Europe’s forest environment in 2024: Description and analysis
In the fight against climate change, Europe has one asset that cannot be overestimated: its forest cover. The continent boasts 178 million hectares of forestland. As we know, these wooded areas are natural carbon sinks. They absorb an estimated 15-20% of greenhouse gas emissions each year(1). These forests also regulate temperatures, filter water and limit soil erosion.
Europe’s forest varieties – temperate, boreal and Mediterranean – are highly diverse in terms of soil and climate. This is a boon because the ways wood is used have changed considerably in recent years. In the past, one species would be planted for each product. Today, 100% of the tree can be used to meet different needs, including lumber, industrial logs and wood energy.
Market Trends:
A growing demand for forest products: Forest products like lumber, paper, biomass and non-wood products are used widely in a variety of industrial sectors. Demand is on the rise, fuelled by economic growth, urbanisation and the escalating search for renewable energy sources.
Sustainability and certification: Consumers and businesses are giving greater priority to environmental sustainability. Forest certifications like FSC (Forest Stewardship Council) and PEFC (Programme for the Endorsement of Forest Certification) have become leading standards in guaranteeing responsible management of Europe’s forestland.
Innovations in technology: Europe’s forest industry is adopting more and more digital tech including remote sensing, drones and data analysis to optimise forest management, monitor biodiversity and combat deforestation.
Major challenges:
Deforestation and climate change: Deforestation, often the result of agricultural expansion, illegal logging and forest fires, remains a major challenge to preserving European forests. And by upping the risk of fires, drought and disease, climate change is exacerbating the threats to forests.
Sustainable management: Managing forestland in a way that balances economic, social and environmental needs is still a complex challenge. While many European countries have sustainable forest management policies in place, the challenges in implementing and overseeing them persist.
Economic pressures: The mix of global competition, fluctuating commodity prices and regulatory compliance costs are putting economic pressure on Europe’s forest industry, particularly the smaller operators.
European Forest Policies
To tackle these challenges, the European Union has established a series of measures to promote sustainable forest management, biodiversity protection and the fight against deforestation.
The European Union Forestry Strategy is designed to promote sustainable management of all of Europe’s forests, make the forestry sector more competitive, improve biodiversity protection and encourage sustainable use of forest resources.
The Natura 2000 Network encompasses all of Europe’s most precious wilderness, land and sea sites, assigning them special management to protect their biodiversity.
Fighting deforestation to reduce imports of products like lumber, soy and palm oil. This includes regulating the timber trade to guarantee that it comes from legal and sustainable sources.
Funding programmes for projects related to sustainable forest management, biodiversity protection and promotion of the forest economy. Funds like the European Agricultural Fund for Rural Development (EAFRD) and the European Maritime and Fisheries Fund (EMFF) can be used to support these initiatives.
International cooperation to promote sustainable forest management worldwide via the EU forests dialogue with countries that produce tropical hardwood and participation in international agreements on biodiversity and climate change.
Investing in forests: What are the challenges?
Forests are considered an asset class that appreciates over the long term.
They are a “natural” asset whose value has increased with time(1). Organically, and depending on the species, timber volumes are up 3-5% per year, so it benefits from gradual development.
It is also a means of diversifying your financial portfolio and reducing your dependence on assets like stocks and bonds. Its price may also increase with the demand in sectors like construction and furniture.
Under certain conditions, investing in forests can provide a tax shelter(2) (for example, a 75% deduction on free-transfer duties).
This kind of investment can also have a positive impact on the environment. However, for this to be the case, forest assets must be carefully managed to make the forests more resilient to the effects of climate change, including rising temperatures and geographic rainfall distribution. Such forest management will also be geared toward banning clear-cutting, creating tree habitats or even leaving a certain volume of deadwood on the plot, creating a carbon sink and fostering biodiversity.
How can you invest?
Buy and manage a forest yourself: A forest is a property just like any other type of land. There are many reasons you may wish to invest, including if you are looking to operate the forest yourself, get involved in conservation or real estate development, or as a traditional investment.
However, this can be tricky if you don’t have proper guidance with identifying the plot, taking inventory of the species, finding a forest manager, purchasing and insuring it. These are just some of the factors to consider, and so expert advice is often indispensable.
A pooled fund can be a good solution if you want to:
diversify your investment over several forests in different countries, or
delegate the management to professionals. Professionals can access insurance policies to cover most of the risks inherent in this kind of investment (fire, flood, plant health risks).
A forest is an asset class unto itself and an important tool for diversification, with an array of challenges but the potential to make a positive impact on the environment. Whether or not you use a professional, comprehensive knowledge of this type of investment is key to its success.
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