Plantation Carbon Forestry in Australia with Andrew Morgan

[birds chirping] [birds chirping] [music] Hello and welcome to Forest Invest. My name is Shauna Maccabbage from the Forest Link, and I'm here to bring you expert insights on creating profitable and impactful forest investments. Today I'm joined by Andrew Morgan, managing director of SFM Agribusiness. Andrew, welcome to Forest Invest. Thank you Shauna. And thanks for joining me today. Before we get started, can you tell me what your favorite tree is? Uh, look, it's probably eucalyptus regdens, which is a 90 species to Australia. Grows in Tasmania, and it's a second tallest flowering plant in the world, so it's pretty magnificent. Ah, good one. Now Andrew, for the listeners who are not familiar with your work, could you tell us a little bit about you in your background and that of SFM? Yeah, thank you. So my background going right back is actually did a vegetation ecology degree at the University of Tasmania, and very nearly ended up in academia. Uh-oh. Sort of bored with the idea of going down the PhD pathway, but thankfully didn't. And sort of started off really in the consulting space. So we're actually working as consultants for the likes of the MIS companies and the MIS companies in Australia. So the management of investment schemes, um, guns, limited, um, for our Santa Prices Australia. So some of those big companies that did big plantings of hardwood back into 2000s. We created SFM, um, really to support those entities in that consulting space. And I guess through a series of, you know, sliding doors, we've sort of got to where we are today, which is we're now a, I guess an operational partner to, um, many institutional, uh, funds and corporates. So we're about 50,000 hectares of, uh, forest under management across the southern states of Australia. Managing all aspects of that, that on-ground component and facing up into the funds in terms of reporting for financials, um, ESD reporting and carbon. And in the past six or seven years, we've really lent into those, those carbon, um, or carbon project development, as we've seen, the rise of net zero, and seeing the rise of the compliance market in Australia around carbon, which I'm sure we're about to talk about. Yes, absolutely. And so then you work with both just to kind of clarify for, for the audience who's listening, you work with both fund managers and asset managers, but also, so where they, let's say the fund owns, or they have a separate managed account that owns the forest assets, and you're hired in as a third party operator. Is that correct? Yeah, correct. So we operate, I guess all of us is a property manager with all the operational partners. So many of those fund and fund managers don't have the operational capacity within their teams. So they're managing the investors and managing the investment. And we manage the actual asset itself. So we're the operational asset in partner in that context. Excellent. And like you mentioned, I'm really looking forward to digging into the carbon forestry piece of this today. And of course, in the Australian context. Now, maybe to just kind of start back at the beginning and paint the landscape of our discussion. Can you provide like a brief history of carbon forestry in Australia? So taking us back to maybe like where, when, and why forest assets in Australia began to integrate carbon values. From our experience, there's obviously been a number of voluntary schemes in Australia for some time. And we saw sort of red 1.0 a long, long time ago in the native forest space. But it didn't get a lot of traction in those compliance markets, and particularly with, sorry, in the voluntary markets, particularly with investors, tended to be, I think, private landowners sort of being tapped on the shoulder by carbon project developer. And I'm talking about the 2000s, and probably early 2010. Really, when we sort of start to see it escalate was when a compliance market was brought on. And that was in around 2016, 2017. We lodged our first projects into the, what was called the emissions reduction fund. So it was a policy setting by the Federal Government at the time, which was a Labor Government. And really, that was to drive, it was one part of a broader policy setting around net zero. And meeting, I'll talk about in a minute about the renewable energy targets. And obviously carbon capture and offsets. So, 2018 was really the first time that we got exposed to this idea of a compliance market in the carbon space. And by compliance, I mean, this is regulated by the Federal Government. So they're in charge of administering the projects. They manage the compliance of the projects and the governance and also managing the credits. So they actually have a register of the credits at all times in terms of all the projects that have been lodged. So 2018 was kind of our first foray into this. And it was on an asset called limestone estate in the Green Tribal, which is in South Australia, but the Green Tribal is a very well known forest growing region in southern Australia that crosses between South Australia and Victoria. That project was a new nuclear disclobalist or hardwood plantation. And so we really sort of lent in on that didn't really know what we were doing. It was one of the first projects under what was called the plantation methodology under that emissions reductions fund. It was really our first time and it was heavy days. I remember getting a call from one of our portfolio managers asking us to look at this. And I think my team sort of put it together over the period of a couple of weeks to get it lodged on time. So there was a lot of learning to have been undertaken in that very short period of time. And I guess what we've seen in that whole carbon market in terms of the evolution is that the methodology itself has evolved. There's now four separate schedules within that methodology. Schedules one, two, three and four. And each of those schedules sort of different approaches to forestry. And I'm happy to go into that in a minute. Yeah, if you could give an overview, that would be great. Yeah, so the plantation methodology has said it's got four schedules. Schedule one is Greenfield. So a new planting. So it's establishing a new plantation on an area of land that has had no natural and native vegetation on it for seven years. So a true Greenfield establishment project. Schedule two is where there's a subocultural change. So shifting from short to long rotation. So if you could imagine a short rotation, hardwood plantation, which is being grown for wood chips, then thinned and treated to grow on for soil. And so you build up a case around that. And that then can be potentially a schedule two project. Schedule three is a highest and best use. So it becomes a bit more around a financial argument that without carbon, the current standing crop of timber would be reverted to some other use or move to another land use, namely agriculture. But with carbon, that tree crop can stay. So it becomes a real financial exercise in internal rights of return. And so you tend to engage in independent consultant. They will come in and they will assess that land and its carrier capacity and return based on forestry and also on other agricultural pursuits. And schedule four is permanent plantings. So 99 year permanence. So more around that environmental biodiversity planting post. Okay, sorry, I'll let you get back to the history lesson. Yeah, so, um, 2008 team of first project. We then moved through doing a number of projects for that same asset through 2019, 2020. And then in 2021, 22, where we're approached to bid pitch for some work, which was focused on aggregation of smaller parcels of land. And working with landowners, utilizing a, both a lease hold and a free hold mechanism of acquisition. We're old, we're successful in that. And that's the project that's called active acre, which is based in Tasmania currently. And really that and in combined with, I guess, the growing experience that we build in in carbon has sort of positioned us as one of the leaders in this whole plantation methodology. So we now are responsible for somewhere between 25 and 30% of all the projects nationally under this plantation methodology. Okay. And that is the, the first one. Is that correct? The schedule one? Well, we've got a blend. So we use schedule one schedule one and three economy of our main focus points. Really, yeah, I mean, at a macro level, Australia's got two challenges. And globally, we've got two challenges. One is obviously around climate. And so as most of you listeners would know, trees are good for climate. They sequester carbon. So we want to put more trees on the ground in new places where trees haven't been there previously. The other one is that Australia has about a $4 billion timber trade deficit. So we're importing a lot more timber than we're producing. And so we need to continue to build our solar and capacity in terms of having more timber on the ground, really to meet a growing population and building and building houses. So there's a sort of a double driver here for getting more trees on the ground. Okay, okay. That makes sense. The challenge here is that we are competing for land. We're competing with food and fiber. And in Australia, despite us having a very large landmass, the areas where we can actually grow trees is quite limited. We're limited really to the based in Seaboard of Australia, along into Tasmania, over into southwest corner of Western Australia. And mainly it's driven by rainfall. So you know, ideally we need a minimum of 600 mil rainfall, somewhere close to some processing capacity to make a commercial market and make sure that product actually gets to market. So whilst we're looking at Australia as a large landmass, the actual area that we can attempt to grow trees in is actually quite limited, which is why we've then had to look at these models around aggregation, using leases, partnerships with landowners, and obviously bang out and buy assets as well. Mm-hmm. Okay, I want to get into that model in a second. Before we go there, I'm wondering if you could give us a bit more information on the market itself. So I understand that the federal agency regulates it in a way, so it sets the standards for what is a credit and how is that measured? And you mentioned the four schedules that it could fall into. Now, a couple of questions. What would you say are the average prices and like do these differ depending on the different schedule that it falls into? And what are the types of projects that are being developed? Does it, you know, is there more preference to one over the other within these kind of four different approaches? Well, if you take a further step back from not just plantation methodology, there's a whole number of other methodologies that the clean energy regulator, so the clean energy regulator is the independent authority that is responsible for registering both the legislation and the methodologies and governance of this. So there's not just plantation methodology, there's also environmental plantings. That's a whole other methodology. Soil and soil carbon, savanna fire method. So there's a whole set of methodologies that carbon project developers have got in their toolbox if they want to go there. We're very much honed in on plantations because that's what we know. We've come from a forest background and forestry, so we stick to our knitting. And in terms of what we're seeing in the market around price, I might talk at a high level around those different methodologies and then come into plantation. So in terms of pricing, there's what's called a generic price. So really that's the, you know, the base price that the most emitters are going to want to buy in at. And then you do say granularity in some of the pricing. So environmental plantings and plantation methodologies certainly are receiving a premium above that price above generic. The generic price of scenes to be bouncing around $35 for an acu. So an acu is a start Australian carbon credit unit. It's one ton of carbon. So it's the equivalent of any one other one ton of carbon unit around around the world. And we're seeing that those EPs, so environmental plantings and plantation methods are certainly good. Yeah, we're seeing 10, 20% over and above that generic pricing. In the same sense, we're seeing other methodologies like IHIR, which is human, human induced regeneration at a lower price point below generics. So it's fascinating to watch. We're really watching a whole new financial instrument evolving in Australia. And with now had acu's can now be traded on the Australian stock exchange. There's a sports futures market. It's the trades are pretty thin at the moment. It's really just evolving. There's a lot of off market trades going on. So there's a lot of herds. There's a lot of sort of intel to understand where the market sits. But it is buried as evolving. Oh, okay. And then who are the buyers? I'm assuming it's industry in Australia. The emitters, so does me. The big driver here is that the Australian federal government, so I see Labor government has brought in what's known as the safeguard mechanism. So the top 200 emitters have been called out and are now required to offset their emissions whilst they're going through periods of change towards renewables. And so they are actually all looking out. They're looking for and are actually in some cases driving investment into carbon project development. And so they are looking for obviously acu's at good high quality high integrity acu's that obviously at a low price. And so that's there's a big driver there with emitters. We're also seeing I guess more nuanced corporates and government agencies taking a don't only confuse the word voluntary but taking a voluntary approach and saying, well, we want to be net zero. We might see that as a positive marketing tool. And so we're seeing groups coming out and saying, well, we'd like to buy acu's so that we can offset our activities. And those activities may be as simple as having motor vehicles or having the power on. And so there's quite a broad subset of groups looking for acu's. But in the main, the driver here of volume is those large large emitters. So Kalfi power stations, large manufacturing facilities, those sorts of corporates. Yeah, okay. And you mentioned that kind of carbon forestry began very small scale with some voluntary activity happening. Is that still happening or is it growing alongside compliance or is the compliance market kind of taken over in the Australian context? My sense of it, particularly in the forestry space, is that the compliance market has taken over. And I should I should preface that that there is no compliance market for native forestry here in Australia yet. And we don't we don't practice and play in that native natural forest space at all about assets are plantations and planted forests. We manage a fair contingent of natural forest, but we manage that for biodiversity and conservation. Okay. So there is opportunity still in that obviously in the voluntary space for landowners to look at accessing value in the voluntary carbon schemes, but we don't participate in it. And I don't think we're going to see that whilst the compliance markets there. Yeah. Yeah. Okay. Going back to the standards and methodologies that are applied in the compliance market in the Australian context. What would you say are the pros and cons of this system? Like it sounds like it's already gone through some growing pains and have has had adjustments and new methodologies added for all these different types that you've mentioned. What would you say and maybe you can you could focus it on, you know, where your area of work covers. But what would you say are the strengths and weaknesses of the system? But I think the strength for really losing that it is a compliance market. And so there are very clear set of rules around the methodologies and how one goes about that. So we're all playing on the same playing field. It's a level playing field in terms of how to go about establishing a plantation and establishing a carbon project. The underlying model which dictates how many carbon credits you get is called full cam. I can't remember the full acronym of the top of my head. So that is the model that our carbon model is in our team when they're looking at an area of land needs to insert all of the biophysical parameters, all of the civil cultural treatments. And then it will spit out a carbon curve of here is here is the modeled acu yield, carbon yield for this forest over that period of growth. It's then ordered it. So we have a, and I think this is probably our weakness because the audit costs are pretty bit if and we have to be ordered three times through the growing period. So the issuance period, which is over over 15 years in the plantation sparse. And so three audits over 15 years just on saying, testing whether the carbon is right is pretty, pretty exhaustive. And these audits are pretty expensive at the moment because there's a amount, there's quite limited in terms of the number of people can do those audits. So it's a very, the system's really well set out in terms of the methodology and then and how it go, how you go about it. The regulator is also very open to lead back our carbon team and one person in particular meets with the regulator on a monthly basis and they have a discussion. So there's quite, there's a fair degree of transparency around what's going on between our pipeline and the regulators. And sometimes we see that they're approvals processes can get blown out. Right. And I think that's again another weakness. We're starting to see timeframes on the modgments can move from the promised 90 days, which is pretty long at the best of times out to 1340 days. So I've got a lot of frustrated foresters who are used to operating unconstraining that timing. You know, if we we work backwards at the end, we really need to know the main parameter really in a successful new Greenfield operation is how many seedlings do you need? Therefore it links back to seed. Now you need that seed in the ground a year before you're planting the true end of ground. And if the regulator is delaying approving a project, it can really start to impact and compress those timeframes in the year following in terms of planting. Oh wow. So there's there's a fair degree of tension between the operational foresters who just want to get trees in the ground because that's their job and that's their love and the carbon teams who are sort of trying to manage compliance. So that's always fun and fun one to to never go. Yeah, you don't want to take that risk of not getting that approval and then having all these extra seedlings kicking around. Absolutely. You don't want to carry seedlings over. It's not a good look. So there is at the end is there's logistical and operational challenges to this and getting that right. Yeah. Yeah. So, yeah, I think the systems working well, I think they'd, you know, the regulator could do with more resourcing. What I do like about it is it gives an investor some real confidence that the, yeah, this compliance might give some confidence. I can speak to them with a fair degree of certainty around if we look at this project, we know we can get the endbot project that means land. So when we're looking into diligence, we can look at a parcel land and go, we know we can get these up as a schedule one or schedule three project with a fair degree of confidence. Right. And that's really important, obviously, you know, in that investment space. And so, it was building up pipeline and do fly. And then on the demand side, so where the registries held by the government and you have a clear demand because of the compliance rules, how quickly is the, let's say, bank of credits getting built and saturated perhaps? Like, I'm just wondering, are you a long way to go before meeting the needs that these 200 emitters have or how is that looking like the supply and the demand dynamics, I guess? Yeah. There's a number of groups that are making lots of money off doing this sorts of models. So I think the last one I saw was that peak AccuDerman is going to be in 2033. And I think 35 million AccuDermanac users required in that year. That's a lot in context. Yeah. I had a very high level forest, a plantation forest on a greenfield site. It might produce 250 AccuDermanac users per hectare. You know, so you're talking about four to an AccuDermanac user year. So over that insurance period. So 33 means a lot of AccuDermanac users. So the view is that at the moment demand is going to outstrip supply into sort of that forward to 2033, 2034. And then it starts to taper off. So it's still plenty of capacity to go. Okay. Now, before we jump into the details on this active acre model, which I want to hear more about. Are there any other key learnings that you've had from your experience? You know, you've developed, I believe, more than 40 plantation carbon projects. Are there any other learnings from the regulators processes? I mean, you've already described a lot with regards to resource challenges. But is there anything else, you know, from working in this system that you can reflect on? I think the timing pace is really valuable. And I think that in terms of investment, understanding those timeframe that it is going to delay it. So, and we'll get to this and I'm never the active acre, it's really relevant. But having partners who are flexible and understand that the carbon places are a little bit more complicated than your traditional, you know, buy some, buy a pasture, buy a farmland and plant it up. There's, there's complexities in there that we certainly didn't pick up when we first started doing this. And so that always adds sort of sleek advice. I guess what we've seen in evening in existing assets, if you'd asked me three or four years ago, carbon and a carbon strategy wasn't even considered by most of the institutionalists when looking at, yes, larger assets, it's now a really important part of value because it's, you know, the three core pieces of an asset or tradition was the land on the tree crop. There's now land tree crop and carbon and it's actually forming, you know, it could be forming 20 or 30% of the title value, I shouldn't point. And so having partners who actually understand that carbon, how to unlock it has become quite integral in that due diligence phase. And I was really interested in this because we haven't, we haven't seen that before. It's really come on in the last 12, 18 months as I think the institutionalists are really standard to see that they've got to have that as part of their portfolio. Right. Yeah, I think that's probably it on that one. Well, then let's dive in. So why don't you tell us about the Activator model and what makes it unique and how did it come about actually? Like what kind of triggered this system? Yeah, it was, it was, it's interesting. We're actually internally, you know, thinking about this idea of how do we get more trees into the landscape? How do we find more trees or find areas to plant more trees on the back of what I've talked about before? Right. Yeah, we've got demand for credits. You know, and the need for planting more trees from a plymonic point of view. But we also have this very clear demand for product when we're more trees on the ground to meet domestic growth. The federal government, you know, broadly, there's been some papers done and at a very high level, there's a view that we need 20,000 hectares of new plantings each year to 2050 to make growth. At 20,000 hectares doesn't sound a lot, but year on year, that's quite a bit. And we're starting to talk about hundreds of thousands of hectares. And if we historically look at how or what the assets are that we've got, you know, the existing forestry assets in Australia, we've kind of already had the great aggregation. So where Australia, where we got our plea land from back in the 90s and earlier than that was, we'd see a nice patch of vegetation. Natural vegetation would run a couple of doses through up with the chains, throw some fertiliser on it and plant it up with trees. And that became a plantation. The rise of, you know, sustainability, social licence meant that in that, around the 1990s, late 90s, early 2000s, we can't do that anymore. We can't clear natural vegetation and now illegal and with certification, we can't do that. And so the clear land that we have, the existing farmland and pastures that we've created, is really this, that is the canvas in which we can work with in terms of being able to establish new plantations. And that comes with competition for those other pursuits, namely farming, you know, so both fodder crops and grazing with lobstool. And we also saw in the past, we had this, not necessarily in a version, but we would often see negative sentiment around foreign investment buying up lots of farms and planting of the trees. So there was a bit, you know, perceived negativity around that. And so one idea we had was what about if we truly got in and started partnering with land owners, so they're not needing to sell their farm, but they could lease some of their areas, some of those areas that may not have had infrastructure spend on it, hasn't got irrigation. It might be a bit hilly out, it might be a bit rocky, it might be at the back of their farm that haven't got writing infrastructure to it. Yeah. And so we were sort of thinking of this idea around leasing, but then at the same time, as I mentioned earlier, we actually got approached to bid for this project, which at the time wasn't called ActiveAker, it was actually one of the projects, something I can't remember what it was called. And so we bid on that project, and one would be based in Tasmania. Tasmania is our sort of heartland, it's where we sort of based ourselves and grew out of, and we won the bid. And the premise of it was a 50-minute dollar fund to utilize to establish new plantations on new ground, so that's schedule one or schedule three. And really the mandate was focused on delivery of carbon and timber. So that was in 2022. It's quite different to your standard institutional play in that it was retail-facust. So we actually had to have a marketing campaign, and we were on social media and doing radio and pushing out public relations, sort of style brand awareness campaigns, which was really not your typical forestry and forest investment play. So we were really learning on lots of past history, usbos or past experiences we'd had working with landowners in Tasmania, and it's very much a relationship scheme. And so this retail focus was to build these relationships with the land owners. So they're not bringing in the capital, but they're bringing the land to the game. Correct. They're bringing the land. And so it's very much they're bringing the land, we're bringing the capital through a partner, we then can lease the land with that land owner. So they get an annual rent, an annual lease. We establish a project, a carbon project on that land, and we manage it for them. So the land owner becomes a partner, they're receiving their financial return in terms of a lease, and our investors getting the financial return both through Accuse and a timber land, a timber crop. We can buy as well, so that model is allowed us to be flexible in terms of being able to buy up. If it comes on the market, it's subject to third, so if we're an investment review board here in Australia. So it's got to be on the open market, we can't just go around knocking on doors, we actually have to, you know, landowners actually need to be advertising and we can then play. And that's a good strategic option for us because we'd like to build up nodes of area. So really we're back to this true aggregation. So how do we, we're creating new assets? There's no large passes of land in which we can go and plant up 10,000 hectares and create a new asset. We actually have to do it in a much more granular and it's more difficult. The capital needs to be more patient, you can't do it over a year, it's over three to five year horizon. I think we're now at about 4,000 hectares on that one in Tasmania and the model itself I think is resonating across the country that we're getting interest in doing similar style projects elsewhere because that's, you know, that again goes back to that driver on that Indian get more trees in the ground. And I think this is probably the big shift for the sector is that we're now talking about aggregating sub 5,000 hectare type properties. We will go down to sort of 40 to 50 hectares at a time if we have to and it makes sense. And that, with that comes operational challenges as well. Yeah, I was going to say and I'm curious, are there any engagements or are you a approach by groups of farmers? Let's say that and maybe they get a better deal if neighbors work together so you can kind of put together a contiguous piece of land. Because I just imagine the logistics of that being challenging when you're having to build road and make sure you have some connection just to get that. economies of scale. Yeah, we are. It's interesting. There's a lot of over-defense conversations. So you really got a couple of tools that we've used is very much that ambassador model. So getting a known landowner in that region on board who's going to talk to his neighbors over the fence. And once they see some activity, the phones start ringing from that region. You then got some of the larger, more sophisticated landowners who have sat back and waited. You can see them, I guess, testing the waters and they'll be asking around. And then the phones start ringing and then you get the really big end of town in terms of those landowners saying, "Hey, I've been watching you for a year or two. I'm pretty impressed. You know, we're ready to pull the trigger now. Do you want to come and look at my 500 hectares or a thousand hectares?" Right. You could follow almost an innovation uptake curve. We're still kind of in the early adopting mode within the region and we'll get to the most pretty soon. Oh, great. And what would you say are the main concerns that these landowners come to you with? Look, I think in Australia, there's still a little bit of an element around MIS and I'm not sure how many of you listen to the familiar with the management schemes and sort of the collapse of those back in the GFC or just after the GFC. So there's still a little bit of awareness in terms of longevity, I suppose. So you're talking about a 30-year term here to grow on. And I'm in the mail talking about radiata, softwood crops here. So 30 years is a long time to put a trend in the ground and so they want security of payment. And that's usually around building up. This is real capital. These are investors. It's institutional. It's pension funds, superannuation funds. So they give them some confidence. Right. Right. Okay. The other piece is, it is that 30-year term. So they're sitting there looking at it. What happens if the markets tank what about risk? And in terms of risk, we take on that risk or all of that. We manage that risk on behalf of the investor, you know, fire in particular is probably our biggest risk. But there's also persons diseases. But again, the land owner still is, they want to see productivity from the land and they don't want to see their land burn or be impacted. So again, that partnership place is really important because we want them picking up the phone if they can see an issue on their on their trod crop. Right. Just while you're talking to fire is insurance playing a piece here or are these? Yes. Okay. So we're also ensuring we're also part of a larger network of smoke detection cameras. Sort of this is where the ability of the fact that we manage larger assets in the region of cysts. So it becomes much more about there's some some co benefits there and working within the industry and partnering with the rest of the industry around fire and other persons diseases as well. Right. It's really important. I think it'd be very hard for someone who isn't part of the industry to come in and do this. Of course. I think we're some of the other car market developers who haven't been in the plantation space. So kind of considering trying to be in this area and it very quickly comes unstuck because it's so different as opposed to an environmental planning where you're planning a try and leaving it. We're coming in with a view of how do we get this to market or about roads, what about game control, what about fire and risk. So we've seen a few challenges for some of those other developers, which is good from our point of view. Right. So it makes sense really because until recently that's all been a public activity more or less and the experience is just as you say you plant and you walk away. So that ensuring that it's there and surviving it has not been part of the rules until now. So if you know what's paying for it or requiring it of you, then that experience isn't built. Yeah. And we're bringing that, you know, I guess our learnings from being an asset manager for so long, so certification. So we're certified under both PFC and FSC and can do both or add up at the bid of the investor whatever they want. So really we see that going back to your point about, you know, accused. I say that there's a real opportunity where we can start talking about a FSC certified carbon credit, having more value than one that's not FSC certified or PFC. I'm kind of agnostic. Right. Yeah. Let's hope it's worth more, right? Because it definitely costs more. Yeah. Work as a cost more. And we are there looking at how do we amplify the natural, you know, the biodiversity places within that frost. We're not just there planning the monoculture. There's also opportunities to amplify the natural elements that are there. And we do that when we work with some of these landowners. The ability here is that the model that we've developed around the leasing is that it's quite flexible. So some of those landowners might say, look, we'd like to participate and have a little bit of acue risk, bit of acue share. We can adjust that model and say, sure, well, he's 10% of the acues. And that just suggests the less right down somewhat. Well, they might say, well, you hear, I've got a rocky ridge. Would you consider doing some environmental plantings while you've got a planting crew up there? And we can do that as well. So there's some flexibility in that model that allows us to amplify some of those natural values, components within that region. Because they've all got them. I'm talking about this sort of blank canvas of just the petite areas that is always native vegetation around streams down through wildlife habitat clumps or up and up on the hills. No, of course. So these are the concerns of the landowners. What about the institutional investors? Because in core geographies, at least in forest investments, the model is typically on the land and the trees. So what have been the concerns from the investors from this model? The risk. So, yeah, I think at the highest level, there's pros and cons to the lease model. The pros being, you know, there's a lower capital up from, but then they've got to think about taxation and how does that work? The risk of landowners changing hands and the messiness of that. Free hell is great. And you obviously get the appreciation of land value as well as the crop. So it suits some investors and doesn't suit upless depending on what their outcomes and what their focus is on. I think fire does dominate the conversation quite a bit in terms of that risk and to your point, we ensure we obviously are proactive in our approach to fire. The landscape you're talking about assets in a scattered landscape and that can be a pro and a con. If you've got a forest sort of sitting within an agricultural landscape, not a bad thing from a fire point of view, but if you've got one abiding up against a native forest or a poorly managed plantation from another operator, then your risk is slightly heightened. Pipeline and deal flow is one that we get asked on a lot and particularly when we're looking at originating a concept. Yeah, how much area in a region is available to acquire? We have 100 millions to deploy. Can you sort of prove up that you can do that? What they don't want is obviously these assets that are stranded at sub-scale. You don't want just a thousand hectares in one region you need to get to scar. That's a tricky one to prove up. We've got some tools out of this disposal around what's the past five years looked like or ten years in terms of sales. What is the total area? There's lots of work being done by us and the governments and what we call the regional forestry hubs, which is a federal government initiative. There's regional processing hubs within the country that do lots of work on land availability and so understanding what is a region's worth or how much land is available in that area for plantations. And so you sort of mulled those couple of things together and say, well, if we've had ten years worth of sales data, there is deal flow in this region. Here's that area that's available in that region. The other only other real question you've got to ask is what's the landowner's intent? And if you can bring those things together, provided that the offering of the leases commercially competitive. You can start to bring together a view on how much land is available and what's the likely sort of scale in that region. And you put it in on text, the last report I was looking at, there's about 2.4 million hectares of land suitable for plantation forestry in all of Australia. That includes Queensland. So in Queensland, you start talking about subtropical species that are a little bit different than your southern states, which has got radiator in it. But you're still talking about one and 0.8, I think, 1.8 million hectares. So there's still quite a bit of land available. You just got to get the settings right. And that's the challenge. Right. Yeah. And I guess especially when you're talking to a lot of landowners, then have you gotten to a point now where you have kind of a list of criteria, if an interested landowner comes to you and you say, like, you've got to meet these before we have another conversation or how does that work with, you know, progressing a discussion? Yeah. We've developed our own in-house, I guess you'd call it a contact management system or a sales system. So again, something that's sort of unusual from a forestry point of view. We've got that sales aspect. And you're right. What we get is landowners go into that system. They might actually reject the offer of the loose rate and the first iteration. And from our side, the model's changing all the time because our view on timber pricing and carbon and those two things really particular change on a monthly, but, you know, let's call an annual basis. And so our capacity to pay changes on an annual basis. So we've got ability to maybe uplift our loose rate, go back to that landowner. The flip side is that those landowners are probably farming. And so they've got exposure to fat lands, wool, grazing, cattle pricing, all those sorts of things. And we see this sentiment. So when one of those has softened or that particular, we get phone calls because those landowners that were still in our system might come back and go high. that Lace Ra was pretty good, I've thought about it for 12 months or a year to years. And they'll come back and actually start having another conversation. - Okay. - And then in the other place, what we've got is, I guess, relationships with the real estate agents. And this is more broadly across Australia. And that, when we say larger properties coming on the market, the ability that we've got is we can model that whole project, that whole property with our assumptions in it. And then actually go back out to a whole group of my single clients, or investments, I hope, who's interested in this. And that sort of forms the B-chet of a region. If you can buy a property at 2000 hectares, it's probably enough to get one of those smaller funds interested. Or an emitter, because the emitters are now, this marker is actually changing our client base. We're now getting direct approaches from emitters. - Right. - Yeah. - Ah, okay. So they're wanting the assets on their balance sheet as well. - Yeah. - Yeah. But then in some cases, they're only interested in the accused. So they're not, they're not your traditional timber investor. And so we're kind of in the middle here where you might have a large emitter who's interested in doing a project, but they're only interested in the acu-off-take. - Why would they then not just choose to buy them from the registry? - Ah, I think there's probably some of their strategies around transparency into the market, control of the market. - Okay. - Yeah. - Across containment exercise. So if there's a view that, and there is broadly a view that, and as we touched on before, demand is outstripping supply. So there's a view that price is going to continue to increase. Now that the magic source is how far that's going to go, you know, we're going to go and see it at $150 who knows. But if you can develop and create an acu-off-at-$40 per acu, and you've got a view that it's going to go to 80, then that makes sense to potentially look at investing yourself. And so it's a cost-contained exercise. - Yeah. - And then on the other side, you've got timber off-take, who may not actually be driven by the acu-s at all. So we're kind of acting in the middle around, well, we can match these up. - Okay. - And start to look at ideas around, you know, what different projects around a plunge room. - Interesting. And I mean, a real opportunity to kind of put the puzzle together in very unique ways that work for the different parties that are involved and are looking for different things. - What would you say is needed to unlock the full potential of this 2.4 million hectares of land that you mentioned into plantation forestry as a solution for Australia's, you know, net zero ambitions? - I think at its heart's flexibility, I touched on patient capital. This isn't a traditional, you know, deployed to 100 million into an asset type model, because it takes time to aggregate and build up that capacity. And the real key is the partnerships with the landowners. You've got to see the landowners as a partner, not just the landowner. I think that blended, again, blended ability to be able to buy a land when the landowner is selling, but partner with them. And whether that's very at least held model or perhaps it's a joint venture, depends on the landowner. Some of those landowners are very sophisticated, well, they're capitalized as well, and they might want to participate. So it might be a joint venture, but having those models that are a bit more flexible in the space. But the landowner is a care, because the land is the key. Yeah, that's why we're partnering with a lot of agricultural groups and working with them, because they give us the avenue into a region and employed people in those regions. So when we move into a new area, yes, the forestry components and the carbon components, the technical pieces are really important. But having people, local real estate agent or a local stock group, or someone who's really connected in that region really opens up the doors and the opportunities. And it's a bit of a sacred source, I think, is understanding how landowners and farmers think. Combining that with flexible capital, I think is a way to unlocking a lot more of this land. I'll be anyone who's listened to me at conferences in the last five years and knows that that's kind of where I've been banging on about. But some time, because I think it's the only way we're going to get more trees on the ground. It's by the land. Buying up land is a model, but it's going to take an awfully long time and you're also going to have a fair bit of social license issue along the way. Yeah, of course. And as you've mentioned, that's already happened as well. Yeah, yeah, we're saying that. So proven that those issues are going to resurface. What would you say are some emerging themes that you're seeing in the nature-based solutions in carbon market space? So there's going to be either in Australia or globally. We're really seeing the rise of interest in biomass and biofuel in Australia. Yeah, we saw that sort of getting excited in the pre-GFC and then it kind of disappeared for a decade, but it's back. So the drive for particularly biomass into sustainable aviation fuels, green products. We've had a bit of a rush here and green hydrogen in the last couple of years. And then a whole bunch of withdrawal, as everyone realized that it's actually a lot more complicated and technically challenging than what was hope. But we've got a lot of interest in looking at fiber as something other than just a wood chip going on a ship and being exported. And I think that's where the biomass and the biofuel space is going to be interesting from a hardwood point of view. I think there's a real opportunity there. We're certainly seeing that overlap of biodiversity and co-benefit piece around plantations in the landscape and even the idea around an acu and an acu plus. So where there is a biodiversity credit attached to it. Australia is a bit of an odd one. We're shifting at a national level. Our natural forests are being locked up. So in Victoria and Western Australia, we've ceased native forest harvesting and New South Wales and Tasmania still do it. Okay. And I remember having auditors come down here. So the push here is obviously in plantations. Yeah, you have your opinion, auditors come down and they go, "Well, we're in the other way. We're looking at managing our natural forests in a more sustainable way. And we've got a moving away from the plantations and monoculture." And the reality is that we probably need to be doing both and they're different products. But that piece is that idea around an acu that also has biodiversity on. So I talked about FSC before. I think we're going to see that happening more and more. Investors are certainly getting more savvy and probably demanding in terms of understand sustainability credentials of their investment. Mm-hmm. And so I think that's where groups that have been certified for a long time. They understand the questions. Right. Part of my challenge is actually getting my team to talk about all the good things they're doing because they do them as a matter of course. Yeah, absolutely. Forestry and investment forestry and certainly groups that have been certified. We're actually very, very good land managers and we've been land managing really well way before ESG was a thing. So it comes second nature to us. The problem is we're not very good about talking about it because it's just second nature when we just get on with it. And so trying to extract those stories out to tell not just investors, but to tell the public. I think he's a real challenge. Yeah. Yeah, no. And I see that. Like it can, I can be like, what's the big deal? This is just, this is how we do things. You know, like it's no one's ever asked us for this before. It's just what we do. And all of a sudden, you know, it's, it's required on the front page instead of, you know, back in the appendices. So to speak. We've got an asset in Tasmania and we had auditors down here last year. So it's a large asset. 26,000 hectares, 18,000 hectares of pine. Within the natural forest place, we have this amazing sandstone, escarpment cliffs and it's riddled with caves. And the team called the Tasmanian Devil Hotel. So we've got devils living in it. So it's like an island refuge. So there's plantations in and around it with this natural, you know, Eucalyth forest. And we had ecologists here and they were just mind, yeah, mind blind. I like you guys are managing a globally significant species within a plantation environment. And you don't have a really good job. Yeah, well done. It was the table at IATS. Good, but it kind of took that ecologist to point that out. That that's what they were doing. Because it was just, it just came second nature to them. Oh, that's a good story. And a good point to start to wrap things up, I think. We've covered a lot today, Andrew. Is there anything else you'd like to discuss that we haven't touched upon? There's so much I could go on with this genre. I know, I know. Yeah, no, I think if we start something else, we could be here for another hour. Yeah, no, fair enough. I do have one final question for you, though. And that is if you could give one piece of actionable advice. And I'm not talking about, you know, regulated investment advice. But this would be advice for investors that are new to forest investments that would help them decide if and how to invest. What would it be? That's a really tricky question. Thank you, Tom. I think an understanding the, I think our armacy bias here, I think understanding the operational partner would be really important. So, you know, actually getting on the ground and understanding your investment and talking to the guys on the ground and the team on the ground. Because I think that's where the real action is. It's not on spreadsheets. It's on the ground. I think most foresters on the ground are very passionate. And if you can get in front of an investor and they can ask questions, I think that it'd be, it's very insightful for them. And bias or not, I've had many people give that advice. So take that with a grain of salt. And it is very important to get on the ground. I mean, and like you say, I think so much forest investment is communicated at least initially by spreadsheets. And, and you know, pitch decks that might have a few photos, but there's just really nothing like getting on the ground and talking to the people who, you know, they're in your asset each and every day. So, excellent advice. Andrew, thank you for your time today and informing us on the world of carbon forestry in the Australian context. Where can listeners go to learn more about your work? - They can visit our website, which is www.sfnau.com. - Perfect. Thank you again and enjoy the rest of your day. - Awesome. Thanks, Shawna. - That's it for today. I'm Shawna Matt Kabitch from The Forest Link, helping investors create impactful and profitable forest investments. I hope you join me again next time for Forest Invest.