Forests and forest carbon assets are being insured and financed at increasing scale, and the physical layer beneath those decisions is thinner than the financial layer above it.

Independent benchmarking of the physical climate risk vendor market — thirteen providers, published by the Global Association of Risk Professionals — found the widest divergence between vendors in the vulnerability layer, and the narrowest in the underlying hazard physics. The physics has become commoditised and is largely available free. The vulnerability layer, the step that translates a hazard into damage to a particular asset, has not. For a forest, that step requires knowing how a given species at a given age on a given site responds to fire, wind, drought and pest pressure — and whether the controls in place actually function. It is a forestry question before it is a modelling question, and it is the one the market cannot readily source.

Every other major property class takes a risk engineer for granted. An underwriter writing a warehouse expects a survey from someone who has walked the building, tested the protection systems and said plainly whether the declared value is right. An underwriter writing a forest usually does not get one.

Around that gap sit capable firms doing adjacent work. Ratings agencies rate carbon projects. MRV providers measure carbon stock and its change. Forestry consultancies execute transaction due diligence for investors. Catastrophe modellers simulate probabilistic loss at fixed return periods. Loss adjusters handle claims across every class of business. Each does its own work well. None of them is engaged to establish what is physically standing on a forest estate, together with what could realistically be lost, and whether the mitigation works — on the ground, for the party carrying the downside, before the loss.

That is the work this firm does, and the only work it does.

Basis risk

Basis risk is the difference between expectation and outcome. It exists in every insurance structure, not in parametric cover alone, and closing it is the firm’s work.

Pre-loss assessment sets expectation. Post-loss measures outcome. In-life keeps the two aligned.

Under indemnity, expectation is set by the declared sum insured, the inventory behind it and the controls represented to the underwriter. Under parametric, by the index and its assumed relationship to damage. The work is the same in both, and it is done from outside the model, against what is actually on the ground.

We establish what is physically there, quantify what could be lost, and measure what was lost.

For carriers, reinsurers, managing general agents, brokers, loss adjusters and coverage counsel, and for investors, funds and lenders.

Every engagement is desk preparation followed by field assessment on the asset, carried out personally by the principal. Expectation is set from records, models and imagery. Outcome happens on the ground. The distance between the two is not visible from a desk.

Three points in the life of an asset

A Forest Carbon Risk Module is added wherever a registered forest carbon project is within scope.

Who may instruct

We act for the party carrying the downside. Never for the party promoting the asset.

The rule sorts on incentive rather than on who suffers the loss. A carrier taking a risk on, a reinsurer behind it, a lender or an investor before committing — each needs the assessment to be accurate, because an optimistic reading costs them later. A developer raising capital, an owner selling, a project placing credits — each benefits from an optimistic reading whatever their own exposure.

We do not act on both sides of the same asset, never act policyholder-side after a loss, take no contingent or outcome-linked fee, and accept no commission, brokerage or vendor rebate from any source.

Andries Smith

Forty-one years in commercial forestry across thirty-five countries — twenty-five years of forestry operations, including founding and running the first turnkey forest management and transport business in South Africa, followed by sixteen years of investment due diligence inside two development finance institutions.

Formerly Global Senior Forestry Industry Specialist at the International Finance Corporation and World Bank Group, where he conducted technical, financial, operational and risk due diligence on forestry investments representing more than USD 8 billion in project value, and wrote the first Forestry and Wood Products Sector Guidelines for IFC and the World Bank. Investment Director for Forestry and Wood Products at CDC Group, now British International Investment.

Most people in forestry finance have never run a crew; most operating foresters have never sat on an investment committee. This work requires someone who can walk a compartment, read the workings behind a declared value, and talk to an underwriter in their own language.

Why the dependency holds

Every forest product is a derived interest in the forest asset: a defined quantity of growing material, on defined land, held under defined rights, recorded in a document that asserts all three. A timber contract is an interest in volume and grade. A non-wood supply agreement is an interest in the yield of a living stand. A forest carbon credit is an interest in biomass and its permanence within a mapped boundary.

Damage to the forest asset, loss of access to it, or impairment of the rights over it degrades every interest derived from it — in different ways, on different measures and over different timescales, but from a single source.

It follows that no forest product interest can be assessed reliably without assessing the forest asset it is derived from.

How a loss travels

Two families of cause. Physical hazards — fire, wind and storm, pest and disease, drought, flood, encroachment and illegal harvesting — damage or destroy the trees. Structural risk factors — tenure and forest carbon rights, documentation and audit trail, inventory currency, buffer adequacy, management capability, certification standing, contractual and delivery obligations — damage the value or validity of what the forest produces.

A single event travels the full pathway and lands on several products at once — standing timber and its declared value, non-wood yields, and the permanence of any forest carbon within the boundary — on different measures and over different timescales. The products are assessed together and reported separately.

Three pillars, and a judgement

Asset facts are measured

Area, stocking, volume, age class and product mix, and the five value drivers behind the declared figure. Sample measurements of the asset as recorded: the record is checked rather than replaced, and any divergence is quantified with its basis stated.

Hazards and risks are quantified

Physical hazards at the intensity the location actually carries, modified by terrain, together with the seasonal signal for the coming period. Structural risk factors on their own measures.

Controls are graded

Adequate, marginal or inadequate against the hazard actually present on that ground. A firebreak is graded by walking it, not by finding it on a map.

Residual risk is judged

What remains once the controls are taken at the grade they earned, and the loss estimates that follow. The judgement is the assessor's, reached from the evidence and stated with its reasoning.

No automated scoring model is used, and the geospatial platform generates no conclusions of its own.

Where this differs

What the firm is not

• Not a valuerThe declared figure and the compartment schedule are the client's. We test the drivers behind the figure and report divergence; we do not strike, state or opine on a value.
• Not a certification or verification bodyNot accredited under ISO/IEC 17029 or ISO 14065. We issue nothing resembling a verification statement, and do not audit certification for conformity.
• Not a ratings agencyWe do not rate credits or projects.
• Not a coverage adviserNo opinion on coverage, policy interpretation, liability, or whether a risk is insurable. Pricing belongs to the underwriter.
• Not a catastrophe modellerWe supply the exposure and damage-response inputs a model consumes, not probabilistic loss at return period.