Agefi Luxembourg - mars 2025

Mars 2025 31 AGEFI Luxembourg Fonds d’investissement O ver the past fewyears, the demand for sustainable in- vestment solutions has grown significantly, driven by in- creasing awareness of climate change and environmental concerns. As inves- tors seek to align financial returns with sustainability objectives, timber and carbon funds have emerged as alternative asset classes offering both diversification be- nefits andmeasurable environmental impact. Luxembourg:Astrategic hub for sustainable investment Nestled in the heart of Europe, Luxembourg uniquely combines urban sophistication with tran- quil countryside. Renowned as a leading financial center. It boasts a robust regulatory framework and extensive expertise in asset management, making it an attractive destination for investors seeking inno- vative opportunities. As the global community confronts the challenges of climate change and environmental degradation, in- vestment strategies are evolving toprioritize sustain- ability and environmental responsibility. Among these strategies, carbon, natural capital, and timber funds have emerged as suggested asset classes for fi- nancial players, drivenby a need for diversification. Timber investments, an asset class to hedge against inflation Inrecentyears,wehavewitnessedasignificantrisein investments in forestry funds.According to the latest data from Agri Investor (1) , agrifood and forestry fundraising experienced a positive year in 2024, with themarketraising$8.4billionthroughouttheyear.Al- thoughthisrepresentsa$1.3billiondecreasefromthe $9.7 billion raised in 2023, it remains well within the average $8 billion annual figure observed over the previous five years. Themainarguments supporting thisgrowthincludestrongmarketfundamentals,sta- blecashyield,diversificationbenefits,ahedgeagainst inflation, andquantifiable climate benefits. Thediversificationbenefitsareevidencedbyarecent article fromNew Forests (2024) (2) that indicates that natural capital, impact, and climate represent a growing allocation sleeve. New Forests anticipates that an increasing number of institutions will estab- lish dedicated natural capital allocations with their own risk, return, and impact metrics, whether through a commingled fund, a separate account, or a blended finance vehicle. This is further supported by a risk/return analysis conducted by JP Morgan (2022) for life insurers (3) , suggesting that a strategic allocationof 1%-5%to timberlandcouldenhance re- turns and reduce balance sheet risk for a typical Eu- ropean life insurer. As further evidenced in the TIRWhite Paper on In- flation Risks and Timberland Investments (2025) (4) , it has been clearlydemonstrated in recent years that forestry funds serve as an effective hedge against inflation. Expanding of the asset class While this outlook is indeed promising, there are even greater opportunities for growth that warrant attention. Risingdemand for industrial roundwood According toNewForests (2024) (5) , expectations indi- cate that demand for industrial roundwood,which is the primary concern of investors, will at least double by 2050. This growthwill be driven by three key fac- tors: -Demographics: Populationgrowthincreasingwood consumption. - Economics: Expansion in regions with significant economic growth. - Technology: The substitutionofwood-basedmate- rials for fossil fuel-based alternatives and other high- energy or hard-to-recyclematerials. Inadditiontotheincreasingdemandfortimberprod- ucts, emerging markets in South America andAsia aregaininginterest,alongsidetheestablishedmarkets of theUS, Canada,Australia, andNewZealand. Revenue streams beyond timber harvesting Alongside thenatural growth factorspreviouslyout- lined, there is significant potential for additional rev- enue streams beyond traditional timber harvesting. Investors are increasingly targeting various income sources: - Carbon credits : As companies and governments seek to offset their carbon footprints, carbon credits have gained prominence. Generating carbon credits froma forest typically involves a process that quanti- fiesthecarbondioxide(CO2)sequesteredbytheforest over a specific period. Independent third-party ap- praisersthenissuecarboncreditcertificates,eachtyp- ically representing one metric ton of CO2 equivalent reducedor sequestered. -Restorationbanks: Theseinitiativesfocusingoneco- logicalrestorationandconservation,offerfurtherrev- enueopportunitiesbyenablinginvestorstosellcredits for restored ecosystems. -Recreationalandeco-tourismopportunities: Effec- tiveforestrymanagementcancreaterecreationalareas that generate income from eco-tourism and outdoor activities. -Grantsandsubsidies: Carboncreditfundsmayalso benefit from government and international grants aimedatpromotingsustainabilityandreducingemis- sions,openingnewmarketswheretraditionaltimber harvesting is less prevalent. Diversifying revenue streams in this way not only strengthens the financial resilience of forestry funds butalsoalignswiththegrowingdemandforsustain- able and responsible investment practices. Challenges in expanding revenue streams However, this development will need to address specific chal- lenges notably in maintaining operational efficiency and suc- cessfully executing exits for tim- ber portfolios. Robust oversightmechanism Particularly in less mature mar- kets, it is essential to ensure that local providers have the neces- sary expertise. Robust oversight mechanisms must be in place to ensure compliance with sustain- ability standards and investment goals. Addressing anti-money laundering (AML) concerns and providing a transparent and controlled environment for investments is also crucial. Leveraging technology for riskmanagement Diversification,thoroughduediligence,andongoing monitoring are critical components of a successful forestry investment strategy. The integration of tech- nology and artificial intelligence (AI) is becoming in- creasingly relevant in this space. For example, to addressclimaterisks,NewForestsutilizesAItomon- itor bushfires on their managed plantation estates in SouthAustralia, demonstrating how technology can enhanceoperationalefficiencyandriskmanagement. Thematurity of carbon creditmarkets The carbon creditsmarket has not yet reachedmatu- rity. Many carbon credit projects require long-term commitments, and the uncertainty of future market conditions canmake it challenging for sellers to com- mit resources. Additionally, carbon credits must be verified and certified by recognized standards to en- sure their legitimacy. Theprocess canbe complex, time-consuming, and costly, potentially deterring potential sellers. Someregionsmayalsohavelimitedac- cess to carbonmarkets or specific regu- lations that hinder the sale of credits, creatingbarriersforsellersinthoseareas. Regulatory restrictions also pose challenges, as some regions have limited access to car- bonmarkets. For example, the cap-and-trade pro- gramof the State of Cal- ifornia which is one of the most comprehensive frameworkswith the aim to reducegreenhousegas emissions often causes regulatory and compli- ance barriers for new mar- ket players in the asset class. Successfullynavigatingthesechallengesrequirescare- ful planning, robust projectmanagement, anda clear understanding of the asset class dynamics. By ad- dressingthesefactors,investorscanunlockthefullpo- tential of timber and carbon credit investmentswhile contributing to environmental sustainability. The Pivotal Role of Luxembourg in theAsset Class A robust regulatory framework for sustainable In- vestment Luxembourg offers a robust regulatory framework that supports sustainable investment. The country hasimplementedvariousinitiativestopromotegreen finance,includingtheLuxembourgGreenExchange (LGX),whichfacilitatesthelistingofgreenbondsand sustainableinvestmentproducts.Thisregulatoryen- vironment attracts fund managers and investors looking to engage in sustainable investments. Lux- embourg also fosters partnerships between public and private sectors to promote sustainable invest- ment. Collaborations with international organiza- tions, NGOs, and research institutions enhance the developmentofcarbonandtimberfunds,drivingin- novation and best practices in the sector. Luxem- bourg is also home to a wealth of expertise in asset management,withnumerous investment firms spe- cializinginsustainablefinance.Thisexpertiseenables the development of innovative fund structures that meet the needs of investors while adhering to sus- tainability criteria. For instance, the Luxembourg fi- nancialcenterhostsadiverserangeofNaturalCapital Funds, rewarding investors not only through finan- cial returns but also with the allocation of carbon credits generated. Over 50 funds are domiciled in Luxembourg,emphasizingsustainabilityinagrifood, responsible timberland management, and forestry carbon credit projects with some managed by the most influential players in themarket. Access tocapital and thegrowthof impact investing As a leading financial center, Luxembourg provides access to a diverse pool of capital. Institutional in- vestors,familyoffices,andhigh-net-worthindividuals are increasingly seeking opportunities, and Luxem- bourg serves as a gateway for these investments. Many investors are now seeking to make a positive impact with their investments. Carbon and timber funds provide an opportunity to contribute to envi- ronmentalsustainabilitywhilegeneratingfinancialre- turns, appealing to the growing impact investing community. An example of this commitment is the ForestryandClimateChangeFund(FCCF),launched in2017bythegovernmentalongsidekeyfinancialin- stitutions,highlightingLuxembourg’sstrategicrolein supporting green and sustainable investment solu- tions.Luxembourgisalsohometoawealthofexpert- ise in assetmanagement, withnumerous investment firms specializing in sustainable finance. This expert- iseenablesthedevelopmentofinnovativefundstruc- tures thatmeet the needs of investorswhile adhering to sustainability criteria. Future opportunities in forestry and carbon invest- ments Looking ahead, the future of forestry, carbon credit and natural capital funds appears promising. As global awareness of environmental issues continues to grow, the demand for sustainable investments is expected to rise. Beyond the general increase in de- mand for timber products and the development of emerging markets, additional opportunities are emerging, such as: -Technologicaladvancementsinforestmanagement. - New revenue streams like carbon credits, recre- ational leases, and restorationbanks. Investors who embrace these trendsmay find them- selves at the forefront of a transformative investment landscape.As themarket continues toevolve, under- standingthedynamicsofforestryinvestmentswillbe crucial for capitalizing on their potential. The trends in carbon and timber funds reflect a broadershifttowardssustainableinvestingandenvi- ronmentalresponsibility.Luxembourg’sstrategicpo- sition as a leading hub for sustainable finance enhances its role in the growth of these asset classes. As demand for carbon credits grows and awareness ofsustainableforestryincreases,Luxembourgislikely to play an increasingly significant role in shaping the future of this asset class. By aligning financial goals with environmental stewardship, investors can con- tribute to amore sustainable futurewhile potentially reapingfinancial rewards. Clément JULIEN, Partner, Assurance Private Equity Real Estate Thomas PIRSON, Manager, Assurance EY Luxembourg 1)AgriInvestor(2025)-Agrifoodandforestryfundraisingstabi- lizedin2024 2) New Forests. (2024). The Evolution of the Natural Capital Asset Class . - The evolution of the Natural Capital asset class - New Forests 3) J.P.Morgan. (2022). Risk/Return Impact of Reallocating 1%-5%of Current Portfolio Allocations to Selected Asset Classes . - Investing in forestry: The case for timber allocations in insurance portfolios | J.P.MorganAssetManagement 4) Chun-Hong Fu. (2025). Inflation Risks and Timberland Invest- ments .-Inflation-Risks-and-Timberland-Investments.2025.pdf 5) NewForests. (2024). Forestry Investment 101 . - Forestry-Invest- ment-101-Paper_Web.pdf Timber and Carbon Funds: The Pivotal Role of Luxembourg in theAsset Class Risk/ReturnImpactofReallocating1%-5%ofCurrentPortfolioAllocationstoSelected Asset Classes Source:J.P.Morgananalysis.DataasofJanuary2022.Forecastsandanalysesarenotreliableindicatorsoffutureresults S puerkeess announced the successful issuance of its inaugural EUR500mil- lion 6NC5 Senior PreferredGreen Bond on 12 th March. This landmark transac- tionmarks a significantmilestone inSpuer- keess’ capitalmarkets strategy and underscores the institution’s commitment to financing sustainable and environmentally impactful projects. The bond, issued under Spuerkeess’ newly laun- ched Green Bond Framework (GBF), will be listed on the Luxembourg Stock Exchange (LuxSE) and displayed on the Luxembourg Green Exchange (LGX), the world’s leading platform dedicated exclusively to sustainable securities. The Global Coordinator for the transactionwas Deutsche Bank and Joint bookrunners were Belfius, Citigroup, Deutsche Bank, and Société Générale. The issuance received strong interest fromadiverse investor base (ca. 125 orders), with the final order book closing over EUR 1.8 billion, representing an oversubscription of 3.6 times the issuance size. This strongdemandhighlights both the institution’s cre- dit strength and the confidence investors place in Spuerkeess’ sustainability strategy and transparent approach to green financing. Proceeds from the GreenBondwill fundeligiblegreenprojects aligned withSpuerkeess’GreenBondFramework,designed in accordancewith ICMAGreen Bond Principles. Doris Engel, Chief Financial Officer, commented: “This inaugural benchmark green bond issuance marks a pivotal step in our funding and sustainabi- lity strategy. The strong investor interest not only highlightstheirconfidenceinourcreditprofile,busi- ness strategy, and long-termfinancial resilience, but also reflects the growing appetite for credible and impactful green investments. The successful com- pletion of this transaction establishes a solid foun- dation for future capital markets activity.” Spuerkeess successfully completes inaugural Green Bond © Spuerkees