Recent efforts to combat global climate change appear to have risen, with some political and corporate leadership committed to reforestation, while going against the grain of certain earlier environmental claims. 

Campaigns to protect the world’s forests seem to be proliferating recently, with several initiatives being promoted at the 2020 World Economic Forum (WEF) taking place in Davos, Switzerland, as well as at corporations such as the financial services giant Mastercard (NYSE: MA).

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The WEF, for example, said it has launched 1t.org, a global project, which aims to grow, restore and conserve one trillion trees “in a bid to restore biodiversity and help fight climate change.”

The Forum contests that nature-based solutions, including locking-up carbon in the world’s forests, grasslands, and wetlands can provide up to one-third of the emissions reductions required by the Paris Agreement’s 2030 target, adding that the remaining reductions would need to come from the energy, heavy industry and finance sectors.

Some U.S.-based companies and municipal organizations have joined the tree-planting bandwagon, with Mastercard having recently launched its Priceless Planet Coalition, a platform aimed at uniting corporate sustainability efforts while investing in environment preservation.

The Priceless Planet Coalition, whose founding partners include Citibank (NYSE: C), Santander UK, IHS Markit (NYSE: INFO), bunq, Saks Fifth Avenue, L.L. Bean, the New York Metropolitan Transportation Authority, Transport for London, and American Airlines (Nasdaq: AAL), said it has pledged to plant 100 million trees over five years. 

Mastercard noted that it is “crucial for companies to help reduce carbon emissions by investing in energy efficient workplaces and operations, sourcing renewable energy and maintaining a sustainable supply chain,” adding that the private sector “can do more and make real impact by combining efforts and engaging consumers.”

The credit card company said that its corporate card customers will be able to contribute to the Coalition’s forestation initiatives in large part by enabling their employees to use their cards for travel, goods, and services aligned with their business’s environmental sustainability goals.

Citi Treasury and Trade Solutions has signed-up to be Mastercard’s first issuer partner in promoting this initiative with its corporate customers, with IHS Markit as the first corporation to participate.

In the meantime, Mastercard’s stock has been soaring, alongside the level of household debt.

The New York Fed’s Center for Microeconomic Data (CMD) highlighted that total household debt balances had increased by US$92bn in the third quarter of 2019, a rise of 0.7%, to US$13.95tn – marking the 21st straight quarterly increase and US$1.3tn higher than the previous peak of nearly US$12.7tn in Q3 2008. 

WOOD Working

Against this backdrop, investors in the forest products and paper industry seem to be benefiting from the heightened focus placed on tree-related initiatives.

The iShares Global Timber & Forestry ETF (Nasdaq: WOOD), for example, which has among its top holdings real estate investment trusts Rayonier (NYSE: RYN) and Weyerhaeuser (NYSE: WY), as well as pulp and paper giant International Paper Co (NYSE: IP) – has gained roughly 215% since hitting its lifetime low of US$20.795 in February 2009, according to the IBKR Trader Workstation.

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The WOOD ETF, which was launched in June 2008, has returned about 6.25% over the past three months and has gained around 7.35% over the past year.

U.S. – Out of the Woods

While the WEF’s forestry efforts seem to have swayed U.S. attitude toward global climate change-related pacts, a total policy turnaround in that arena appears to be slim.

Although the Forum said that U.S. President Donald Trump has pledged to back its 1t.org initiative, the leader generally has a history of distancing the U.S. from concerted efforts to fight climate change on a global scale.

At the start of June 2017, President Trump had elected to withdraw from the 2015 Paris Agreement on climate change mitigation, while justifying the political maneuver in large part as protecting American businesses, as well as the overall U.S. economy.

The U.S. Department of State (DoS) noted that the withdrawal decision was based on the “unfair economic burden imposed on American workers, businesses, and taxpayers by U.S. pledges” made under the Paris Agreement. 

The DoS continued that harmful human health and environmental emissions in the U.S. had declined by 74% between 1970 and 2018, while net greenhouse gas emissions dropped 13% from 2005-2017, even as the domestic economy grew by more than 19%.

Indeed, the merits of a global climate change accord has certainly been challenged by the U.S.

The WEF, for instance, cited President Trump as warning against the ‘perennial profits of doom and their predictions of the apocalypse’ as the ‘heirs of yesterday’s foolish fortune-tellers.’

The Forum further relayed Trump as saying that these ‘radical socialists’ had ‘predicted an overpopulation crisis in the 1960s, mass starvation in the 70s, and an end of oil in the 1990s,’ while demanding ‘absolute power to dominate, transform and control every aspect of our lives.’

If a Tree Falls in the Forest…

Some academics such as Bruce Lippke, professor emeritus at the University of Washington, have historically presented somewhat different approaches to environmental protection than those espoused by the WEF.

In 2007, Lippke, who conducts lifecycle assessment research on forest and forest product uses, had argued that products manufactured from wood, such as building materials, are not only significant carbon stores but can also substitute other, non-renewable materials, such as concrete or steel, whose production contributes large amounts of carbon emissions to the atmosphere.

Other industry experts also touted the environmental benefits of wood products.

Aila Janatuinen, advisor at the Finnish Forest Industries Federation, for instance, pointed out that even paper products can bind carbon for “many years.” She added that using “more wood is the easiest way to reduce environmental impact of building.

“Each and every one of us can slow down climate change through our own actions and choices – selecting wood is a positive environmental act.”

Stained Wood Products

Against this backdrop, the results from recent forestry management initiatives may have posed some adverse impact on the U.S. wood product manufacturing subsector, which is responsible for items such as lumber, wood flooring, mobile homes, and wood buildings.

According to the U.S. Bureau of Labor Statistics, unemployment in the subsector’s workforce soared to 3.0% in December 2019 from 2.1% in the prior month, with producer prices having risen 0.3% to 135.6 from a decline of -0.1% (135.2) over the same period.