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China’s tree-breeders are developing a business model that makes money while being good for the environment.

China’s tree-breeders are developing a business model that makes money while being good for the environment.

China's tree breeders are coming up with a business model to make money while doing right by the environment

Chinese scientists published an article in the internationally-respected journal last year CellThe genetic code and molecular mechanisms controlling the evolution of human beings are now known. Pinus tabulaeformis, a coniferous plant that is native to China.

The study, which was led by researchers at Beijing Forestry University, was hailed by thousands of breeders including Wang Lianmau from Jiangxi Fenglin Investment as a scientific breakthrough in the cultivation and maintenance of pine trees.

“With this breakthrough trees can grow faster, stronger, and less susceptible to pests, diseases, said Wang, general manager for the company with 350,000 mu (23,000 acres) of plantation located in Jiangxi province, southeast China. “The breeding of new fast-growing varieties with high yields, high quality timber and strong resistance to pests and diseases is the goal of this company. [disease]Resistance is a powerful tool for increasing productivity and expanding forest resources.

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Fenglin is currently in talks with researchers to discover the genetic codes of two species of trees it has planted, mainly. Pinus elliottii Pinus kesiyaHe suggested that 21st century technology can be used to increase the development and carbon sinks of forestry.

Afforestation is the planting of trees that can absorb greenhouse gases like carbon dioxide. This is one of the natural solutions to help China meet President Xi Jinping’s pledge to reduce emissions by 80% by 2030. Carbon neutrality by 2060.

If plantations are able to reduce carbon dioxide, they can earn credits that can be traded via unregulated carbon markets.

Villagers planted trees in cadmium-polluted fields in Shuangqiao village in Hunan province on the 30th March 2011. Photo by Simon Song alt=Villagers planted trees on cadmium-polluted farmland in Shuangqiao village, Hunan province, 30 March 2011. Photo: Simon Song>

According to professional investors, the challenge is to make this idea a profitable business model.

“One unresolved issue is the absence of standardised frameworks that allow sustainable forest management companies to monetise their environmental benefits,” stated Gillian Diesen, Pictet Asset Management’s manager of thematic equity.

Chan Tak-yuen, an advisor to CFGC Amital Green Fund co-invested with Hong Kong’s Euto Capital partners, and the state-owned China Forestry Group Corporation, (CFGC), said that afforestation and timber sales should be combined to create a viable business model.

The fund will initially raise US$100 millions to support companies that invest in high-yielding, sustainable afforestation and carbon storage projects, as well as the development of necessary technology.

Aerial photo of Kubuqi Desert, Dalad Banner of Ordos, northern China’s Inner Mongolia Region on September 28, 2020 Photo: Xinhua. alt=Aerial photo of Kubuqi Desert in Dalad Banner of Ordos’ northern China’s Inner Mongolia on September 28, 2020. Photo: Xinhua.>

Wang said Fenglin is already generating income streams from its forests. Wang pointed out that 70% of Fenglin’s revenue comes from the sale of turpentine, resins and rosins for mail and express delivery. All these products are harvested from his plantation. When pine trees reach their maximum felling age of 25 years, they can be sold as lumber.

“The rest is income through carbon credits,” he stated, noting that more than 60% of the plantation’s land has been designated as carbon storage, the first large-scale commercial development like this since 2016.

Professional investors have made big bets in the business of using afforestation for climate mitigation, mainly to hedge against rising carbon-offsetting costs.

JP Morgan Asset Management paid an undisclosed amount to purchase the forest investment and management company Campbell Global. The firm has assets of US$5.3 billion and manages 680,000 hectares around the world.

“We can’t deem [carbon credits]It is not an asset class but it is becoming more important when you consider the overall portfolio’s carbon emission intensity,” stated Tomomi Shimada (bank’s lead sustainable investing strategist in Asia-Pacific).

April 22nd, 2014: Locals plant trees in the Kubuqi Desert of Inner Mongolia. 22, 2014. Photo by Imaginechina alt=Local residents plant trees in the Kubuqi Desert of Inner Mongolia on April 22nd. 22, 2014. Photo: Imaginechina>

New Forests, a Sydney-based private equity firm for forestry, plans to raise US$300million this year to fund a Southeast Asia-focused forest fund. The firm manages 1.1million hectares worth US$5.8billion. It has already received commitments from investors for US$120 millions.

It is seeking funds from both private foundations and sovereign wealth funds that are return-focused pension funds or sovereign wealth funds.

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Geoffrey Seeto, New Forests Asia managing director, stated that “this blended structure allows us generate positive impacts while still maintaining the return to bring in the commercial investors into the space.”

Huge Chinese characters, which mean Green Chinese Dream, are displayed on a mountain at Erdos city in Inner Mongolia on April 22, 2014. Photo: China Foto Press alt=Huge Chinese character, which means Green Chinese Dream, on a mountain at Erdos city in Inner Mongolia on April 22, 2014. China Foto Press>

It sells carbon credits and timber, and aims to offer private foundations a “mid to high single digit” percentage annual return over a period of ten years. Investors looking for commercial returns can expect a return of 14-18% on average.

For companies looking to offset their carbon footprints, forestry is becoming more popular, as renewable energy projects are increasingly not eligible for carbon credits. Sustainable Fitch reported this in an April 11 report.

According to Ecosystem Marketplace data, 115 million tonnes worth of forestry-related carbon credits were traded globally in the first 8 months of 2021. This is more that the 48 million tonnes traded in 2020.

Wang stated, “Forest carbon projects are profitable, but the returns period is long because of the breeding cycle.” “We are also looking at projects in countries covered by China’s Belt and Road Initiative, where labour and land costs are lower.”

Martin Choi, YujieXue also contributed additional reporting

This article originally appeared on the South China Morning Post (SCMP)., the most authoritative voice reporting about China and Asia for more that a century. More SCMP stories can be found at the SCMP appVisit the SCMP’s website Facebook Twitter pages. Copyright 2022 South China Morning Post Publishers Ltd.

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