With his studies in forestry, Thomas Richter is an outlier in the finance industry. But he can strategically apply his expertise: He advises on sustainable forest investment in the Global South at FS Impact Finance.

He sees a lot of pitch decks that contain data that needs to be validated in some way, Richter explains on the „Sustainable Investing“ podcast of Börsen-Zeitung. This involves units like cubic meters of wood, solid meters, and animal species, which aren't typically part of a traditional banking education. „It becomes quite confusing if you're not really familiar with it.“

FS Impact Finance is a 100% subsidiary of the Frankfurt School. Richter works for the Restoration Seed Capital Facility (RSCF), which aims to channel more funds into land-use products in the Global South. The facility is backed by 25 million euros from the German government and the government of Luxembourg, with about half of the funds already committed to partners, according to Richter.

The facility acts as a co-financer of project development costs. According to Richter, many projects fail at this point, and the co-financing is intended to reduce the risk for investors. „More successful projects are the key to attracting private capital to the sector,“ he explains.

Richter, a lifelong nature enthusiast, grew up spending a lot of time in the woods. „As a child, I was always in the forest, either mushroom picking or just enjoying nature by fishing", he says. He knew he wanted a profession related to forestry. He entered the finance industry after studying in Munich, with a detour through a consultancy specialising in the timber industry. At FS Impact Finance, he now works closely with investors.

The risks and returns of projects in the Global South need to be considered on an individual basis. Although the risks are generally higher in developing countries than in industrialised nations, the RSCF focuses on projects in the Global South, where biodiversity hotspots are located. Furthermore, many products are produced there to meet the demand from industrialised nations. „One goal is to raise standards in the South.", he says.

Among the investors in the impact sector, Richter frequently encounters foundations, development banks, and institutional investors. A challenge is the long duration of the projects. Richter believes that „returns well above 10% are possible in the long term.“ However, it often takes years for the projects to become cash flow positive. Although the time from the start of tree growth to harvest is significantly shorter in the tropics than in European forests, it still typically takes at least ten years.

This is often difficult to reconcile with typical fund durations. „That’s why the trend in this sector is clearly moving toward Permanent Capital Vehicles“, observes Richter. For him, combining ecological and economic goals is a key to greater sustainability: „That was one of the reasons why I moved into this field. We can only protect something in the long run if we are able to make use of it.“

Before an investment, projects of the RSCF undergo due diligence. This includes Richter and his team meeting the local partners who manage the project. These trips are among the most exciting aspects of his work: „When you're in the Amazon or Africa and you’re really on the ground, looking at projects – I think that’s one of the most important components of due diligence: building trust with the partners", he says.

He has worked with indigenous communities on project development in remote regions of the Amazon. . „These are highly sensitive issues, and such trips and projects are long-lasting impressions“, Richter says. And the trips also offer a chance for a new perspective. „You just get out of your bubble here in Frankfurt, Munich, or London and see what’s happening on the other side of the world.", he says. „You see your own consumption and land usage here in a completely different light.“