Timberland: A New Frontier in Climate Finance

By Marek Guizot

Timberland is emerging as a powerful force in climate finance as global demand for wood rises and carbon markets gain momentum. As the author Marek Guizot explains, this shift places investors in a position to harness both environmental impact and long term value while navigating a rapidly evolving sustainability landscape.

As the world races to decarbonise and adapt to sweeping climate policies, this once overlooked asset class is now stepping into the spotlight: timberland. Long valued by institutional investors for its stability and inflation protection, timberland now stands at the crossroads of sustainability and finance.

Today, surging global demand for wood, tightening supply, and breakthroughs in carbon markets have helped to transform timberland from a mere portfolio diversifier into a strategic lever for climate finance. The question is no longer whether timberland belongs in sustainable portfolios, but how its unique blend of economic and environmental benefits can help meet the urgent call for a low-carbon future.

Global demand outstrips supply – a call to plant more trees

Global demand for industrial roundwood is accelerating. The UN’s Food and Agriculture Organisation expect global demand over the next 30 years (2020-2050) to be double that experienced in the last 30 years (1990-2020)^[1]. Much of this demand increase is linked to macrotrends such as population growth, urbanisation, and rising standards of living – but is also driven by the low-carbon nature of wood products and the scope they have in helping to decarbonise our economies.

Despite this, competing objectives – such as biodiversity conservation, environmental protection and carbon sequestration – could result in large areas of forest seeing harvest levels reduce. The EU Nature Restoration Law is a good example. It requires at least 20% of the EU’s land and sea areas be restored by 2030. Large areas of forest are likely to be affected, with an associated reduction in harvesting potential. The result of such measures will be a significant tightening in global wood supply and demand balances going forward.

The implication, however, is clear: to meet future needs for timber, construction, packaging, and emerging bio-based materials to support the decarbonisation of our economies, the world must substantially scale up its commitment to afforestation and reforestation.

Addressing this imbalance has been challenging. Although timberland is receiving more attention as an asset class, returns from new plantations have generally fallen short of the levels required to draw significant institutional investment. As a result, tree planting has been limited over the past 30-40years, except in cases where government intervention has occurred^[2].

Carbon credits – a new layer of value

One significant recent development for timberland is the increasing potential for carbon credit generation and the ongoing maturation of the carbon markets. Well-managed forests can sequester substantial amounts of carbon, and the financial value of this ecosystem service is becoming increasingly recognised through the opportunity to sell carbon credits ascribed to that forest.

For a greenfield afforestation project, it can take at least 10 – 12 years to mature to the point of the commercial forest being harvestable and cash flow positive^[3]. Carbon credits can bridge this gap by providing additional income while the forest matures. As a removals-based project, timberland strategies that combine sustainable harvesting with carbon credit generation can deliver both traditional commercial returns and opportunities for emissions reductions benefits.

For investors, carbon credits are not merely a ‘feel-good’ add-on; they represent a growing source of return and a powerful tool for aligning with sustainability objectives. However, broader shifts to GHG emissions policy and global regulatory developments will play a key role in shaping the future demand and institutional interest in these strategies.

Timberland and Its Impact on Atmospheric Carbon

Within the broader field of climate finance, timberland is increasingly recognised as a cost-effective and scalable approach for removing and storing carbon from the atmosphere. By participating in carbon credit markets, timberland owners can both generate new revenue streams and contribute to global climate change mitigation efforts. Responsible investment into forests, whether through afforestation, reforestation, or improved forest management, can deliver a dual benefit:

Carbon sequestration and credits: New trees grow, absorb carbon and generate carbon credits that can be monetised or used for meeting climate objectives
Harvested wood products: Once the forests reach full maturation and can be harvested, they can also provide timber for products that lock in carbon until decay.

Timberland can support climate transition efforts by sequestering and storing carbon throughout the forest lifecycle.

Nature-based credits – a lasting role in the low-carbon transition

Carbon credits are increasingly gaining traction as a means to help meet net zero targets. In November 2025 the European Commission agreed that member countries will be allowed to buy international carbon credits to cover up to 5% of the emissions reductions needed to reach its new intermediate 2040 target.^[4]

In the same month, the Science Based Targets Initiative (SBTi), which has nearly 11,000 companies signed up, released a new draft for of its Corporate Net-Zero Standard. The new draft standard now contains a structured mechanism for recognising carbon credits in corporate net-zero strategies.

In addition, nature-based credits such as from forestry projects are also continuing to gain traction with institutional investors^[5]. Together, these developments provide a clear signal of the growing acceptance of the role that carbon credits can play in climate change mitigation.

This acceptance is, however, contingent on the ability to demonstrate that the carbon credits being used are credible and of high integrity. Fortunately, this is an area that has also seen significant advancements with the Integrity Council for the Voluntary Carbon Market (ICVCM) having established a global benchmark for high-integrity carbon credits that sets rigorous standards similar to those used by financial regulators. This is helping to provide consistency within the voluntary carbon market and to further build scale. For institutions and investors, the credibility that this framework provides can also underpin financial returns and reputational value, supporting long-term climate commitments through the use of nature-based credits.

From niche to core – timberland as a strategic allocation

The landscape of climate finance is evolving in response to the dual priorities of value creation and science backed climate action.

Timberland has moved from being considered an alternative niche investment to becoming a more prominent component of institutional portfolios, reflecting broader shifts in investor approaches. Previously a lesser-known asset class, timberland is now at a pivotal point in sustainable investment discussions.

Timberland can offer stable income, inflation protection, and scalable carbon sequestration for institutional investors, positioning it as an important element of sustainable portfolios. With global wood demand increasing and a growing emphasis on credible climate solutions, timberland is likely to be viewed not just as a portfolio diversifier, but also as a significant part of climate finance strategies in the coming years.

About the Author

Marek Guizot is a Principal in Stafford’s Timberland team and leads the investor relations, research, asset due diligence and monitoring of investment performance for Stafford’s carbon strategy. He holds a Bachelor of Science degree in Forestry from the University of Stellenbosch.