New Forests

8/13/2019 New Forests

1/30

Investors supportingtransformation towards

sustainability in the forestry

sector

Adam Grant

Manager, Certification and Environmental Markets

PEFC

Kuala Lumpur, Malaysia

November 2013


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Slide 96

Important Note

New Forests 2013. This publication is the property of New Forests. This material may not be reproduced or used in any form or mediumwithout express written permission.

The information contained in this publication is of a general nature and is intended for discussion purposes only. The information does not

constitute financial product advice or provides a recommendation to enter into any investment. This presentation has been prepared withouttaking account of any personsobjectives, financial situation or needs. This is not an offer to buy or sell, nor a solicitation of an offer to buy or

sell any security or other financial instrument. Past performance is not a guide to future performance. Past performance is not a reliable

indicator of future performance. You should consider obtaining independent professional advice before making any financial decisions. Theterms set forth herein are based on information obtained from sources that New Forests believes to be reliable, but New Forests makes no

representations as to, and accepts no responsibility or li ability for, the accuracy, rel iability or completeness of the information. Except insofaras liability under any statute cannot be excluded, New Forests, including all companies within the New Forests group, and all directors,

employees and consultants, do not accept any liability for any loss or damage (whether direct, indirect, consequential or otherwise) arising

from the use of this presentation.

The information contained in this publication may include financial and business projections that are based on a large number of assumptions,any of which could prove to be significantly incorrect. New Forests notes that all projections, valuations, and statistical analyses are subjective

illustrations based on one or more among many alternative methodologies that may produce different results. Projections, valuations, andstatistical analyses included herein should not be viewed as facts, predictions or the only possible outcome. Before considering any

investment, potential investors should conduct such enquiries and investigations as the investor deems necessary and consult with its own

legal, accounting and tax advisors in order to make an independent determination of the suitability, risk and merits of any investment.

New Forests Advisory Pty Limited (ACN 114 545 274) is the holder of AFSL No 301556. New Forests Asset Management Pty Limited (ACN 114

545 283) is registered with the Australian Securities and Investments Commission and is an Authorised Representative of New ForestsAdvisory Pty Limited (ACN 114 545 274, AFSL 301556). New Forests Inc. has filed as an exempt reporting adviser with the Securities andExchange Commission.


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Slide 97

Overview of New Forests

Founded in 2005

Managing forestry investment forinstitutional investment clients

Currently managing nearly US$2 billion in

assets in the Asia-Pacific region

Head office in Sydney; 38 employees in

Australia, New Zealand, Singapore, andSan Francisco

Managing over 420,000 hectares of land

and forestry assets across the Asia-Pacific

region and United States

New Forests has generated excellentreturns to our clients over 8 years, and has

aimed to operate as a leading sustainableand responsible investor in the forestry

sector


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Slide 98

What Differentiates New Forests?

Strategically, New Forests is

1. Focused on Asia Pacific opportunities

Unique for a TIMOheadquartered in Sydney with an office in Singapore

Largest forestland owner in Australia and active in markets throughoutAustralia, New Zealand, and Asia

Providing investors with exposure to the integrated Asia Pacific regionaltimber tradeextensive experience in domestic and export markets

2. A leader in sustainable forest management Investment team experienced in sustainable forest management and

environmental markets; company-wide Social and EnvironmentalManagement System

Member of Forest Stewardship Council (FSC) International and FSCAustralia

Signatory to United Nations Principles for Responsible Investment (PRI)3. Forward Thinking

Engaged with international NGOs, and participating in global initiativesincluding World Economic Forum Global Council, Aspen Institute, etc.


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Slide 99

New Forests Business

New Forests Pty Ltd (Sydney)

Sydney

Australia New ZealandForest Fund

Australia New ZealandForest Fund 2

Singapore

Tropical Asia Forest Fund

San Francisco

The Eco Products Fund

Forest Carbon Partners

Mitigation Partners*

Back Office, Administration, Risk and Compliance Systems and Governance

Financial and Forest Resource Modeling Services

Sustainability and Responsible Investment

Investor Services


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Slide 100

Tropical Asia Forest Fund - TAFF

TAFF is a commingled fund investing in tropical timber plantations in SouthEast Asia with US$171 million in commitments. Clients include pension

funds and development banks.Forestry in Asia is changing:

Originated from logging concessions in natural forests

Low cost of timber from these concessions meant attractive returns were possible withoutoperating efficiently or sustainably

Natural forest timber has been largely depleted

Global concern over rainforest logging and a demand for certification and sustainableforest management models are on the rise

Fast-growing, high-quality managed timber plantation estates are emerging as the basisfor the future of the industry, which will require significant capital

TAFF will:

Invest in existing forestry enterprises or assets Upgrade and expand those businesses

Help Implement modern forestry systems and practices

Obtain certification and where possible, access environmental markets

Exit after 10-15 years of investment


7/30Slide 101

1. Shift to plantations and thedeclining economic frontier of

natural forests2. Global timber demand

growing and restructuring toaccommodate Asian demandgrowth

3. Shifts in Pulp & Paper marketsand increasing demand forbio-energy, bio-fuels, andother bio-products

4. Rising institutional ownershipof high productivity timber

plantations5. Sustainability imperatives and

the pricing of ecosystemservices

The Changing Forestry Landscape

Three-year old Teak PlantationSolomon Islands


8/30Slide 102

Natural Forest Harvest in SE Asia in Decline

Steady Decline in Natural Forest Logging in Malaysia and Indonesia

Source s: Malaysia Timber Council and personal communication with Yayasan Sabah; ITTO; Indonesian Forestry Department Annual Report, 2008.

5

10

15

20

25

30

35

40

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

LogProduction

(Mm

3)

Malaysian Log Production

0

5

10

15

20

25

1994 1996 1998 2000 2002 2004 2006 2008

Annualharvestlevels

(m3m

illions)

Indonesian Log Production

Natural forests Plantation forests


9/30Slide 103

Limited Plantation Investment

Asia has lagged behind otherregions in the development of

commercial plantations for highervalue end uses. Significant

plantation areas in Indonesia,South China (approximately 6.0

million hectares) and Vietnam arebeing grown on short rotations

for chip/pulpwood only.

Source: New Forests Asia estimates based upon RISI 2011 Pulp and Chip wood Conference, ITTO 2005

Sus tainable Forestry Man agement Report, and government data sets. Data does not include rubber estates andis based on private/government commercial scale plantations not small holders (except for Thailand where

sm all scale private growers are fundamental to the industry)

Both China and Vietnam currentlyimport plantation hardwoods

from South America, NorthAmerica, Europe and Africa

primarily to fulfill demand forcertified timber. There are

significant cost advantages toregional sourcing.


10/30Slide 104

Opportunities for TAFF

Investing in Southeast Asia with

priority for Indonesia, Malaysia,and Vietnam

Attractive growing conditions,

low costs, and close access to

growing markets

Investment team in financial hubof Singapore

Combination of existing and

greenfield plantations

Environmental, Social &

Governance (ESG) factors andenvironmental markets offer

value-add opportunities

4-year old clonal teak in Java


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12/30Slide 106

Sustainability at New Forests

ResponsibleInvestment

SEMS

Certification &Responsible

Management

Sustainability Reporting

New Forests is a signatory to the UN

Principles for Responsible Investment

(PRI) and commits to integratingEnvironment, Society, and Governance

(ESG) principles into investment decision

making

ESG policies are implemented at the fund

level through a Social & Environmental

Management System (SEMS) with internalauditing

The SEMS defines third-party certification

and responsible management

requirements relevant to the asset class

and type of investment

Sustainability reporting is integrated into

funds reporting structure and New Forests

publishes an annual Sustainability Report

covering responsible investment activities,

targets, and progress


13/30Slide 107

Environmental, social and governance best practice will ensure TAFFcontributes to:

Reduced greenhouse gas emissions and other forms of pollution

Maintenance or enhancement of high conservation value forests and biodiversity

Improvements in local livelihoods and safe working conditions

Recognition of indigenous rights

Third-party verified sustainable forest management will add significant value:

Price premiums and better market access for certain products

Lower project and political risk through reduced social conflicts

Improved asset liquidity and lower risk-adjusted discount rates on exit

Lower cost of debt capital and better debt access, especially from development banks

Improved access to licences, operating permits or additional assets from host countries

Reputational risk reduction for fund investors

Opportunities for increasing operating efficiencies through better management

Opportunities for environmental market products from areas set aside from production

TAFF Sustainability Goals

New Forests is committed to sustainable management of TAFF investments


14/30Slide 108

Forests provide not only timber, but a myriad of other benefits related to

freshwater, carbon cycling, biodiversity conservation, human health, and wellbeing

These ecosystem services have not been priced and therefore are usedwastefully and disregarded in land conversion decisions

Leads to plantation and agribusiness industry using more land rather thanincreasing productivity per hectare

Policy in conflict with overwhelming economic fundamentals is difficult toenforce on a sustainable basis

Opportunity Costs in the Landscape

Markets set prices for timber products, but how do we value other benefits?

Region Value of Natural Vegetation Value of land converted to

Agriculture

Malaysia $500 (logging concession after

primary harvest)

$20,000 to $25,000 (oil palm)

Brazil $155 (Amazon frontier land) $420 (grazing)

US South $2500 (mixed timberland) $6250 (cropping)

Australia $1900 (woodland properties) $4850 (mixed cropping and grazing)


15/30Slide 109

Innovating Markets

New Forests established Malua

BioBank in 2008 with seedinvestment from The Eco

Products Fund.

The project creates an

alternative economic value forBorneos rainforests and offers

sustainability solutions for oil

palm supply chain.Unlocking Demand for Biodiversity-Roundtable on Sustainable Palm Oil (RSPO)

compensation mechanism for past HCV clearance

-Forest Stewardship Council (FSC) compensation

mechanism for past downwards conversion

Further Investment Potential-Carbon value through proven methodology

-Impact or CSR investment to catalyze biodiversity market

growth and establish sustainable brand value


16/30Slide 110

Price signals work SO2market drove changes in fuel from high to low sulphur coal

EU Emissions Trading Scheme (ETS) drove $ billions into carbon funds and carboncompanies

Australian water market restructured agriculture to increased efficiency and morevaluable cropping

US Mitigation Banking is a $billion+ turnover industry

The finance and investment sector can facilitate change Investment funds sprang up related to the EU ETS, Australian Water market, and

Mitigation banking industrycreates liquidity to meet market needs

Markets create transparency in pricing; futures and options create stability; waterrights as collateral for investment in water use efficiency

Stability is necessary, but fine-tuning is also necessary Meddling by Government killed the SO2markets

Excessive allocations and unexpectedly huge offset supply have made the EU ETSunstable

It needs to cost more to remain outside rather than inside a scheme Lack of price premium has hampered most voluntary certification schemes

REDD has struggled to have impact because private sector is disengaged andcontinues to operate on a business as usual basis

Environmental Markets Lessons Learned


17/30Slide 111

Projections are that global industrial roundwood demand will begin to plateau around 2.3-2.5

billion m3per annum in 2030.

100 to 150 million hectares of commercial plantation area (2.5-3.75% of world forest cover)

could supply most of this timber, while timber production from frontier regions (Canada,

Russia, tropical natural forests) will stabilize or decline. Biomass demand may double this.

Towards the Future

Mechanisms to price ecosystems via

REDD, BioBanking, watershed

protection, etc. alongside

commercial timber plantations could

produce the basis for the

stabilization of conservation and

production functions

Large scale deals like NZ, Australia,

Indonesia-Norway, Boreal Canada,etc.

Ultimately this must be driven by

private capital and investment

Can forestry represent a natural infrastructure asset class?

Canopy view of New Forests Malua Biobank in Sabah, Malaysia.


18/30Slide 112

World timber demand will continue to rise, markets will evolve to

encompass Asian demand growth

Supply increases will primarily come from timber plantations, rather

than further expansion of the economic margin in primary forests

Increases in plantation area are more difficult to achieve than increases

in productivity of existing plantation baseland competition will also

rise among food, energy, and fibre crops

Institutional portfolios have gone from 5% real assets in 2000 to 15%

real assets today, and likely will reach 25-30% by 2025huge inflow of

capital for real estate, infrastructure, agriculture, forestry, etc.

Need fopr a financing source for conservation as well as production

this could include REDD+, biobanking, water rights, no net loss supplychains, etc.

Social and community integration via benefit sharing, consultation, and

governance models, and respect for traditional and legal rights will be

core to sustainable outcomes

Key Points & Conclusions


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www.newforests.com.au


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Appendices


21/30Slide 115

July 2005Company established in Sydney and

receives Australian Financial Service Licence

May 2007Establishes US office

August 2008Establishes SE Asian office

October 2009Begins Funds Management Business

August 2010Closes the AU$490 million Australia New

Zealand Forest Fund

New Forests History

January 2011Closes AU$415 million acquisition of

270,000 hectares of Australian forest land from the

Receivers of Great Southern Plantations

2011-2012Acquires major softwood plantations and

softwood sawmills in Australia

June 2013Final close of the New Forests Tropical Asia

Forest Fund, now with commitments of US$171 million,

and first close of the New Forests Australia New

Zealand Forest Fund 2 with AU$570 in commitments

June 2013 Makes first Asian investment, acquiring

Hijauan Benkoka plantations in Sabah


22/30Slide 116

Supply from Russia is Declining

Russian softwood exports have hit a wall

Russian log exports have

fallen dramatically over

the past six years while

lumber exports have been

flat to slightly increasing.

Source: FAOstat

0

10

20

30

40

50

60

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Millionscubicmetres

Roundwood

Sawnwood


23/30Slide 117

Canadian Supply Falling

Policy Constraints and Mountain Pine Beetle impact will lead to near-term

decline in timber supply, leveling off in the medium to long term.

0

10

20

30

40

50

60

70

80

90

British

Columbia

Alberta Ontario Quebec

Canadian Timber Supply

2009 & 2050 Forecast

(million m3)

Softwood Annual Allowable Cut 2009

Estimated 2050

Source: Mark Kennedy, CIBC. Global Perspectives on Forest Products Trade. Presentation to Future Forestry Finance 2012.

Natural Forest Logging Collapse (repeated


24/30Slide 118

Natural Forest Logging Collapse (repeatedfrom main preso)

Regional Collapse in Natural Forest Logging in Malaysia and Indonesia

Sources: Mala ysia Timber Council and personal communication with Yayasa n Sabah. / Indonesi an Forestry Department Annual Report, 2008.


25/30

Slide 119

Australian Plantation Harvest Rising

Australian hardwood plantations are steadily replacing

a declining supply from native forests

0

2 000

4 000

6 000

8 000

10 000

12 000

'000m3

Native and Plantation Hardwood Harvest

Native Plantation

Source : ABARES, Forest and Wood Product Statistics.


26/30

Slide 120

Global industrial roundwooddemand is likely to rise from 1.5

billion m3in 2013 to 2.5 billionm3by 2050

Somewhat speculative forecastssuggest biomass energy, biofuelsand biomaterials demand coulddwarf industrial roundwood

demand over next 30 years* Almost all incremental supply will

come from timber plantationsboth productivity enhancementand plantation area will need toincrease

Investment needed could rangebetween $100 and $500 billion tomeet these levels of demand

Increasing Importance of Plantations

Source: FAO, 2010. Global Forest Resource Assessment.

*WWF, 2013 Living Planet Report


27/30

Slide 121

0

200

400

600

800

15

20

25

30

2012 2025 2035 2045 2055 2065

TRV

-TotalRecoverableVolume(m3/ha)

Base Management Nutrition

Genetics TRV

AverageGrowthRate(m3/ha

/yr)

If industrial wood demand

grows at an equivalent rateto global GDP can we meetmuch of this viaproductivity enhancementrather than land base

expansion Investor strategies focus on

silviculture, nutrition, riskmanagement and genetics

to increase productivity by50-100% over the next 50years

Example of Productivity GainsSoftwood in Australia

Plantation Productivity Can Increase

*Source: Timberlands Pacific Pty Ltd


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Slide 122

Future wood supply growth will largely be delivered by

plantationsthis will be from existing plantations managed

more intensively and expansion of plantation areaexpansion

is a key policy challenge

As timber plantations take on increasing share of wood supply,

innovation is needed in financial mechanisms for forest

conservationREDD, biobanks, supply chain initiatives

Social outcomes need to balance multiple stakeholders and

conflicting interests and rights. Innovations around

consultation/governance models, sharing in economic

benefits, community benefits are needed

What Government Policies are Needed?

A modern forest policy framework needs to address woodsupply, forest conservation and sustainability issues


29/30

Slide 123

Third-party verified sustainable forest management will add significant value: Price premiums and better market access for certain products

Lower project and political risk through reduced social conflicts

Improved asset liquidity and lower risk-adjusted discount rates on exit

Lower cost of debt capital and better debt access, especially from development banks

Improved access to licences, operating permits, or additional assets from host countries

Reputational risk reduction for fund investors

Opportunities for increasing operating efficiencies through better management

Opportunities for environmental market products from areas set aside from production

TAFF Certification Policy:

Achieve compliance against IFC Performance Standards within three years of acquisition on allassets including plantations, natural forests, and processing facilities

Achieve FSC certification on all natural forests within three years of acquisition if the asset

meets all FSC eligibility criteria Where plantation assets do not meet all FSC eligibility criteria, engage an FSC-accredited

certification body to undertake third-party verification of compliance with all applicable FSCrequirements and, depending on market requirements, pursue additional third-partycertification against an alternative certification system depending on market demands such asPEFC, LEI, FSC controlled wood, VLO, and/or VLC or other future standard that may bedeveloped

TAFF Certification & Sustainability

New Forests is committed to sustainable management of TAFF investments

i i


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External Motivations

New Forests designed its Social and Environmental Management

System (SEMS) in 2010 and began full implementation in 2011.

The SEMS is designed to systematically identify, manage, and report

on social and environmental issues and potential impacts.

The SEMS helps us win clients:

English pension fund manager said, Youre the only manager weve seen

who can show how they manage assets sustainably.

Dutch pension fund manager said, FSC certification is absolutely required

for us as a target and your SEMS shows us how you pursue that.

Provides a reference point and tool for due diligence

The SEMS helps us provide client services and meet requests: Current clients ask to see audit reports

Streamlines responses to client inquiries

Risk management and continual improvement.

New Forests

Documents

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