JPMorgan invests in a forest for its carbon offsets

Timber, wood that is grown to use for carpentry or to build homes, may be one of the lesser-known backable assets out there. It has long been considered a reliable investment, and has even held up well against inflation as demand and pricing for the commodity tends to benefit as inflation rises.

It’s part of the reason JPMorgan Chase’s asset management arm has had timber in its portfolio for years, and why it now plans to double down.The bank announced on Wednesday it had bought 250,000 acres more of timberland across three sites in the Southeastern U.S. for $500 million. The woodlands will be managed by JP Morgan’s Campbell Global, an investment manager with three decades of experience in natural resource management.

The bank’s investment will likely provide returns to JPMorgan as lumber prices rise on the back of a potential rebound in the U.S. housing market. But another reason for the largest investment bank in the world by revenue to put its money on timber lies in the value of keeping the trees standing, rather than cutting them down.

“The properties will be continuously managed for both carbon capture and timber production to meet growing demand for sustainable building products and other uses,” JPMorgan wrote, as the bank and other institutional investors like it start piling into the rapidly-growing market for carbon sequestration.

The evolving carbon market

Since JPMorgan acquired Campbell Global in 2021, it made clear that its interest in forests was not just about cutting down trees, and was designed to prove that sustainable investing and positive returns could go hand in hand. 

In addition to providing a refuge for wildlife, woodland conservation can have a direct effect on mitigating climate change by absorbing planet-warming carbon dioxide from the air. Between 2001 and 2019, the world’s forest absorbed twice the amount of carbon they released during the same time, according to a 2021 study, acting as a “carbon sink” that captured a net 7.6 billion metric tons of CO2 a year, or one and a half times more carbon than the entire U.S. emits annually.

With direct air capture technologies to manually suck carbon out of the atmosphere still far away from being implemented at scale, the UN has touted the ability of nature-based solutions, including forests and oceans, to capture carbon. 

But the ready availability of natural formations to capture carbon has also caught the eye of the private sector as businesses seek out ways to minimize their own carbon footprints and continue profiting while they’re at it. 

The growing market for carbon offsets—companies accounting for the emissions they generate by neutralizing emissions elsewhere—is far from perfect, but it does provide a market incentive for conservation and emissions reductions. 

The 250,000 acres of forested land now managed by Campbell Global, for instance, includes around 120 million standing trees holding 18 million metric tons of stored carbon dioxide equivalent, according to JPMorgan. By ensuring a portion of those trees remain untouched and continue absorbing carbon for longer, investors are reaping more tradable carbon offsets which, because they are in increasingly short supply, can be very valuable.

“For timber investors, there has been a transformation in the ability to generate income from trees while they grow: Rather than waiting to get paid, they can now get paid to wait,” Kristin Kallergis Rowland, global head of alternative investments at JPMorgan, wrote in a September blog post.

For investors, keeping trees in the ground not only helps reduce atmospheric carbon, but can ensure a more reliable return stream over the long term. Fewer trees used for timber reduces the supply over the long term, which would push up lumber prices and benefit investors, Rowland wrote, adding that long-lived real assets like standing trees can even provide a more resilient hedge against inflation than other commodities.

When JPMorgan acquired Campbell Global in 2021, the goal was to “integrate sustainability into our business in a way that is meaningful,” JPMorgan’s Asset Management CEO George Gatch said at the time. 

“Investing in timberland…will allow us to apply our expertise in managing real assets to forests, which are a natural solution to many of the world’s climate, biodiversity and social challenges,” he added.

Learn how to navigate and strengthen trust in your business with The Trust Factor, a weekly newsletter examining what leaders need to succeed. Sign up here.