Sumitomo Forestry, a leading Japanese forestry company, has embarked on a groundbreaking initiative by launching a fund worth more than $420 million to manage North American forests and generate carbon credits. This move represents a significant stride in the global battle against climate change.
The fund, known as “Forestry Fund I,” is a collaborative effort involving ten Japanese corporations, including Sumitomo Forestry. Its objective is to contribute to the reduction of global carbon emissions through investments in forest management. The other nine corporate investors in the fund include ENEOS Corporation, Osaka Gas Co., Tokyo Century Corp., Japan Post Holdings, Ltd., Nippon Yusen Kaisha, Fuyo General Lease Co., Sumitomo Mitsui Banking Corporation, Sumitomo Mitsui Trust Bank, and Unicharm Corporation.
“Forestry Fund I” aims to acquire and manage 130,000 hectares of forests primarily in North America by 2027. The fund will be overseen by Eastwood Forests, an expert in US forest fund management, and will operate for a duration of 15 years. The participating Japanese companies have invested in this fund through their US subsidiaries, with the intention of expanding their forest management activities and making a significant contribution to the fight against climate change.
Sumitomo Forestry has plans to construct the world’s tallest building using timber sourced from sustainably managed forests, further emphasizing the importance of this fund. Toshiro Mitsuyoshi, President of Sumitomo Forestry, highlighted the significance of the fund, stating that it can “not only create economic value through timber trading but also contribute to the global environment through forest preservation and expansion, as well as helping investors offset their carbon emissions.”
Despite recent criticisms directed at forestry projects, forests still play a crucial role in capturing carbon to mitigate global warming. Large companies continue to advocate for forests as a natural climate solution, incorporating forestry initiatives into their net-zero and climate goals. Japan has also committed to achieving net-zero emissions by 2050. By expanding their presence in North America, these Japanese corporations will contribute to enhancing the value of forests as carbon sinks.
The fund in which they have invested is expected to generate carbon credits equivalent to approximately 1 million tonnes of CO2 per year on average. These carbon credits will be of high quality due to the sustainable forest management activities that promote various forest functions, such as carbon absorption, biodiversity, and water resource conservation. Companies that struggle to achieve zero carbon emissions despite implementing robust reduction measures can purchase the credits generated by the fund.
Notably, major companies like Microsoft Corp. and BP PLC are also supporting and purchasing forest carbon credits to offset their emissions or support nature-based climate solutions. The new forest fund will closely monitor global trends in carbon credits to ensure the creation of high-quality offsets. In addition to conventional forest management for timber production, the fund will prioritize sustainable forest management, including improved forest management (IFM). IFM involves the restoration of forest vegetation by preserving promising young trees and creating forests with a hierarchical structure comprising trees of different species and ages.
Forestry projects accounted for 30% of the total carbon offset credits issued by voluntary registries in 2022. These projects encompass various types, including IFM, REDD+ (Reducing Emissions from Deforestation and Degradation), and afforestation/reforestation. According to an analysis by Haya et al. (2023), IFM projects have generated 193 million carbon offset credits since 2008, representing 28% of all credits from forest projects and 11% of all credits generated in voluntary markets.
The review also revealed that nearly all forest offset credits from IFM projects were issued in the United States, with the majority registered under the ARB (California Air Resources Board) compliance carbon offset program. Nearly 50% of forest carbon credits are derived from projects in the US.
In late 2022, a consortium led by Oak Hill Advisors purchased 1.7 million acres of US timberland for $1.8 billion to reduce logging and enhance forest carbon initiatives. Overall, forestry projects like sustainable or improved forest management have the potential to reduce carbon emissions and capture carbon through various means, such as restoring forests, promoting biodiversity, and preserving standing forests. Carbon offset credits can serve as crucial incentives to unlock the full potential of these initiatives.
The carbon credits generated by the Sumitomo Forestry-led forest fund will be distributed to the investors.