iscoming out of agriculture
production and we need to getbehind that and promote it.
I do think, again, continuouscover can help, because the
opposition to more industrialrotational forestry there's a
lot of communities of theopposition to more industrial
rotational forestry there's alot of communities don't want to
see new forests growing.
Up on the under, on thehillsides, in the backyards,

(39:51):
they're often very opposed toforestry.
They should be in love withtheir forests and we do think
the continuous cover morediverse natural forests will get
a lot more community acceptance, as you have a lot more support
locally for people to plant newforests, you know, and so you
get this sort of win-win ofbalancing the environmental
immunity benefits plus thecommercial timber production.
That's what we need to get morehealthy forests in the european

(40:12):
landscape what is needed?

Speaker 2 (40:15):
I mean to ask the billion dollar question, but
what is needed to unlock that?
Like 200 million you're raisinggreat, amazing seems like a
small drop in the bucket andlike what is what would be
needed?
What is blocking Europe toreally put tens of billions,
let's say, to work fromdifferent institutional
investors?
I mean, I'm not saying itdefinitely shouldn't be
concentrated in one pool, butwhat is holding that sector back

(40:40):
?

Speaker 1 (40:40):
Our strategy is very much an aggregation strategy.
We are coming in, we're buyingsmall properties, aggregating,
building institutional scaleportfolios and bringing that
professional active managementwith a focus on continuous cover
forestry.
That's our approach and wethink it could produce very good
returns for investors that havea really strong impact.
Now there are some limitationsto how quickly you can deploy.

(41:02):
There's probably a trade-offthere because we're doing lots
of small deals.
Lots of you can deploy uh, youknow there's probably a
trade-off there.
Um, uh, because we're doinglots of small deals, lots of
small acquisitions.
I mentioned we bought in 80properties in ireland over like
a four-year period.
So it does take time.
You need a really good groundgame and that's why we're not
trying to raise billions ofeuros right now.
We're trying to, you know, acouple hundred um build up the
systems on the ground and thenstart building portfolios.

(41:23):
But there's no reason why thatcan't expand and grow and you
can just keep aggregating, keepinvesting and keep deploying
that strategy over time.
So I think that's certainly oneway institutional investors can
get behind is aggregationstrategies and bring in the
professional management.
But at the same time there'slots of ways we can help those
private forest owners bring inactive management and using

(41:45):
continuous cover forestry.
You know, cooperatives are onevery powerful tool that's very
well established in places likeDenmark and Scandinavia, where
these small owners comingtogether and forming
cooperatives and they can accessservices and sell the timber in
more efficient ways.
I think there's a lot ofpotential there.
So I think, yeah, we'll see acombination of institutional
investment, but also privateowners getting their own act

(42:06):
together and coming together toget those efficiencies you know,
as broader groups.

Speaker 2 (42:13):
Yeah, and how much I just struck me of the the
natural regeneration piece of ofcontinuous Cover forestry.
How much of that is soundsalmost too good to be true, like
a lot of this work is done bynature or letting natural
processes do most of the work,as you say in the white paper.
When you present that to, let'ssay, a hardcore traditional

(42:35):
rotational forestry people oreven investors in that space,
this sounds like almost too goodto be true.
Is that a difficult sell?

Speaker 1 (42:44):
I think there has been some amount of resistance
in the conventional forestrysector to some of these ideas,
for sure because a lot of peoplehave been brought up in that
more simplistic forestry bynumbers way of thinking that we
talked about earlier on.
But at the same time there'ssuch a body now of evidence
coming out of the academiccommunity that it's very hard to
ignore.

(43:04):
So I think it's just takingpeople to forests where we're
using these practices, showingthem the regeneration that we
see.

Speaker 2 (43:11):
How does that go when you bring people there, like,
how does it like even just wedidn't do a really visual piece
yet, which I like to do Justbring us there.
Like, in terms of difference,if you go to one plot and then
to yours, just how does it feel,smell, look differently, sound
differently compared to yours?
Just for people.
This is an audio medium.
We're filming it as well, butit's predominantly an audio

(43:33):
medium.
Bring us there.
What does it mean to walkthrough one of those, compared
to the neighbors?

Speaker 1 (43:39):
So I think in those early stages of transformation,
where you're starting with amonoculture plantation, as we
are in many cases in Ireland,and transforming probably for
the first 10, 15 years years,maybe the differences aren't so
great.
You'll notice that the forest ismore open, so it's been thin
more heavily, so there's morelight coming in, for sure,
compared to maybe a conventionalrotational forest nearby um.

(44:00):
But then after about that, afterthe forest gets about 25, 30
years of of age, that's when youstart to see the natural
regeneration and that's when thedifferences become very
apparent, because then you'llsee a huge mass of new trees
growing up from underneath.
You know predominantly the samespecies that was there before,
but you'll see diversity comingin naturally.

(44:20):
Broad leaves will come in,you'll see a real mix of species
coming in, whereas theconventional forest next door
will just be kind of a deadunderstory with no light and
just mature trees ready to becut down.
So that's when you see thedifference.
The regeneration phase is whenit really kicks in and if you
come back maybe another 40, 50years after that, you'll
hopefully see the transition toa fully irregular forest

(44:44):
structure where you'll havethose big trees, medium trees,
small trees, multiple speciesall intermixed and it'll look
completely different from yourspruce monoculture.
So again, it's a slow processbut absolutely we can take
people and show them forests atdifferent stages of
transformation, because they'rethere, right, yeah, they're
there.
And it is like night and day andyou really can see what you're

(45:06):
on ice.
So I think that is a verypowerful tool site physics and
getting people out there.
But there's always oh, that'sjust anecdotal, or does it
really work?
Is it economic?
Or maybe some rich personsubsidizing it?
This is where you need theacademic research as well people

(45:27):
that you come in measuringtrees, looking at the cost, the
returns, the timber volumes andand that third-party
verification rate that this,this is actually profitable.
But I think that's what we'restarting to see now really
robust academic studies showingthe economic superiority of the
system, and we synthesize someof those in a white paper.
But you can see in thefootnotes the underlying
research that underpins allthose claims.

Speaker 2 (45:41):
Rich is fundamentally different than 2018, probably
Like that kind of research,academic ones, which we're
starting to see in regen.
Of course, you mentioned theregenerative edge, like in
agriculture, sorry, and alsothere we often think it might be

(46:01):
a rich person subsidizing hisor her ranch, or something like
that.
There must be.
There must be, uh, like like atrick somewhere here um, do you
use those images or anythingwhen you don't bring people to
the, to the forest yet, just toshow the difference night and
day?
Just to make it, because you'regoing to present this in very
uh, let's say, sterile, um,investor offices somewhere far
away, like where, where the onlywood probably is a table,
hopefully, if you're lucky.

(46:22):
And like, how do you?
Or do you start with thefinance?
Like, how do you bring that?
Bring them there, or bring them, bring this point home.
That this is night and daydifferences, with all the
financial benefits of it, butit's also just a fundamentally
different thing.
You shouldn't even call it thesame product.

Speaker 1 (46:38):
Basically, yeah, I think it's highly visual.
That's one nice thing aboutforestry.
We have some wonderful images,we have videos in our forest, so
I think it is highly visual andyou can kind of tell people's
emotions quite quickly.
There's something about foreststhat really resonate with
humans.
We are effectively savannahdwelling forest dwelling species
and there's something aboutbeing a forest which calms and

(47:01):
relaxes and sort of nourishesthe soul.
So I think you want to try andcapture some of that.
And it's very hard to feel thatway, to be honest, when you're
someplace in like a spruceplantation, where all the trees
are the same age, you're aboutto be cut down.
But you can get a sense of thatin those continuous cover
forests because of thatnaturalness and diversity and
the biodiversity.
So I think there is thatfeeling.

(47:23):
But at the same time you've gotto show the numbers and we're
very, very careful that we havevery sophisticated models to
underpin all our claims aroundthe potential performance of
these forests.

Speaker 2 (47:35):
What can the ag space learn about forestry?
What do you think?
And the other way around.
But let's start with, let's say, in ag and food and the
regeneration side, what can welearn from?
It seems like forestry startsto attract significant
institutional capital fordifferent models, Like what it's
not really happening yet inagriculture, Like what can we
learn from yeah, from thisjourney?

Speaker 1 (47:58):
Yeah well, I think there's two things from this
journey.
Yeah well, I think there's twothings.
There's the level ofinstitutional investment in the
sector.
So forestry versus agriculture,and forestry is certainly ahead
.
What do we learn from that?
I suppose sometimes it's just afunction of time.
Forestry just started earlier,largely because of the quirk in
the 1980s where a lot of USforest companies that were
integrated started to sell offtheir forest holdings and to

(48:21):
become more asset light and justbecome the processors of timber
, and so there was a naturaltransfer of ownership and a pool
of assets were created whichinstitutions came into, and so
that means you have this 40-yeartrack record now of groups
investing in forestry, andagriculture doesn't really have
that.
So I think sometimes it's justa function of time and as you

(48:42):
have more agricultural funds,hopefully being successful,
proving things out, then youknow we may see that there
probably is also the simplicityof forestry, like I think it is
more.
It is simpler than agriculture.
It focuses on small number ofmarkets.
Trees are very forgiving.
Like you can just you canignore a forest for a year or
two and come back and itprobably everything's gonna be

(49:03):
fine.
You know, you can spend no opexand the trees keep growing.
But you can't do that for afarm.
Yeah, you know, if you go awayfor two years, come back it's a
massive wheeze or your orchardhas died.
So just the op-ed animals haveescaped yeah the opex intensity
is so much higher in agriculture, and that puts a lot more risk
too, because you can lose moneyin agriculture in a way that in
forestry is hard to lose money.

(49:24):
You just may not make as much asyou thought, but you're very
likely to actually be cash ornegative.
So I think it's also a veteranfeature of the systems.
In terms of the regenerativeside, though, I think one thing
forestry has been good at isestablishing long-term
measurement plots, so wherepeople are trying different
things and coming in andmeasuring every five years and

(49:47):
stretching that out.
You know, now maybe in the 20thor 25th or maybe 30th years,
you are starting to get thelongitudinal data on performance
of the natural system underdifferent approaches.
Now we could always do it moreand these are slow-moving
systems, so you know.
So you know, 30 years inforestry probably more like five
years in agriculture, you couldsay but I think the foresters

(50:08):
have been quite good at that oftaking measurements and putting
down data and and setting upthese plots and we we discussed
it with pre preinterview therole of technology.

Speaker 2 (50:22):
I mean, we both looked at a drone company
lifting out trees, a skyloggeror I'll put it in the show notes
.
But what do you see?
Because these are long-term,very long-term investments and
technology is moving very fast.
Do you see?
Because selectively harvestingwould be great if you don't have
to do that, but driving agigantic harvester into a forest

(50:43):
, obviously, and like these, theshifts on the horizon, are
things that would be reallyinteresting if technology could
play a role in that.
Even selecting the trees ormeasurement, of course, there's
a lot of image recognition ingoing into ai at the moment,
like there are a lot of thingsthat seem to be, uh, almost
there and of there, and if it'sthere five years or ten years,
it makes a massive differencebecause you're going to be there

(51:04):
for a while.
What do you see as the role ofthis seems to be crazy.
Technology boom.
We're in for something as slowbut as real and physical as
forest.

Speaker 1 (51:16):
There's definitely a role for forest management
systems, information systemsbecause you do have a lot of
data coming out of the forest.
There's inventory data on howmany trees, the size of trees,
how they're growing and beingable to put all that into an
online tool and then you canoptimize and see the impact of

(51:36):
different management choices onthat and effectively model out
the future evolution of theforest and play around with that
.
We use some systems like that.
I think that is very valuablein trying to overcome some of
that complexity in a way usingtechnology to simplify and as a
decision-making tool, you couldsay, for the foresters in the
ground.
Definitely a role there On theground itself.

(52:01):
In some ways it's still quiteold-fashioned, like it's very
hard to get away from the valueof forest.
You're walking his or herforest and really seeing what's
happening, understanding theinteraction, seeing the
different trees.
Like our forest example inireland they still individually
hand mark the trees forharvesting with spray cans, you
know.
So they're going through andusing judgment and skill to pick
out which trees need to comeout, which are going to stay in,

(52:23):
and so you're hand markingtrees and then the harvester,
the machine comes in after thatand then takes out the trees
which have been marked, but theforester does the marking, so
that's quite a boots on theground kind of traditional
process.

Speaker 2 (52:34):
Massive amount of data must be in the heads and,
like the amount of tactility andknowing and understanding
landscape, where it makes senseto keep a tree or not and which
tree, that won't be maybeaugmented to a certain extent.
We need more of those, we needmore people of those, and
cloning probably is not anoption, but there's an immense
amount of observational skilland data going through somebody

(52:58):
when they choose okay, this treeyes and this tree no, this tree
next year or five years.

Speaker 1 (53:02):
Yeah, so it's really upskilling foresters and making
it an even higher skilledprofession.
I think that's the direction togo and there can be some tools
that help.
Some technologies could helpwith that.
But so far we haven't seen abetter way of doing it than
actually having foresters walkthe forest and make those
decisions.
But I think the harvestingtechnology is has improved that.

(53:26):
You know, the machines that areused now are very efficient.
They can.
They travel along dedicatedextraction racks.
They're not wandering throughthe forest, compacting the soils
.
They stay in certain areas.
They can reach in, take cuttrees, pull them out so you
really minimize the impact onthe soils.
Maybe someday we'll get todrone harvesting, you know, in
those, especially those harderto reach, steep slopes or maybe
very boggy areas.
That would be fantastic.
It's not quite there yet, butyou know in the future, who

(53:48):
knows?
So look like same withagri-culture we don't put the
technology first, we put theprinciples and the thinking
first and then, yeah, howtechnology can be a tool to just
make things more efficient andreduce cost.
That's where it's going to stepin and be successful.

Speaker 2 (54:05):
Yeah, I know it's like walking the forest and
walking the land as a farmer andas a forester probably is still
, or is actually more so becausewe've been disconnected by that
, by sitting in the tractor orby very not having to select at
all because, you know, in 30years or in two years we cut
down this whole plot and that'sit because it says so on the

(54:27):
spreadsheet.
We're still at risk in terms ofprice because you might cut it
down in a very bad economiccycle in terms of timber prices
and that's going to hurt quitebadly.
But, like I say, walking theland, observational, is
something.
Yeah, the best farmers we knowand the best foresters you know
for sure have that skill.

(54:48):
There are just not so many ofthose and so, probably as your
agriculture investments as well,like six, seven countries in
Europe, finding those skilledoperators that can do that and
make sure you reward them andmake sure they reward them and
make sure they they keep doingthat, because you need probably
a few decades in in a forestarea to understand, to really

(55:08):
grasp a place.
Okay, this tree needs to comeout and this tree shouldn't.
And this is how a forest couldlook like here in slovenia.
This is how one could look likein poland, and this is how one
could look like in ireland.
Um, which is the upskillingforesters, is a non-sexy but
very important investment.

Speaker 1 (55:23):
And we always say, when it comes to agriculture,
the first thing we learn toinvest in space.
The hard part is not theacquiring of the land.
The hard part is finding thegreat farmers, the operators on
the ground.
It's actually the same withforestry we put a lot of effort
into forming partnerships withlocal forest management teams in
the countries in which weoperate who have those skills.
I think the same principleapplies.
You almost need to start withthe people and then sort of

(55:45):
build a strategy around thosepeople.

Speaker 2 (55:48):
Is it getting easier now in agriculture Just to take
a sidestep before we wrap up,like in terms of attention for
Regen, in terms of farmersworking with larger funds, like
yourself or other places, justto get good at Reg region
farming at scale and havecertain skills to communicate
with investors and to do that,which is not always a given.
Like amazing region, farmersmight not be the best investment

(56:11):
partners because they're notinterested or needed to
communicate with institutionalinvestors, of course.
Do you see?
Is it getting easier or isthere also just more competition
in finding great farmers andland managers to work with you
is as tricky as it was 10 yearsago.

Speaker 1 (56:25):
I think the pool is growing.
You know, every year there'smore interest, especially from
younger farmers, in findingregenerative, organic ways to
manage land, Like I think, weoften meet at Groundswell.

Speaker 2 (56:36):
that great conference that's held in the UK every
summer Shout out to Alex and theteam and come and see us, by
the way.
Yeah, we'll be there again the2nd or 3rd of July, but that's
grown from a small event.

Speaker 1 (56:47):
A few people said you're at a kitchen table today
with like 6,000, 7,000 people,so it's just an indication of a
lot of them are farmers, farmerstrying to explore and find new
ways of managing.
So no, I think we're quiteoptimistic about the direction
that we're moving in.

Speaker 2 (57:08):
I think it's a great moment.
To wrap up, I want to thank youfor coming on here and talk
about forestry, something wedon't do enough.
We do quite a bit agroforestry,which we always get to receive
really well.
Our listeners love agroforestryand anything to do with trees.
Now we're going to find out ifthat's also with productive
trees, but not necessarily foodproductive.
I think there are a lot oflessons there, from how to

(57:29):
attract institutional capitaland from how to transform
existing assets, which we haveto do all the times in
agriculture as well, and why itbalances so nicely, and, of
course, by cycles which are waylonger.
It doesn't mean they're notinteresting because you can
harvest continuously, which Ithink we underestimate.
If you look at the return,there's some nice graphs in the
white paper of how interestingthat can be as an investment.

(57:51):
We often go for the modelswhere we hope for a large IPO at
the end or hope for an amazingsale or et cetera.
Just hope for the timber pricesto be high after 30 years.
But in a much more chaotic world, probably a continuous
harvesting and more quality,which gets to like an
established market for quality,helps.
We've seen it in olive oil,we've seen it in wine and in

(58:14):
coffee, etc.
Like you, if you don't have todebate a lot why you should get
a better price.
If you say I have larger locks,better quality, it pays.
Everybody knows where you wantto aim for and that makes makes
a market just much moreefficient.

Speaker 1 (58:26):
So thank you for coming on here and sharing maybe
just one last comment, becausewood is the most beautiful
material.
It's got so many uses, it'sbeen part of human civilization
for so many thousands of years.
We're seeing revitalization,almost a rediscovery of the joys
and the benefits of wood as amaterial Health.
But I think it also puts moreemphasis, then, on finding ways

(58:47):
to commercially manage forests.
There's a lot of attentionbeing put on forestry
conservation, protecting forestsconservation, rewilding, and
that's all good things.
I think about a quarter offorests in Europe now are
protected, are conservationforests, and it's good.
We maintain old growth primaryforest for those, you know,
super high biodiversity values.

(59:07):
But the other three quarters ofour forest europe is is
technically commercial forestry.
I think that's where some greatopportunities lie, where we can
actually balance that type ofproduction to produce what we
need for our economies but alsodeliver on carbon storage,
biodiversity, immunity, scenicvalues, you know.
So that multifunctionalforestry that's, I think, the
exciting new discovery andthat's what continuous cover

(59:31):
delivers on.

Speaker 2 (59:31):
So, yeah, that's what we're trying to get behind with
our investment euros at themoment, yeah, which opens and
we're not going to go there awhole new rabbit hole of the the
land, say sparing versusintensification, etc.
Which we have constantly inagriculture, and that divide
between nature and production.
Like you sort of start withthat in in the white paper,
which is, yeah, let's say it gotus into a lot of trouble.

(59:52):
It doesn't really work.
Nor nature doesn't stop at thefence line, if you even have a
fence, and what you said, like75 percent of forest isn't
protected and we can evendiscuss the protected side,
should it be grazed more?
Should like, what, what likewith management, some are so
degraded that they aredefinitely not natural, whatever
natural means.
But let's say, 75 is managedand can be managed in a bite of

(01:00:16):
a like, completely different wayfor biodiversity, like we
should encourage that as much aspossible and still harvest as
similar, or more and betterquality, better prices, that in
terms of raw servers that can benot sprayed, not pulled out,
not treated and have, let's say,a lot more life on it.

(01:00:36):
The same discussion as inagriculture.
Why would you intensify andkill all life possible if you
can do another one which we'vebeen arguing for, of course, for
decades, where you can have alot of those benefits and
harvest similar amounts.
Nothing exactly the same, maybesome years less, some year more
, but at least the amount ofservice area where you have just
more insects, more life, etcetera and less poison is so

(01:00:59):
much bigger.
But it's a very philosophicalone.
Like do we believe we canseparate that or not?
Like where does nature stop ornot?
Of course it doesn't stopanywhere.
Can you still produce on thesethings?
Is it just a fairy tale?
And you're saying there's a lotof academia behind now?
Like you can produce similar?
Like that's not a discussion,but it's a tricky one because we
have that narrative in our head.
Like nature and productionseparate, let's not mix the two.

Speaker 1 (01:01:22):
Yeah, I think the trade-offs could be harder in
agriculture between those twothings nature, production.
I think within forestry theynaturally come closer together.
Like you can find thisoptimized position where you are
delivering quite well for allthose dimensions of timber,
carbon, but diversity andenvironmental benefits.
So I think that's what makesforestry so exciting, it's a

(01:01:44):
more natural system that you'rejust nudging.

Speaker 2 (01:01:46):
Is it because of carbon?
Is like climate is hittingharder on the traditional way.
Is it because it's forestry?
Is it like?
Why is that easier, Seems?

Speaker 1 (01:01:54):
easier.
I think it's probably inecological terms.
It's just one step closer to anatural system.
You know, compared to anagricultural system like a
forest, a soybean system, even acontinuous cover forestry which
is managed for commercialtimber production is still, in
terms of structural biodiversityterms, you know, not so far
away from a completely natural,let's say, primary forest.

(01:02:16):
It's never going to be as goodin terms of you know those
functions, but it's not too faraway.
So I think it's adjacent to,let's say and that's what makes
forestry so exciting that we canreally balance those dimensions
, I think, which would be greatto have adjacent to the
protected forest just as a mixedzone.

Speaker 2 (01:02:36):
No buffer sounds wrong, but just to have it
almost a natural zone to thenatural forest.
And again, I don't think theyexist to a certain extent in
Europe, whatever natural means,but to have them surrounded by
these kind of forests would bethe prime area, because then you
have just a much bigger, closerto natural, as close as natural
as possible forest as you can.

Speaker 1 (01:02:54):
And just one tidbit there was actually a great.
They saw storehead of forestsin england where they compared a
part of that forest which weactively managed continuous
cover versus another part whichis just being basically
protected and not be managed atall.
And the part that was beingmore actively managed had higher
biodiversity value, so morebird species were recorded.

(01:03:15):
Other indicators were higher,so that was fascinating.
Now you're probably comparingit.
That protected area was a, asyou alluded to, a not
particularly healthy forest inthe first phase, but that's all
the conditions we're in now, soactive management is going to
actually enhance biodiversity attimes.

Speaker 2 (01:03:31):
Which is such a philosophical shift we need to
make into many ways like active,almost keystone management.
We're getting to a veryphilosophical space like are we
the active, positive keystonespecies or not?
Like in many cases, we're not,but we could be.
We're showing you if we chooseto and we don't have to
sacrifice necessarily financialreturns which is always nice to

(01:03:53):
walk into, let's say, offices inLondon and other places this
makes sense financially if youhave the patience and time.
Perfect.
I think that's a great way towrap up.
Again, thank you for comingback.
We're doing a nice rhythm interms of coming back on here.
Thank you for your support ofthe podcast as one of the Field

(01:04:13):
Builder Circle leaders and, ofcourse, thank you for the great
work you're doing.
You're an absolute pioneer inthe space and again doing that
not only in ag but also withforestry thanks and great to
have you on.

Speaker 1 (01:04:22):
It's the last white paper for a while we produce,
but if anyone wants to see itit's on our website.
I highly recommend you downloadand have a read.
So thank you to all thelisteners.

Speaker 2 (01:04:29):
I really enjoyed it.
Thank you for listening all theway to the end.
For show notes and linksdiscussed, check out our website
investing in regenerativeagriculturecom slash posts.
If you like this episode, whynot share it with a friend?
And get in touch with us onsocial media, our website or via
the Spotify app, and tell uswhat you liked most and give us
a rating on Apple Podcasts orSpotify or your podcast player.

(01:04:51):
That really really helps us.
Thanks again and see you nexttime.

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364 Paul McMahon - Why regen forestry is natural capital’s Trojan horse for institutional investors

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}364 Paul McMahon - Why regen forestry is natural capital’s Trojan horse for institutional investors