Timber Goes Green- Wood is the Future of ESG Investment in Global Property Development”

Environmental, social, and corporate governance (ESG) investors have long debated whether forestry and timber can be sustainable investments – after all, deforestation is a big challenge for preserving habitats and slowing climate change. Illegal logging in South America and Southeast Asia have considerably impacted the reputation of the industry.   

However, growing attention given to energy consumption, social sustainability, biodiversity, and tackling climate change has placed wood at the forefront of the future of ethical investing. ESG investment has increased the viability of one of the most promising new construction techniques of the new decade: high-rise timber.  

In response to the international call for stronger policy actions on decarbonization, industry shareholders have advocated for the creation of commercial targets for use of low-carbon materials  and sustainably designed public buildings. ‘Plyscrapers,’ or high rises built from cross-laminated timber (CLT), have emerged as the face of the green movement in commercial property investment. Advocates for mass timber claim that, compared to concrete and steel, plyscrapers are quicker to construct, stronger and safer in the event of a fire. But wood’s rising popularity can be mostly attributed to its green credentials.  

“If we are looking at ethical investment from the perspective of carbon emissions… energy usage is one big factor,” Linh Pham of EG Investments said to Commercial Real Estate. “But what the pandemic has actually highlighted to us is the social connections, things like isolation and mental health around wellbeing.  

“To have people back in the office, the office needs to provide a supportive environment where people can be productive and happy and connect better with their place of work,” she said.   

An often-overlooked consideration of ESG investment is the social impact of sustainable and human-oriented design. As a natural material, wood is recognized for its positive calming effects on mental and bodily health. Cities are also investing in the social benefits of a ‘return’ to nature, with funding for urban forests and large scale mixed-development projects incorporating green technologies picking up speed over the past few years.   

"The aim is to create an environmentally-friendly and timber-utilising cities where they become forests through increased use of wooden architecture for high-rise buildings," said a statement from Sumitomo Forestry, who plan to build the world’s first supertall wood structured skyscraper in Tokyo by 2041.   

Cross-laminated timber has been used for low-rise buildings in European countries like Germany and Austria since the 1990s, and the environmental benefits of using mass timber have been championed by the European Union (EU). The construction and operation of buildings accounts for 40% of the world's energy consumption, and approximately one-third of greenhouse gas emissions. But while concrete emits a huge amount of carbon, trees instead absorb it throughout their lifetime.  

If those trees are then turned into mass timber, that carbon is ‘locked in’ rather than returned to the atmosphere when the tree dies. Studies suggest that 1 cubic meter of wood can store more than a ton of carbon dioxide.  

The environmental impacts also translate to a growing return on investments. Since 2013, more than 700 multifamily, commercial, or institutional projects have used mass timber construction techniques in the United States alone, according to WoodWorks. In a report issued by Zion Market Research, the market for CLT is expected to reach $1.6 billion USD by 2024.  

Clearly, timber production companies must keep pace with the growing demand as well as remain attractive to ESG investment. The heads of leading wood product manufacturers such as Peter Kaindl, owner and CEO of Kronospan have been quick to establish themselves as an attractive investment for a low-carbon future. In recent years Kronospan under Kaindl has introduced a broad range of measures through its philanthropic body, the Foundation, to reduce the environmental impact of production and increase sustainability via community action programs and corporate green forestry practices. The family-run corporation has recently announced its new afforestation initiative to plant 1 million trees in the countries it operates in as part of its Always Green ambition, reflecting the firm’s 120 year mission to make wood a sustainable product.   

"If CLT is going to be a major building material for us in the next 30 years, we need to start planting the trees now," Professor Philip Oldfield who headed a recent UNSW research study on timber manufacturing told CNN. "We looked at how much timber we would need if, by 2050 say, 30% of new buildings were made from CLT… we're talking about growing a brand-new forest of 100-by-100-kilometers.”  

Sustainable forestry management will require committed collaboration between global manufacturers, investors, and policy bodies. Regulatory guidelines are already under way in the EU, with wood based products now certified by the Program for the Endorsement of Forest Certification schemes (PEFC) and the Forest Stewardship Council (FSC). The new E05 compliance standard also ensures ESG investors know which products use timber from verified well-managed forests.   

Yet, it may be many more years until wood becomes the norm in our urban skylines. "We're not at the point where (timber is) cheaper," architect Michael Green said in a recent interview. "And we want it to be cheaper because, at the end of the day, that's what governs the entire industry -- the cheapest solution.”  

"We have to solve climate change by making things more affordable, not by asking people to suck it up and pay more, because it doesn't work."