By Christopher Walker
PUBLISHED: January 2025
Republished with permission. Read the original article on IPE Real Assets
In 20 years, BCI has built up a sizeable direct natural capital portfolio with strategic partners, Owen Martin tells Christopher Walker.
British Columbia Investment Management Corporation (BCI) is the provider of investment management services for British Columbia’s public sector. With C$250bn (€171bn) of gross assets under management, it is one of the largest asset managers in Canada.
BCI’s C$6.42bn natural capital assets form part of its C$28.1bn infrastructure and renewable resources program, which invests in “renewable resources assets that are critical to meeting the demands of a growing global population”. Approximately 23% of the program is invested in natural capital assets, specifically agriculture and sustainable timberlands. This includes more than 3.5m acres of timberlands and nearly a million acres of farmland, as well as related facilities. BCI’s geographic focus has been on OECD countries and South America, along with some indirect exposure to other emerging markets.
BCI made its first investment in natural capital in 2005. Today, about 90% of its natural capital holdings are direct investments with strategic partners. The typical anticipated holding period spans over 20 years.
Owen Martin, director of infrastructure and renewable resources, says: “Investments in natural capital are an important part of our overall strategy, offering diversification and strong risk-adjusted returns for our clients. We typically target institutional-quality assets with sustainable competitive advantages and minimal disruption potential that would be suitable as long-term holdings. We can be creative when structuring deals in this space but primarily invest in platform companies where we can support growth and acquisition opportunities.”
The focus on strategic partners is crucial. “Who we invest with is equally as important as what we invest in,” Martin says. “We seek management teams that are strong operators and understand the unique needs of pension fund investment managers. We partner with co-investors who possess deep sector expertise and also share our objectives and values.”
This is borne out by examining some of the main investments. In 2017, BCI entered the market in Uruguay as part of a consortium to acquire LUMIN, a leader in socially responsible and environmentally sustainable wood products. LUMIN’s eucalyptus and pine plantations are on reforested farmland and the company employs forestry practices for comprehensive biodiversity management. LUMIN also aims to have a strong track record for health and safety and contributes to the local economy through more than 800 direct jobs.
Martin says: “We partnered with BTG Pactual Timberland Investment Group on this investment – a global timberlands manager with specialized expertise in the sector that shares our expectations for performance and commitment to responsible investing.”
Ag Partners Capital (APC) is an agriculture platform company established in 2021 by BCI alongside experienced farmland investors and operators. It acquires permanent crop farmland in the US and focuses on mature, sizable properties in established regions well positioned for long-term sustainability. It targets crops such as almonds, pistachios, wine grapes, and citrus. Martin says: “APC’s investment structure aligns ownership and operations to deliver superior financial returns and production results.”
Martin continues: “Natural capital encompasses various sectors and geographies, some with unique challenges. Timberlands and agriculture face moderate levels of cyclicality based on fluctuating demand, pricing, and conditions, which can create near-term challenges. Other factors like high-interest rates have recently contributed to a decrease in deal flow and created a noticeable bid-ask spread.”
Nevertheless, he asserts, “as a long-term investor with patient capital, we view the cyclical nature of these sectors as strong potential buying opportunities”.
Martin adds: “Another area to consider with natural capital investments are environmental factors that can affect the long-term productivity of the underlying assets.” For example, water management and regulation are increasingly a concern for agriculture businesses and wildfire risks are affecting timberland investments. Climate change is presenting a mix of tailwinds and headwinds.
“Understanding the ESG risks and opportunities at the outset of each investment is essential,” says Martin. “Evaluating sustainability policies and practices is embedded in our underwriting, asset management, and monitoring processes. For direct investments, BCI takes an active governance approach through board involvement, providing oversight of our portfolio companies’ sustainability strategies.”
Martin sees “long-term tailwinds that continue to support natural capital investments”. He says: “A focus by governments on net-zero carbon emissions, for example, provides long-term opportunities for value creation. These are assets that the world relies on every day, which are becoming increasingly important with policy and consumer trends related to global population growth, rising incomes, and climate change. A positive correlation to inflation and substantial value tied to land add to their appeal.”
He believes BCI is “well positioned to continue securing the best deals in natural capital”. He adds: “The characteristics of natural capital assets strongly align with BCI infrastructure and renewable resources’ investment strategy, and we expect it to remain an attractive place for our clients’ capital.”
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