Business model

Chinese tree breeders come up with a business model to make money while respecting the environment

Late last year, Chinese scientists published an article in the internationally renowned journal Cellunveiling the genetic code and the molecular mechanisms regulating the evolution of Pinus tabulaeformisa conifer native to China.

The study, conducted by researchers from Beijing Forestry University, was hailed as a scientific breakthrough in pine cultivation by thousands of breeders, including Wang Lianmau of Jiangxi Fenglin Investment.

“With this breakthrough, the trees can grow faster and stronger, and be less susceptible to pests and diseases,” said Wang, general manager of the company with 350,000 mu (23,000 hectares) of planting in the area. Jiangxi province in southeast China. “The selection and breeding of new, fast-growing varieties with high yield, high wood quality and strong [disease] resistance is an effective way to improve productivity and increase forest resources.”

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Fenglin talks with researchers to find out the genetic codes of two tree species in his plantation, mainly Pinus elliottii and Pinus kesiyahe said, using 21st century technology to increase the development of forestry as a carbon sink.

Afforestation establishes a stand of trees capable of absorbing and storing greenhouse gases such as carbon dioxide, one of the natural solutions that can help China meet President Xi Jinping’s commitment to peak emissions before 2030 and achieve carbon neutrality by 2060.

The ability of plantations to reduce carbon dioxide can earn them credits that are tradable through unregulated carbon markets once their sustainability and management standards are verified.

Villagers plant trees on cadmium-polluted farmland in Shuangqiao village of Liuyang city in Hunan province March 30, 2011. Photo: Simon Song alt=Villagers plant trees on polluted farmland in cadmium in Shuangqiao village of Liuyang city in Hunan province on March 30, 2011. Simon Song>

The challenge is to transform the concept into a flourishing business model, according to professional investors.

“An unresolved issue is the lack of standardized frameworks for sustainable forest management companies to monetize the environmental benefits generated by their assets,” said Gillian Diesen, thematic equity manager at Pictet Asset Management.

A viable business model should combine afforestation with the sale of timber, including its by-products and carbon credits, said Chan Tak-yuen, adviser to CFGC Amital Green Fund, co-invested by Euto Capital partners of Hong Kong and the Chinese state corporation. Forestry Group Corporation (CFGC).

The fund, which aims to raise an initial US$100 million, supports companies investing in high-yield, sustainable reforestation, carbon storage projects and the development of required technology.

Aerial photo is taken of the Kubuqi Desert in the Dalad Banner of Ordos, Inner Mongolia region, north China, Sept. 28, 2020. Photo: Xinhua. alt=Aerial photo of the Kubuqi Desert in the Dalad Banner of Ordos in the Inner Mongolia region, north China, Sept. 28, 2020. Photo: Xinhua.>

Fenglin is already reaping various sources of income from its forests, Wang said, noting that more than 70 percent of revenue comes from the sale of turpentine, resins, rosins used in mail and express delivery packages – all harvested in its planting. Pines can be sold as timber when they reach their optimum felling age at 25 years.

“The rest comes from carbon credit revenue,” he said, pointing out that more than 60% of the plantation’s acreage qualifies as carbon storage, the first commercial development of such magnitude since 2016.

Outside of China, the business of using reforestation to mitigate climate change has matured enough to attract big bets from professional investors, in part to hedge against the risk of rising offset costs. carbon in other investments.

JP Morgan Asset Management has paid an undisclosed sum to buy investment and forest management firm Campbell Global, with $5.3 billion in assets and 680,000 hectares worldwide under management.

“We cannot judge [carbon credits] as an asset class, but it’s increasingly becoming an important aspect when thinking about the portfolio’s overall exposure to carbon emissions intensity,” said Tomomi Shimada, Chief Strategy Officer. bank’s sustainable investment for Asia-Pacific.

Local people plant trees in the Kubuqi desert in Inner Mongolia on April 22, 2014. Photo: Imaginechina alt=Local people plant trees in the Kubuqi desert in Inner Mongolia on April 22, 2014. Photo: Imaginechina>

Sydney-based private forestry investment firm New Forests, which manages 1.1 million hectares worth $5.8 billion, is aiming to raise $300 million for a forest-focused fund on Southeast Asia this year. It has already received commitments from investors for $120 million.

He seeks funding from private foundations that want to invest in projects to create social and environmental benefits in addition to generating profits, and return-oriented pension funds and sovereign wealth funds.

“This blended structure allows us to generate positive impacts while keeping the yield intact to bring commercial investors into this space,” said Geoffrey Seeto, New Forests Managing Director for Asia.

Huge Chinese characters, meaning Green Chinese Dream, on a mountain in Erdos city, Inner Mongolia, April 22, 2014. Photo: China Foto Press alt= Huge Chinese characters, meaning Green Chinese Dream, on a mountain in Erdos city, Inner Mongolia, April 22, 2014. Photo: China Foto Press>

By selling timber and carbon credits, it aims to provide private foundations with a “mid to high single digit” annual percentage return over a decade. An average return of 14-18% is expected for investors looking for commercial returns.

Forestry is growing in popularity as a tool for businesses to offset their carbon footprint as renewable energy projects increasingly no longer qualify for carbon credits, Sustainable Fitch said in an April 11 research report.

Some 115 million tonnes of forestry-related carbon credits were traded globally in the first eight months of 2021, more than the 48 million tonnes traded in all of 2020, according to data provided by Ecosystem Marketplace.

“Forest carbon projects can be profitable, but the payback period is long due to the breeding cycle,” Wang said. “We are also considering projects in countries covered by China’s Belt and Road Initiative, where land and labor costs are lower.”

Additional reporting by Martin Choi and Yujie Xue

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice journal on China and Asia for over a century. For more SCMP stories, please explore the SCMP app or visit the SCMP Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

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