BNP Paribas Asset Management (BNPP AM) has taken a majority stake in forest asset manager International Woodland Company (IWC) to bring natural capital investments to its private market investors. It comes as parent organisation BNP Paribas (EPA:BNP) faces accusations of greenwash over its involvement in a forestry project in Indonesia.
- BNPP AM has acquired a majority stake in IWC, a Danish forest asset manager.
- Forestry assets are becoming more popular in the private markets as investors seek nature-based solutions.
- This adds to BNP Paribas’s role in funding natural capital, which may help in assuaging investor concerns over its involvement in a forestry project facing greenwash claims.
Majority stake in IWC adds to biodiversity and natural capital commitments
BNPP AM’s majority stake in IWC builds on its existing commitments to invest in natural capital and biodiversity. It previously pledged to raise €4 billion for businesses that contribute to protecting terrestrial and marine biodiversity, provide €1 billion to fund the maritime ecological transition, and invest €25 million in startups committed to ecological transition.
IWC manages €5.5 billion in forest assets, and has a 30-year history of providing investment management and advisory services on investing in timberlands. In addition to direct investment in forest ecosystems, conservation projects and agricultural investments, IWC also provides investors access to carbon credits.
Otto Reventlow, CEO of IWC, commented: “Both companies share a vision of combining fiduciary duty and active contribution to the transition to a sustainable world. We believe that wood is the preferred material in a carbon-neutral world, and agricultural production is on an important path to deliver sustainable proteins to the global citizen. This partnership will enable IWC to expand its distribution reach and further its resources on sustainability and the EU taxonomy to the benefit of both our current and future clients.”
Forestry assets gain in popularity among private investment markets
The investment follows Manulife Investment Management’s (MIM) launch of its Forest Climate Fund (FCF) in December 2022. Its objectives include providing high-quality carbon value to investors through carbon credits.
MIM expects to offer the FCF to European investors as a “dark green”, or Article 9 fund. A spokesperson for BNPP AM declined to comment about whether the asset manager considers the FCF as competition.
When asked about the types of products BNPP AM would offer, and whether that would include carbon credits, the spokesperson said: “Through its holding in IWC, BNPP AM will be able to offer IWC’s existing innovative investment solutions to a wider range of clients, as well as expanding its own range of sustainable thematic products with the launch of nature-based solutions; these are likely to cover areas such as forestry, agriculture and carbon optimisation.”
Forestry assets could supply VCMs credits to fulfil burgeoning demand
Strong anticipated growth in voluntary carbon markets (VCMs) will likely attract investors of all stripes, including private market investors. According to McKinsey, the market for voluntary carbon trading is expected to reach around $50 billion by 2030, which will require a substantial supply of high-integrity credits.
If this can be delivered, it could help to ensure that private equity and private market capital is efficiently directed towards the most impactful, cost-effective climate mitigation activities and carbon projects worldwide.
VCM growth has been explosive over the last five years, with 54% of the cumulative amount being issued in 2021 alone. The World Bank sees carbon markets as an important tool in reaching global climate goals.
Private market capital is vital to financing natural capital
According to the UN Environment Programme (UNEP), a $4.1 trillion funding gap needs to be filled to meet global climate change biodiversity and land degradation targets. Mobilising the $9.8 trillion in assets under management in the private market investments sector could be a game changer to raise the financing needed.
Yet, the natural capital investment market is relatively small, accounting for only 0.1% of global GDP, or less than $100 billion, according to BNPP AM. Calls from investors, climate activists and governments can help change this, which in turn could drive rapid developments in the natural capital market.
BNPP AM sees an opportunity for private finance to boost investments in natural capital, which could satisfy the impact and sustainability investment criteria of private equity investors, as well as offer an inflation hedge and positive risk-adjusted returns.
IWC investment builds on historical collaboration with UNEP
BNPP AM’s parent company, BNP Paribas, has a history of promoting private market investments in sustainability, including investing in forests. In 2017 it entered into an agreement with UNEP to establish Sustainable Finance Facilities, which involved forming partnerships to raise up to $10 billion by 2025 to fund sustainable projects in developing countries.
The scope was to support small-hold projects in sustainable activities, such as agroforestry, water access and responsible agriculture. The investment in IWC builds on BNP’s involvement in financing forests and natural capital, and may serve to reduce any scrutiny following greenwash claims in a forestry project in Sumatra.
Accusations of greenwash should be taken in context of BNP’s involvement
Reputational risk and regulatory scrutiny are two of the major factors that impact the operations of a financial services firm. In the context of sustainable investing, this relates to the validity of the ESG claims of a sustainable investment instrument or fund, also known as greenwash.
A report by climate action group Mighty Earth included BNP in a list of firms accused of greenwash in a forestry-related project in Indonesia. The bank was named as one of the arrangers of a green bond that was used to finance a rubber plantation, which was sold as an “eco-friendly” project.
An investigation by Mighty Earth and Voxeurope showed that the project not only had the environmental footprint of a regular commercial rubber plantation, but it also displaced wildlife and local communities.
While BNP’s culpability extends to selling the bonds, the report identified several entities involved in the process that could be seen to be responsible for a greater share of the blame. This would include not just the promoters and operators of the project, but also the ratings agency that provided a second-party opinion to verify the sustainable claims of the project, and the Climate Bonds Initiative, which certified the bond.
BNP has not yet responded with a comment about these accusations. Whether impact and sustainability investors choose to punish BNP based on its marginal involvement in one project, or reward for bringing natural capital investments, such as those from IWC, to private market investors, remains to be seen.