ThirdWay Insights - In Conversation with Darren Lapp, CEO of the New Forests Company
Darren Lapp is CEO of the New Forests Company (“NFC”), a high impact, integrated management forestry business operating in East Africa. The Company’s business model is based on three pillars of Community, Conservation and Commerce to result in a sustainable and responsibly managed economic ecosystem. This ‘Shared Value’ approach underpins the company’s success to date and has seen it develop into one of the continent’s leading players within the forestry sector and as a result, be invited to join the Circular Bioeconomy Alliance.
As a business, the company’s operations centre around sustainably managing timber plantations to harvest and process the highest quality wood products, which include: electrification & telecom transmission poles, sawn timber, kiln dried timber, wooden pallets and biomass.
With nearly three decades of experience in the forestry industry across the globe, we sat down with Darren to get a better understanding of why the Forestry sector is such an innovative and exciting industry to be involved with today, particularly in Africa.
1. What made you pursue a career within the forestry sector?
I was very fortunate to grow up near, and often in, the beautiful forests of the Canadian Rockies in British Columbia, and spent a lot of time outdoors hiking and skiing. A significant portion of the economy in the area was driven by forestry and my first real job was working in a plywood mill on weekends in high school and later as a forest ecologist consulting to the industry. However, I never intended to pursue it as a career and it was when I was hired into a company called Weyerhaeuser that I realized how much there was to the industry, and that I really enjoyed it. Forestry, more than most other industries, is about balance; a management team balances social needs, environmental objectives, short term economics with long term value. The best days are the ones spent in the field, talking to people and seeing the operations first-hand, “kicking stumps”.
2. Over the past 12 months we have seen an increased attention and focus on the sustainable forestry sector globally. What makes the sector so special? Can you provide a quick overview to how the industry works?
The Forestry sector has a fundamentally important role to play today. As our planet faces an existential crisis in the shape of climate change and drastic biodiversity loss, the expansion of sustainably run forestry operations can, and will, underpin the transition to a nature positive and net-zero economy. Forestry derived products (such as building materials, transmission poles, furniture, amongst other essential goods) can support adaptative measures and help in the reduction of carbon emissions and greenhouse gases by using products which have a positive carbon footprint. The development of further revenue streams, such as carbon credits, that create an ability to better monetize landscapes, will provide further opportunities to help our natural landscapes be better insulated and protected. Not to mention, the immediate effect that forests play in protecting our wildlife cannot be underestimated. At its core, the sector is imperative to the growing global focus on the ‘restorative economy’.
Many traditional forestry plantation businesses, such as NFC, have an integrated approach to their operations. These businesses not only usually establish/plant new forests (whilst managing and conserving natural forests as well) but in a number of instances, these organisations also create the final wood products used in society (such as structural framing building materials[GB1] , furniture, pallets and crates, etc.). Outside of this there are a host of other players involved in the sector, including: financiers [ranging from Timber Investment Management Organizations (TIMO’s) to Development Finance Institutions], lumber traders and off-takers for finished products. It is a sector which has a highly complicated value chain but is fast moving and exciting!
A group of the NFC team in Uganda on site
3. In particular, what about the sector within Africa? What other developments do we need to see to catalyse the growth and development of the sector within the continent?
Two things leap to mind in terms of developing the sector – increased patient capital and the requirement of only using certified sustainable wood products. On the financing front, within the forestry sector several companies, NFC included, today now have mature forest assets and the next step in their development will be increasing the investment in manufacturing equipment to monetize these assets. Further to this, we need to see multinational companies which use wood products, such as beverage and construction companies and even institutions such as the World Bank and other developmental funding agencies, to start demanding certified sustainable wood products in their procurement processes. There is still a large proportion of unethically sourced wood products in many of their supply chains and having these multi-national corporates demand responsibly managed products will allow ethical actors to succeed and further grow.
4. One particular area of focus has been the work the agro-forestry industry has done with out-growers and small farmers. Can you shine a light to some of the work the NFC has been doing around this?
NFC’s investors wanted – and want – to grow a business that has a positive social impact, afforests and protects trees in a part of the world that is rapidly losing forest cover, and of course maintain sustainable financial performance. Quite early in the company’s history, we started providing seedlings to out-growers and communities, providing them with the technical support and training on how best to grow and care for these saplings. A few years later we formalized the program and facilitated the out-growers to organize into community associations; this has resulted in us developing and supporting over 6,000 hectares of out-grower ‘plantations’. Our CSR and forestry teams have really done an amazing job of evolving this program and scaling it to new heights. In the last couple of years we’ve been purchasing logs from our out-growers at market value and we are in the process of certifying their forests for carbon certification so they can achieve additional cash flows.
5. How is New Forest Company developing the carbon sequestration potential of your assets? Again, what more needs to happen for you to catalyse the development of these credits further?
NFC has been on a carbon journey for many years and hired a dedicated carbon manager over a decade ago. With the general renewed interest globally in working towards “net zero”, we have been working with a consultant to certify our first pools of carbon in our Ugandan operations. An accredited auditor has been pre-selected, and we anticipate that a first tranche of carbon credits will be certified towards the end of this financial year (June 2022). This first effort will be for retroactive carbon in our conservation areas and from our out-growers (with a revenue sharing mechanism for the latter whereby our out-growers will receive the majority of the revenue). Once the carbon in Uganda has been certified, NFC will look to achieve certification on its forests in Tanzania, including certifying the out-growers, as well from the commercial forests across both operating geographies. One of the challenges that the small holder farmers have is related to forestry’s long crop rotation and the need for cash during mid-rotation. Out-growers are often motivated to harvest trees at a suboptimal economic age to get some quick cash for various living needs. Our hope is that having carbon revenue as a mid-rotation cash generator will incentivize them to let the trees keep growing and achieve a proper economic rotation age before harvesting. This will result in more carbon sequestered, and better overall financial returns for the out-growers. If more people view this as a success, more will plant trees.
The price of voluntary carbon credits have risen considerably over the past 12 months, and with the recent growth of both interest and activity around the voluntary carbon credit markets, this remains an area of focus for NFC at an exciting time as the company looks to support the development and expansion of the market.
NFC managed forest in Uganda
6. What more needs to happen for the market to take off? Have you seen increased investor appetite from both global investors and locally based investors for the sector within the continent?
Over the past few years, there has been a surge of interest from the global investment community in natural capital opportunities, with many newly-announced funds dedicated to mitigative climate change solutions. Much of this interest has only increased in focus following the onset of the pandemic and in-light of important global convenings, such as the COP26 in 2021 in Glasgow.
Whilst we have seen a shift with additional institutional investors, corporates and High Net-Worth Individuals (and not to mention governments) seeking to mobilize capital, particularly through innovative means, towards forests, biodiversity and conservation, we will need to see more financial vehicles to drive through the systematic change the industry requires. In particular many of these stakeholders are still focused on deploying into more traditional, developed markets first, but investment in Africa and other developing economies will follow.
7. What developments within the field of forestry are you most excited about?
There are some impressive developments in the industry such as sustainable biofuels, wood to textile technology as well as advanced engineered wood products which will replace concrete. However, many of these require significant capital and market demand which, whilst evolving, is not at a significant level yet in sub-Saharan Africa. We will need to give it a few years to see this carry through. In Africa, the industry is still quite nascent and there are huge opportunities to improve wood quality and growth rates, as well as evolve our sector’s ESG approaches. And of course, not to mention how we can further integrate more communities into the system of integrated landscape management. Whilst slightly anecdotal, I have a friend in Kenya who is an appreciator of forestry as a high positive impact industry. He refers to the success that the Finns and the Swedes have had with developing forests and creating a welfare buffer - his vision is to replicate this approach in East Africa, creating jobs and long-term value. I share this vision and excited by the work we are doing to achieve these goals.
For those interested in finding out more about the New Forest Company, you can:
Visit: www.newforests.earth/
See their Sustainability Report here to find out more on the out-grower programme
Email: info@newforestscompany.earth