FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC Annual Report and Financial Statements 2023

FORESIGHT

SUSTAINABLE

FORESTRY

COMPANY PLC

ANNUAL REPORT AND

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 SEPTEMBER 2023

COVER IMAGE:

Frongoch, Wales

Committed to long term value creation

Foresight Sustainable Forestry CompanyPlc (“FSF”) is the

ﬁrst and only UK listed investment trust focused on UK

forestry, aorestation and natural capital. FSF was awarded

the London Stock Exchange’s Green Economy Mark at IPO.

In December 2022, FSF became the ﬁrst fund to be

accredited with the London Stock Exchange’s Voluntary

Carbon Market designation.

ABOUT US

Winner Winner

Highly

commended

CONTENTS

About us IFC

Highlights 2

Investment case 3

Business model 4

Geographic footprint 5

Chair’s statement 6

Overview

Independent auditor’s report 81

Statement of comprehensive income 88

Statement of ﬁnancial position 89

Statement of changes in equity 90

Statement of cash ﬂows 91

Notes to the audited ﬁnancial statements 92

Company summary 107

Advisers 108

Glossary of terms 109

Appendix 111

Financial statements

Governance

Board of Directors 52

Board leadership and company purpose 53

Division of responsibilities 55

Report of the Audit and Risk Committee 56

Report of the Management Engagement

Committee 60

Report of the Sustainability and

ESGCommittee 62

Report of the Nomination and

RemunerationCommittee 64

Directors’ remuneration report 68

Directors’ report 71

Directors’ responsibilities statement 79

In this report

Chair’s statement 6

Business model 4

Operational review 24 Governance in action 15 and 16

Page 24

Page 6 Page 4

Page 15

The Investment Manager 10

Key performance indicators 11

Stakeholder engagement (Section 172) 13

Our markets 17

Investment Manager’s report 22

Operational review 24

Sustainability and ESG 33

TCFD and emissions reporting 38

Risk and risk management 39

Financial review 46

Alternative performance measures (“APMs”) 50

Strategic report

STRATEGIC REPORTOVERVIE W GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

HIGHLIGHTS

AS AT 30 SEPTEMBER 2023

£169.2 million

NET ASSET VALUE (“NAV”)

(30 September 2022: £180.6m)

98.4p

NAV PER SHARE

(30 September 2022: 105.0p)

0.3%

TOTAL NAV RETURN FROM IPO

(30 September 2022: 7.0%)

12,545

hectares

IN THE PORTFOLIO

(30 September 2022: 9,618 hectares)

118,000 tonnes

TIMBER ANTICIPATED TO BE

HARVESTED IN 2024 PROGRAMME

(30 September 2022: c.26,000 tonnes)

c.1.4 million

TOTAL TREES PLANTED SINCE IPO

6,455 hectares

LAND NEWLY PLANTED OR IN

AFFORESTATION DEVELOPMENT

(30 September 2022: 3,917 hectares

)

£2.7 million

VALUE ASCRIBED TOWARDS CREATION

OF CARBON CREDITS

(30 September 2022: £0.6m)

1. Alternative performance measures (“APMs”) have been included to better reﬂect the Group’s underlying activities. Whilst appreciating that APMs are not considered to be a substitute for, or superior to, IFRS measures, the Company

believes their selected use may provide stakeholders with additional information, which will assist in their understanding of the business. Further information is available on page 50.

2. Calculated with IPO costs netted o, see page 50 for more information.

3. Total land in aorestation development. FSF’s categorisations have since changed.

4. To facilitate the ﬂow of capital to climate change mitigation projects and provide our investors with exposure to high-integrity and independently veriﬁed carbon credits that can be used for science-based carbon osetting.

STRATEGIC REPORTOVERVIE W GOVERNANCE

FINANCIAL

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Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

INVESTMENT CASE

The Company invests

in a portfolio of UK

aorestation (woodland

creation) and forestry

assets to increase the UK’s

sustainable timber supply.

The Company targets the

generation of attractive

risk-adjusted total returns

through land capital

appreciation, sustainable

timber and carbon

creditssales.

The Company’s newly

planted trees additionally

and permanently remove

carbon dioxide from the

atmosphere, making a

direct contribution to

the ﬁght against climate

change. Additionally, the

Company has a stated

objective to protect and

enhance biodiversity across

its portfolio.

Read more about our recent investor

site visit at Fordie on page 15.

Whiteburn

Located in Northumberland, England,

this 485-hectare property is the

largest forestry asset within the

portfolio. Acquired in June 2020.

Lambs Craig

Located in Dumfries & Galloway,

Scotland, this property is a

482-hectare Development Stage

Aorestation property. Acquired in

November 2022, the property has a

high proportion of land suitable for

planting and is expected to form part

of the 2024/25 planting programme.

properties

Property types

Forestry

Aorestation

Mixed

Geographic split

by area

85%

Scotland

England

10%

Wales

For more information

see pages 24 to 32

STRATEGIC REPORTOVERVIE W GOVERNANCE

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Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

CHAIR’S STATEMENT

Richard Davidson

Chair

Chair’s statement

On behalf of the Board, I am pleased to present the

Company’s audited Annual Report and Financial

Statements for the year ended 30 September 2023.

FSF’s two-year journey since IPO has been full of positive

milestones and I am pleased that the Company has

weathered a challenging period while building our forestry

and aorestation portfolio and establishing FSF as a

genuine pioneer in the sustainable investment space.

During the year, ﬁnancial markets have grappled with

issues ranging from inﬂation and higher interest rates to

uncertainty and widening discounts in the investment trust

sector. Against this backdrop, we have seen volatility in

our share price and Net Asset Value (“NAV”) as described

below in this statement but we have continued to invest in

our portfolio, plant trees, harvest sustainable timber and

sequester carbon.

I would like to take this opportunity to reiterate the goals

of FSF. Forestry is a long-term business where cycles are

measured in decades rather than quarters.

Our purpose is to generate ﬁnancial returns for our

Shareholders through investing in a diversiﬁed portfolio of

UK aorestation and forestry properties. Operating across

the UK, our actions are guided by our commitment to

long-term value creation and sustainability.

Over our 2022/23 year, FSF has added 18 new properties

to its portfolio, a total of 2,929 hectares. Our current

planting pipeline is material in a national context and is

equivalent, once planted, to one-third of the total amount

of tree planting that the entire UK achieved in the year to

March 2023. Wehave already acquired six sites which are

due for planting in 2025 adding to our material 2023 and

2024 planting plans.

FSF invests for the long term. However, the Board is

currently acutely aware that the Company’s shares have

fallen and moved to a discount to NAV over the last six

months. The share price move during the period aligns

with the broader pattern in the real assets investment trust

sector, which has shown a notable sensitivity to higher

interest rates.

£38.4m

deployed into 18 properties

1.4m

trees planted (since inception)

35,081

tCOe

sequestration

For year ended 30 September 2023 unless stated

STRATEGIC REPORTOVERVIE W GOVERNANCE

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Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Chair’s statement continued

Our share price, at the time of writing, stands at a

low since our IPO of 59.8 pence. Having traded in a

100-110pence range for most of the year, our stock

moveddown sharply from June onwards (despite a

positive ﬁrst half NAV announcement) as the dam burst on

many investment trust share prices, especially real assets.

The share price is, of course, not controlled by the Board

and over the long term we believe it will return to levels

that reﬂect the development of the Company’s NAV and

the Company’s outlook and prospects more generally

in its core markets of land, natural capital, timber and

voluntary carbon.

I would like to emphasise a few points:

•

FSF is unique as the only UK forestry vehicle listed

on the London Stock Exchange. The listed structure

introduces a level of transparency, liquidity and

accessibility that was previously unavailable in the

forestry sector.

•

FSF’s properties are all located in the UK and the

products from our forests will be almost entirely used

inthe UK.

•

FSF has, and intends to stay at, very limited levels of

gearing (currently 5.8% of Gross Asset Value (“GAV”)).

•

Our acquisition policy is long term and our aorestation

land due for planting in 2024 and 2025 has already

been acquired.

•

We are fully invested but will manage our portfolio

ifopportunistic and accretive situations arose including

to sell properties to employ capital to maximise

Shareholder returns.

FSF is invested for the long term and doing what it set

outto do at IPO.

Highlights of the year

Our 2022/23 ﬁnancial year has been the clichéd game

of two halves. In the six months to 31 March 2023, we

delivered a NAV gain of 3.3%, particularly helped by

completion of planting at four aorestation properties

and an upward revaluation (by Savills, our independent

valuer) to our planting land portfolio. The second half to

30 September 2023 saw a downwards move in our NAV

by 9.3% as the number of transactions in, and prices for,

forestry and planting land slowed signiﬁcantly.

The combination of these dierent environments means

that in the full year to 30 September 2023, the Company

generated a total NAV loss of 6.3% (30 September

2022: +7.0%) and a NAV decrease of £11.4million to

£169.2million (30 September 2022: £180.6 million).

NAV per Ordinary Share fell to 98.4 pence

(30September2022: 105.0 pence). Within this overall

NAV number I would highlight the split between the

progression of valuations in established forestry and our

planting portfolio. Whilst aorestation values (excluding

carbon) decreased by 11.2% during the year, established

forestry values were relatively resilient, decreasing by a

lesser ﬁgure of 6.5%, which means the opportunity for

FSF to secure development value through a disciplined

purchasing strategy has actually improved. The

combination of increasing inﬂation and interest rates along

with the phased withdrawal of the Basic Payment Scheme

(“BPS”), the main farming subsidy regime, has led to a

weakening of the planting land investment market over

thelast six months.

The Company has continued to acquire aorestation

landduring the period to take advantage of the softer

landprices.

Furthermore, voluntary carbon is becoming an

increasingly material part of FSF’s NAV, increasing by

£2.1million to £2.7 million during the year. Our intention

is to retain the carbon credits that we generate as a

long-term source of future income and/or potentially

distribute them to those Shareholders who elect to receive

them in-specie.

Since the last Annual Report, the Company has deployed

a further c.£38.4

million into 18 properties, mainly in

Scotland. Of the properties acquired, 15 have aorestation

potential and the remainder are established forestry.

Inmany cases, properties are acquired with some assets

that we regard as non-core, such as farm buildings. In

the period, ﬁve sales of non-core assets took place. Afull

description of our investment activity is provided in the

Investment Manager’s report.

CHAIR’S STATEMENT CONTINUED

1. Inclusive of tax and transaction costs.

Fordie Estate

Scotland

STRATEGIC REPORTOVERVIE W GOVERNANCE

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Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Revolving Credit Facility

As our equity funds were fully invested by the spring of

2023, the ﬁnal acquisitions to complete our 2025 planting

portfolio have been funded through the utilisation of the

Company’s £30 million Revolving Credit Facility (“RCF”)

which is now £10.4 million drawn. The current acquisition

programme is now substantially complete and

servicing/repayment of the RCF will be made through

a combination of timber harvesting and the planned

disposal of non-core or other assets.

Portfolio and operations

It has remained a busy and productive period for

operations across the portfolio. I am pleased to report

that within the year we planted 472 hectares across four

properties. This has brought the total area of the portfolio

categorised as Establishment Stage Aorestation to

1,024 hectares, with c.1.4 million trees planted since FSF’s

inception.

Furthermore, we are currently gearing up for the

2024/2025 planting seasons, in which we plan to deliver

a total of 9million trees planted over an area of c.4,000

hectares. The planting programme is expected to create

1.0-1.2 million voluntary carbon credits.

Despite signiﬁcant government targets for tree planting

in the nations of the UK, delivery has fallen short with only

12,960 hectares of new woodland created in 2022/23.

Disappointingly, UK planting actually decreased by 7%

year-on-year and the combined nations’ target was missed

by approximately 17,000 hectares. FSF is committed to

narrowing this gap and our planting programme will be

one of the largest, if not the largest, planting operations

across the UK in 2024.

Sustainability and community

As a sustainable investing leader we have watched the

emergence of concerns around greenwashing. The

travails of those companies who have over-inﬂated their

environmental, social and governance (“ESG”) credentials

has cast a wider shadow over many other companies,

good and bad. By investing in and growing trees, FSF is

dedicated to actions that make a positive environmental

outcome, and oers a transparent and leading approach

to sustainability.

Last year, we published our ﬁrst Sustainability and ESG

(“S&ESG”) report, which introduced our three key S&ESG

objectives and outlined our positive progress against them

and many of our KPIs. Notably, the Company’s growing

portfolio achieved 35,081 tCO

e sequestration from the

atmosphere over the period (30 September 2022: 28,873

tCO

e).

Our 2024 planting programme is expected to create

around 700 rural jobs and we have now rolled out our

Forestry Skills Training programme from Wales into

Scotland.

Annual General Meeting

All Shareholders are invited to attend the Company’s

second Annual General Meeting (“AGM”) on

21February2024. Details of how Shareholders may

participate will be published in the circular accompanying

this report, dated 6 December 2023.

Aorestation development is the engine room of the

Company’s returns and sustainable impact. Ourinvestment

policy allows FSF to invest up to 50% of Gross Asset Value

into aorestation land and projects. The Board would

like to increase the Company’s ﬂexibility to invest in new

aorestation assets whilst keeping aggregate exposure to

development risk within the agreedtolerable threshold.

To make this possible, a proposed amendment to the

Company’s investment policy will be put to the AGM, such

that planted and establishing aorestation schemes are

changed from being considered aorestation assets to

being considered forestry assets for the purposes of our

investment policy.

The change, which acknowledges that aorestation

assets become materially de-risked once planting has

been achieved, will enable the Company to pursue a fuller

rolling programme of aorestation development, and the

associated returns and positive impact this aords.

I would like to point Shareholders towards the regulatory

news service (“RNS”) announcement that will be released

at the same time as this Annual Report and Financial

Statements which will provide details of the AGM

resolutions, including the proposed amendment to the

investment policy and an accompanying Circular which

provides the rationale for the proposed adjustment.

Summary

I would like to thank the Fund Managers, advisers,

Shareholders and other members of the Board for

contributing to another very busy year. The Board is very

aware of the disconnect between our share price and NAV

and has been discussing with Shareholders and advisers

the potential to close this gap within our commitment to

long-term value creation. As Shareholders you should be

reassured that no matter what happens to the stock market

or the base rate each year, your trees will have grown.

Richard Davidson

Chair

5 December 2023

CHAIR’S STATEMENT CONTINUED

STRATEGIC REPORTOVERVIE W GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

WHAT’S IN THIS SECTION

OVERVIEW

STRATEGIC REPORT

STRATEGY

THE INVESTMENT MANAGER 10

KEY PERFORMANCE INDICATORS 11

STAKEHOLDER ENGAGEMENT

(SECTION 172) 13

OUR MARKETS 17

PERFORMANCE

INVESTMENT MANAGER’S REPORT 22

OPERATIONAL REVIEW 24

SUSTAINABILITY AND ESG 33

TCFD AND EMISSIONS REPORTING 38

RISK AND RISK MANAGEMENT 39

FINANCIAL REVIEW 46

ALTERNATIVE PERFORMANCE

MEASURES (“APMS”) 50

STRATEGIC REPORT

OVERVIEW

GOVERNANCE

FINANCIAL

STATEMENTS

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Strategy

Performance

THE INVESTMENT MANAGER

FSF is managed by Foresight Group LLP (“Foresight”,

“Foresight Group” or “Investment Manager”), an

experienced team of investment, forestry and asset

management professionals that can draw on the

depth and breadth of Foresight Group’s networks and

resources, managing the day-to-day activities. With a

long-established focus on ESG and sustainability-led

strategies, it aims to provide attractive returns in

hardtoaccess private markets to institutional and

privateinvestors.

Foresight Group

Foresight Group was founded in 1984 and is a leading

listed infrastructure and private equity investment

manager. With a long-established focus on ESG and

sustainability-led strategies, it aims to provide attractive

returns to its institutional and private investors from

hard-to-access private markets. Foresight manages

over 400 infrastructure assets with a focus on solar and

onshore wind assets, bioenergy and waste, as well as

renewable energy enabling projects, energy eciency

management solutions, social and core infrastructure

projects and sustainable forestry assets. Foresight

operates in eight countries across Europe, Australia and

the United States with AUM of £12.1 billion

. Foresight

Group Holdings Limited listed on the Main Market of

the London Stock Exchange in February 2021 and is

aconstituent of the FTSE 250 index.

Our specialist forestry advisers

EJD Forestry Limited (“EJDF”)

•

80+ years of combined experience in forestry

andsilviculture.

•

Five full-time equivalent forestry professionals

dedicated to the FSF portfolio.

Julian Elsworth

Portfolio Director

•

Joined in 2013

•

20+ years of experience

including 4+ years of

forestry experience

•

Previously WSP Future

Energy

Helge Hansen

Forestry Portfolio Manager

•

Joined in 2023

•

10+ years of forestry

experience

•

Previously Head of

Woodlands, Highlands

Rewilding

Murray Aitchison

Forestry Portfolio Associate

•

Joined in 2020

•

4+ years of forestry

experience

Christian Tingsgaard

Lassen

Investment Analyst

•

Joined in 2022

•

3+ years of experience

•

Previously PwC

Robert Guest

Co-Lead, Foresight

Sustainable Forestry

Company

•

Joined in 2015

•

16 years of experience

•

Previously Helius Energy

PLC

Richard Kelly

Co-Lead, Foresight

Sustainable Forestry

Company

•

Joined in 2015

•

16 years of experience

•

Previously Accenture

Portfolio and

investment team

Fund management

1. Based on unaudited AUM as at 30 September 2023.

STRATEGIC REPORTOVERVIEW GOVERNANCE

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FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

[•]

KEY PERFORMANCE INDICATORS

Real returns

and capital

appreciation

To invest funds to

provide sustainable, risk-adjusted

ﬁnancial returns to our investors.

Access to

voluntary carbon

credits

To facilitate the ﬂow

of capital to climate change

mitigation projects and provide

our investors with exposure to

high-integrity and independently

veriﬁed carbon credits that can

be used for science-based

carbon osetting.

Fund objectives

Link to Fund

objectives:

Real returns and

capitalappreciation

Combat climate change

and biodiversity loss

Access to voluntary

carbon credits

NAV/NAV per share

£169.2m/98.4p

(2022: £180.6m/105.0p)

Performance in 2022/23

• NAV and NAV per share declined in the

12-month period by 6.3%.

Objectives for 2023/24

• NAV growth targeted by developing

many of the development stage

properties to become planted properties

with a higher valuation and creation of

associated carbon credits.

• The Company is targeting a NAV total

return of more than CPI + 5% per annum

on a rolling ﬁve-year basis, based on

NAV once the Company is substantially

invested. See the business model on

page 4 for more information.

Principal risks

• Valuation risks (see risk 5 in the principal

risk register on page 43).

• Changes in regulation or support for

sustainable forestry.

Hectares in the portfolio

12,545

(2022: 9,618)

Performance in 2022/23

• The number of hectares in the portfolio

has increased by 30% since September

2022.

• Fully deploying the equity proceeds

from the Company’s June 2022 fundraise

ahead of schedule.

• Drawing £10.4 million of the Company’s

Revolving Credit Facility to fund three

opportunistic acquisitions.

Objectives for 2023/24

• Disposal of some non-core assets and

re-allocation within the core portfolio to

maximise the aorestation development

opportunity. Grow portfolio if equity

market conditions enable fundraising.

Principal risks

• Lack of future funding impacts the

Company’s ability to purchase more land

(see risk 4 – equity in the principal risk

Value creation

through

afforestation

To demonstrate

the capital appreciation

of aorestation sites once

development milestones are met,

through carefully considered

portfolio construction and

management of aorestation

development schemes.

Sustainable

timber supply

To deliver and increase

the supply of home-grown

UK timber to reduce the country’s

reliance on imports, blending the

commercial aspects of forestry

(planting, harvesting and the sale

of sustainable timber).

Combat climate

change and

biodiversity loss

To mobilise our investors’

capital into projects that play

a key role in tackling climate

change, protecting the natural

environment and delivering

positive impacts for communities

and society.

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

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Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

KEY PERFORMANCE INDICATORS CONTINUED

Tonnes of timber in annual

harvesting programme

c.118,000

(2022: c.26,000)

Performance in 2022/23

• Softening of timber prices seen since the

end of 2022.

• Ongoing harvesting at ﬁve sites.

• Harvesting at several of the highest

yielding sites has been postponed until

timber prices are considered to have

returned to a premium.

Objectives for 2023/24

• Selective harvesting in 2024 where it

results in NAV accretion or there is a

good silvicultural reason to pursue the

harvesting or to provide cash ﬂow to the

Company.

Principal risks

• See risk 7 – demand for timber in the

principal risk register on page 44.

• The risk that a reduction in demand

from the purchasers of timber would

negatively impact the Company’s

proﬁtability. See risk 7 in the principal

risk register on page 44.

Total hectares of land in

aorestation development

6,455

(2022: 3,917)

Performance in 2022/23

• Focus on increasing FSF’s exposure to

aorestation assets over the year.

• Overall percentage of the portfolio

dedicated to aorestation has risen from

40% to 45% (by value).

Objectives for 2023/24

• Aorestation development will remain

a focus for the Company as a driver

of higher valuation and creation of

associated carbon credits.

Principal risks

• The risk that there is resistance to change

of land use from the public, see risk 9 –

reputational in the principal risk register

on page 45.

Trees planted in the year

c.950,000

(2022: c.514,000)

Performance in 2022/23

• c.1.4 million trees planted since FSF’s

inception.

Objectives for 2023/24

• Targeting planting 9 million trees over an

area of c.4,000 hectares during the 2024

and 2025 planting seasons.

Principal risks

• Risk that extreme weather events impact

trees planted in the year.

Value ascribed to progress towards

creation of carbon credits

£2.7m

(2022: £0.6m)

Performance in 2022/23

• In the period, four aorestation schemes

completed planting and FSF has

recognised an additional

£2.1 million of value ascribed to the

creation of carbon credits.

Objectives for 2023/24

• Targeting to create 1.0-1.2 million PIU

carbon credits that are associated

with the completion of the planting of

9million trees over the 2024 and 2025

planting seasons.

Principal risks

• The risk that demand or volume leads

to a reduction in demand from the users

of carbon credits, see risk 6 – demand

for carbon credits in the principal risk

Link to Fund

objectives:

Real returns and

capitalappreciation

Combat climate change

and biodiversity loss

Access to voluntary

carbon credits

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

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FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

The Board is committed to promoting the long-term sustainable success of the

Company whilst conducting business in a fair, ethical and transparent manner

STAKEHOLDER ENGAGEMENT (SECTION 172)

Section 172

The Directors consider that in conducting the business

of the Company over the course of the year they have

complied with Section 172(1) of the Companies Act 2006

(the “Act”) by fulﬁlling their duty to promote the success

of the Company and to act in the way they consider, in

good faith, would be most likely to promote the success

ofthe Company for the beneﬁt of the members as a whole,

whilst also considering the broad range of stakeholders

who interact with and are impacted by the Company’s

business, especially with regard to major decisions.

The purpose of the Company is to act as an investment

company to provide ﬁnancial returns to its Shareholders

taking a long-term view. Investment companies are

generally active in the long term and are typically

externally managed, have no employees and are overseen

by an independent board of Non-Executive Directors.

Therole of the Investment Manager is particularly

important in engaging with stakeholders on behalf of the

Company and reporting on developments to the Board

and relationships with all service providers are considered

in detail at the annual Management Engagement

Committee meeting.

(a) Long-term decisions

(b) Interests of employees

and others

(d) Acting fairly between Company members

(e) Impact on the community andenvironment

(f) Maintaining high standards of businessconduct

Role of the Board

The Board recognises that the Company

should be run for the beneﬁt of Shareholders,

but that the long-term success of a business is dependent

on maintaining relationships with stakeholders and

considering the external impact of the Company’s

activities. The Board, with the assistance of the

Management Engagement Committee, works closely

with the Investment Manager and the Company Secretary

in reviewing how stakeholder issues are handled, ensuring

good governance and responsibility in managing the

Company’s aairs, as well as openness in how these are

conducted. Through measures such as these the Board

embeds a strong culture of governance.

As the Company is externally managed and has no

employees, the Board considers the key stakeholders to

be Shareholders, local communities closely linked to the

portfolio, service providers and lenders, and agents of the

Company including the Investment Manager. The Board is

acutely aware of its responsibilities to all the stakeholders

in the Company and has considered:

•

The likely consequences of any decision in the long term

•

The need to foster and retain the Company’s business

relationships with suppliers, customers and others

•

The impact of the Company’s operations on the

community and the wider environment in which

itoperates

•

The importance of the Company maintaining a

reputation for high standards of business conduct

•

The need to act fairly towards, and ensure equal

treatment of Shareholders

Engagement with Shareholders

Shareholders are the Company’s primary

stakeholders, and all key Board decisions are

carefully considered with their long-term interests in mind.

As a public company listed on the LSE, the Company is

subject to the Listing Rules and the Disclosure Guidance

and Transparency Rules. The Listing Rules include a

principle that a listed company must ensure that it treats

all holders of the same class of shares that are in the same

position equally in respect of the rights attached to such

shares. With the assistance of regular discussions with,

and formal advice from, the Company’s legal adviser,

Company Secretary and corporate broker, the Board is

kept appraised of developments in corporate governance

guidance, reporting standards and other non-statutory

provisions and does its best to comply or explain why it

does not comply.

The Investment Manager has developed relationships with

key Shareholders and prospective investors. During the

year, the Investment Manager and the Company’s broker

held multiple direct engagement sessions with major

Shareholders and prospective investors.

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Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

STAKEHOLDER ENGAGEMENT (SECTION 172) CONTINUED

Engagement with Shareholders continued

The Chair has also met with several Shareholders alongside

the Investment Manager. During discussions, Shareholders

often ask for additional information pertaining to certain

aspects of the Company, such as the factors inﬂuencing the

Company’s NAV, as well as the methodology implemented

in calculating it. There has also been interest from

Shareholders in visiting sites within the portfolio.

Over the course of the year the Company has hosted

several investor site visits and will continue to expand this

programme in 2024 (please see page 15 for more details).

The Company, supported by its Investment Manager,

communicates with Shareholders through a variety of

means and always welcomes their views. This includes the

publication of interim and annual accounts, the AGM and

regulatory news and bi-annual NAV updates, all published on

the Company’s website. The Board encourages Shareholders

to vote on the resolutions to be proposed at the AGM to be

held on 21 February 2024. Investors holding shares through

platforms should contact their investment platform directly

for guidance on how to cast their vote. An increase in the

number of investors who exercise their right to vote will help

the Company reﬂect the views of its Shareholder base.

Engagement with the

Investment Manager

The Investment Manager is responsible for

the implementation of the investment strategy and the

day-to-day investment and management decisions,

including identifying assets for acquisition. The Board

engages constructively with the Investment Manager

to ensure the expectations of Shareholders are being

met and that it is aware of the challenges being faced,

including meeting the long-term objectives for the

Company’s growth. This ensures that the Company

and the Investment Manager have aligned interests to

safeguard the Company’s position and to try and ensure

the future success of theCompany.

The Board regularly reviews the Company’s performance

against its investment objectives and undertakes an

annual strategy review meeting to ensure that the

Company is well positioned for the future delivery of

itsobjectives for its Shareholders.

The Board receives presentations from the Investment

Manager at every Board meeting to help it to exercise

eective oversight of the Company’s strategy and the

performance of the Investment Manager. The Board,

through the Management Engagement Committee,

reviews formally the performance of the Investment

Manager at least annually.

Engagement with lenders

The Company has a Revolving Credit Facility

with Virgin Money (formerly Clydesdale Bank

Plc). This facility is subject to covenants and lender

consent may be required on certain business decisions.

The Investment Manager is in regular contact with Virgin

Money to keep it appraised of ongoing portfolio matters

and general market updates so that they have a full

understanding of the Company and how it is performing.

Engagement with key service providers

The Board seeks to maintain constructive

relationships with the Company’s service

providers, which include its corporate broker, legal

adviser and its Public Relations agency. This occurs

either directly or through the Investment Manager, with

regular communications and meetings. The Management

Engagement Committee conducts an annual review of the

performance and terms and conditions of the Company’s

main service providers to ensure that they are performing

their responsibilities in line with Board expectations and

providing value for money.

Engagement with local communities

The Board has placed Sustainability and ESG

factors at the heart of its investment objectives

to guide the way it operates. The Company’s proactive

approach to community engagement is applied across the

Company’s aorestation projects as well as its established

forestry and woodland assets. A case study is provided on

page 16 that provides further details. Aiming to maximise

the Company’s societal impact, in partnership with Tilhill

Forestry Limited, the Company launched a Forestry Skills

Training Programme in Wales last year. Expanding its scope

to Scotland in 2023, and likely England in the future, this

initiative equips local rural communities with essential skills,

qualiﬁcations and opportunities for employment within the

forestry sector, aligning with the Company’s commitment

to both community development and sustainable practices

underpinning aorestation-related land use change.

Completing participants are also oered paid work on the

Company’s aorestation and forestry properties.

Environmental stewardship

In response to the AIC’s call for ESG disclosures,

the Company shared its strategy on the AIC

website in 2021. Notably, receiving the LSE’s Green

Economy Mark at IPO armed the Company’s dedication

to environmental and climate-related objectives. More

details on the Company’s approach and impact are

provided in the S&ESG section of this report on

pages 33 to 36.

FSF’s LSE Green Economy Mark and Voluntary Carbon

Market designations recognise the ongoing environmental

stewardship role that FSF has and continues to contribute

towards positive environmental objectives including, but

not limited to, contributions to mitigating climate change

and biodiversity loss.

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Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

FSF hosted its second Investor Day at Fordie Estate in

Scotland on 20 September 2023, following a successful

event in April 2023. This Investor Day oered Shareholders

a comprehensive insight into the Company’s forestry and

natural capital initiatives. Spanning 2,150 hectares, the

mixed aorestation and forestry property at Fordie Estate,

a signiﬁcant asset in FSF’s portfolio, served as a showcase

of the Company’s diverse business model.

Located near Comrie, Scotland, Fordie Estate features

various habitats and land uses, supporting diverse

ecosystems, biodiversity, socio-economic contributions

and commercial timber production.

The event provided attendees with a deeper

understanding of FSF’s role in promoting sustainable

landmanagement.

Investors interacted with key members of the Foresight

management team, the Fordie Estate team, and advisory

personnel, exchanging perspectives on the Company’s

practices. This event highlighted FSF’s commitment to

environmental stewardship and responsible forestry.

Join us for our next investor site visit. Follow this link

orvisit our website to ﬁnd out more.

https://www.eventbrite.co.uk/e/foresight-sustainable-

forestry-company-plc-investor-day-2024-tickets-

744438925867?a=oddtdtcreator

CASE STUDY

Fordie Estate

Scotland

Industry Engagement

Date Event Fund lead

2-Nov NCIA Policy, Industry and

Governance Workstream

Richard Kelly

10-Nov Designing the Future –

Developing the market for

woodland Carbon in the UK

Robert Guest

10-Nov AIC Event Robert Guest

17-Nov Nature of Scotland Awards Robert Guest

22-Nov

The UK Forest

Market Report

Richard Kelly,

Robert Guest

05-Dec

LSE VCM Launch and

Market Open

Robert Guest and

Richard Kelly

17-Mar LSE Annual Funds

Conference

Robert Guest

16-17 May Foresight

Sustainability Forum

Josephine Bush

(S&ESG Committee

Chair), Robert Guest

20-23 June Royal Highland Show Robert Guest

26-Sep UK Investor Virtual

Conference

Richard Kelly

02-Oct UUET Agreement and

meeting

Robert Guest

03-Oct Carbon Credits

Demystiﬁed – Stifel

Richard Kelly

03-Oct Fordie Site Visit Robert Guest

19-Oct VCM Market Infrastructure

Roundtable

Richard Kelly

STAKEHOLDER ENGAGEMENT

IN ACTION

Investor Day

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

FINANCIAL

STATEMENTS

GOVERNANCE

OVERVIEW

Strategy

Performance

STRATEGIC REPORT

CASE STUDY

Community engagement has been a key focus of

the period with the continual development of the

aorestationpipeline.

Initiatives and outcomes in 2023

Townhall meetings

A townhall meeting either has or will be held for each of

FSF’s woodland creation schemes, giving local residents

the opportunity to view plans and oer comments on the

schemes. At Fordie Estate, a community engagement

meeting was held in April with representatives of the

estate, Foresight and trusted advisers hosting the meeting

which was well attended by the community.

Open days at Fordie Estate

A number of open days were held at the estate to allow

locals to walk the ground of the planting scheme and

gain a better understanding of how the plans sit within

the landscape. Many of the comments raised across

thesesessions have been incorporated into the latest

scheme design.

Research into the community impact of green

investments

The James Hutton Institute has conducted research into

the community impact of green investments in Scotland

and Fordie Estate has been a key case study for this work.

FSF engaged with the institute to provide their views on

land use and change and they also engaged with members

of the community directly.

Engagement with local environmental trusts

The Upper Urr Environmental Trust was interested in

developing a volunteer-led woodland planting and habitat

restoration project. FSF has made an agreement with

the trust covering 95 hectares, with a formal lease over

aportion of the land for this purpose.

Sale of land for community projects

Two parcels of land at Frongoch have been sold to the

beneﬁt of the local community. One parcel was sold to

the local church to extend the community graveyard and

the other was sold to Natural Resources Wales, allowing

access to harvest an area of diseased trees, removing an

eyesore from the picturesque valley.

Mountain bike trails

The establishment of mountain bike trails at Banc Farm

has commenced and continues to progress.

Complaints handling

The Investment Manager strives to sensitively deal with

any objections or concerns that arise in relation to its

woodland creation schemes. The regular scheduling of

townhall meetings and open days around the planning

phase of these schemes aims to inform the local

communities of its plans and also to provide a forum

for objections to be made. When concerns or issues are

raised, the Investment Manager will seek to proactively

address these concerns through further education,

engagement and, where possible, adaptations to the

scheme design.

COMMUNITY ENGAGEMENT

ADDITIONAL

INFORMATION

FINANCIAL

STATEMENTS

GOVERNANCE

STRATEGIC REPORT

OVERVIEW

Strategy

Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

OUR MARKETS

UK timber market

The UK timber market continues to rely heavily on imports, which account for c.80% of

all timber consumed. Further, the UK is the third largest timber importer globally, behind

only China and the USA. Total imports for the ﬁrst seven months of 2023 were 5% less

than over the same period in 2022.

Timber pricing

UK timber market prices

100

120

2017 2018 2019 2020 2021 2022

2023

Sawlog 18cm

Blended Total

Fencing 6-14cm

Chipwood 6cm

Forest Research Softwood Sawlog Price Index Forest Research Small Roundwood Price Index

£/tonne

Sources: Based on Foresight analysis of market data and Forest Research data (sourced from the UK governmental

forest statistic institution). ‘Blended Total’ comes from Foresight’s harvest estimates of each category, which is 58%

sawlog, 24% pallet and fencing, 18% chipwood, based on market analysis and thus reﬂects the real price per tonne.

1. Top diameter is a measurement dimension that expresses the diameter of a log at its thinnest point,

furthestfromthe butt.

2. Based on the Investment Manager’s estimates of market data.

Timber outputs are divided into the following three categories

dependingonthetopdiameter

•

Sawlog, with a top diameter

of 18cm and above, is the primary timber product and

fetches the highest price. This timber can be used for construction and is often used

for fencing posts and other home improvements.

•

Small roundwood, with a top diameter

between 6-18cm. This is largely used in fencing

panels and pallet construction. It is processed at a separate mill to sawlog, that is

speciﬁcally designed to process the smaller pieces of timber.

•

Chipwood, with a minimum top diameter

of 6cm, is essentially too small, too large

or not straight enough to be processed in a sawlog or fence wood mill. This product

is chipped, rather than sawn. The largest use of chipwood is in the manufacturing of

versatile panels such as Medium Density Fibreboard (“MDF”), Oriented Strand Board

(“OSB”) and Particleboard (“PB”). However, it can also be used in pulp mills to make

paper products or in biomass plants, generating power and heat.

The last year has seen mixed price signals. UK sawlog prices in Q3 2023 declined by

c.7.5% compared to Q3 2022, while fencing prices declined by c.1.4%. Meanwhile,

chipwood prices increased by 13.1%. The overall picture shows the blended price for

timber has decreased by -4.1% during the year

Of the publicly available timber indexes, the Softwood Standing Price Spruce

(“SSPI”) / All Conifers Index published quarterly by Forest Research is the most comparable

to the sawlog price index that is used by the Investment Manager. FromQ22022 a material

deviation between the prices reported in both indexes is observed, which has continued

to widen. When analysed, the public SSPI pricing suggests prices have been skewed by

the signiﬁcantly higher volumes of Storm Arwen damaged timber, which has transacted

at increasingly discounted prices. Pricing of high quality and undamaged sawlog, as

represented in the Investment Manager’s index, has demonstrated more resilience.

Domestic demand

The UK’s economic output has remained subdued during the year. The aftermath of

the UK Government’s Mini Budget, rising debt costs and a cost-of-living crisis have

contributed to reduced demand for UK timber. The CPA forecasts that construction

output, a key driver of timber demand, is expected to fall by 7% in 2023 but to grow

by 0.3% in 2024. The Investment Manager’s view is that domestic demand for sawlog

and roundwood will likely remain relatively subdued during the rest of 2023 and 2024.

Inthe Board’s and Investment Manager’s opinion, we believe there is growing preference

towards home-grown timber.

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ADDITIONAL

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OUR MARKETS CONTINUED

Domestic supply

On the domestic supply side, most of the excess storm damaged timber from Storm

Arwen in 2021, representing c.20% of the UK’s annual harvest (and c.4% of UK annual

demand, given that the country imports c.80% of its needs), is understood to have been

processed through the timber supply chain. UK originated timber supply and inventory

levels are therefore gradually readjusting to normal levels. The latest UK Forest Market

Report on UK commercial timber markets was released on 21 November 2023 and the

Investment Manager will utilise this data for future supply market forecasting.

European energy crisis and fuel demand

Chipwood prices remained more stable during the year, increasing by 13.1% according

to the Investment Manager’s Chipwood Price Index. A main factor inﬂuencing European

markets during the year has been the ongoing conﬂict in Eastern Europe and the ensuing

energy crisis which has driven a surge in both European and UK woodchip demand.

Bioenergy use in the EU increased by over 150% since 2000 and a further increase

between 70-150% by 2050 is predicted. Policy developments such as the UK

Government’s Biomass Strategy seek to generate more bioenergy using sustainable

chipwood as fuel, ensuring incentives for sustainable biomass energy. The Investment

Manager believes that chipwood demand will remain resilient and has a robust long-term

outlook. However, prices will also be inﬂuenced by Europe’s longer-term ability to secure

supplies of liqueﬁed natural gas.

European supply dynamics

Overall, European supply of softwood is forecast to decline in 2024 which when

combined with steady forecast demand is expected to create a slight material supply

deﬁcit in Europe. This situation is expected to place slow but steady upward pricing

pressure on European timber through the coming year. Key drivers of this movement

include the ongoing bark beetle

crisis (with current damage considered to be nearly 10x

larger compared to pre-2000 levels), climate change, and EU legislation. Key contributors

to European timber supply such as Germany and Latvia, and countries such as the US,

have proved susceptible to such factors.

UK forest climate change resilience

2023 has been a year where extreme weather patterns have inﬂuenced the worldwide

timber market. Timber supply disruptions observed in Canada and Germany, for example,

have been closely linked to climate change and are expected to materially impact

the market. The bark beetle outbreak addressed previously in this report is closely linked

with the droughts brought on by climate change. As global temperatures change, new

emerging risks for key timber geographies will require due attention by managers.

Positively, UK forestry has been assessed as relatively climate resilient, with a

climactically wetter and cooler climate. Looking at wildﬁre and drought risk, this is

viewed to be signiﬁcantly lower in the UK than in much of mainland Europe, especially in

Scotland, which is marked with the lowest ﬁre risk indication. The Investment Manager

believes that the UK’s timber supply will beneﬁt positively from its climate resilient

characteristic; however, to mitigate potential climate-related risks, the Investment

Manager has followed a series of initiatives to create more climate resilient forests within

the portfolio (which will be detailed in full in the Company’s 2023 S&ESG report due to

bepublished in early 2024).

International demand — American and Chinese markets on the rise again

The outlook for American construction looks particularly positive, following the Inﬂation

Reduction Act and the additional timber-related demand this will likely generate. With

the debt ceiling increase signed in June 2023 and the US Government thereby avoiding

default, growth in US construction has seemed to continue undisturbed during the year.

The latest report from the US Census Bureau shows that during the ﬁrst eight months of

this year, construction spending amounted to $1,284.7 billion, 4.2% above the $1,233.4

billion for the same period in 2022.

Due to China’s lifting of strict zero-COVID-19 policies and the introduction of a 21-point

plan to aid property developers with ﬁnancing and debt extensions worth up to $67

billion, the outlook for Chinese timber demand has been positive during the period.

Following the announcement of stimulus measures, China’s timber market has since

picked up, which is reﬂected in the country’s Global Timber Index registering 53.0% in

July, indicating growth in the sector. The Chinese construction industry was expected to

grow by 8.0% in 2023.

Last year, the top three largest global importers of timber were China, the UK and the

US. With global demands unlikely to decline, more European timber is expected to reach

Chinese and US markets in future years. In our view, this could drive upward pressure on

domestic UK timber prices where the availability of, typically steady, European imports

isreduced.

1. Bark beetle is a forestry pest which can cause signiﬁcant damage to the trees if left uncontrolled.

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Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Voluntary carbon market (“VCM”)

Number of companies with SBTi commitments

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2020

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3Q4

2021 2022 2023

Source: SBTi Database and Trove Research

1. Trove Research was acquired by MSCI in October 2023: https://ir.msci.com/news-releases/news-release-details/

msci-advance-clarity-carbon-markets-acquisition-trove-research

Voluntary carbon credits recognise the additional and permanent capture or avoidance of

carbon dioxide from the atmosphere. Carbon credits can be retired by companies with net

zero pledges to oset unabatable emissions created within their businesses or indirectly

within their supply chains. During the year, the number of companies setting, or committing

to set, Science Based Target Initiative (“SBTi”) net zero pledges has continued to accelerate,

with an all-time yearly high of 3,120 companies committing to SBTi between Q4 2022 and

Q3 2023, eectively doubling the total to 6,048.

Examples of ﬁrms making new SBTi commitments last quarter include Heineken and

Rolls-Royce. The total market capitalisation of all the companies with SBTi targets in Q3

2023 is above $35 trillion. Companies’ continued acceleration of net zero pledges bolsters

the long-term demand outlook for voluntary carbon credits. In our view, these companies

will likely require carbon credits to oset up to 5-10% of their emissions, considered

unabatable, inline with SBTi rules.

Woodland Carbon Code carbon credits price annual increase

Weighted average price per Woodland Carbon Code ("WCC") carbon credit (tCO

2021

£/tCO

14.9

19.1

25.4

2022 2023

+28.1%

+32.6%

+69.9%

1. 2023 data is for January to June.

The Woodland Carbon Code (“WCC”) has, for the ﬁrst time, published a price index of

their voluntary carbon credits in collaboration with Ecosystem Marketplace, summarised in

the above chart. Over 99% of units contributing to the index were Pending Issuance Units

(“PIUs”), that have yet to mature into Veriﬁed Carbon Units (“VCUs”), that are capable

of being used for osetting, with less than 1% of the units contributing to the index being

VCUs. The Investment Manager therefore sees this as the best publicly available index yet,

and provides a good proxy for its own voluntary carbon credit portfolio, which currently

consists of 100% PIUs. The new index captures transactions totalling more than half

a million PIUs (since January 2021). FSF is expecting to create 1.0-1.2 million PIUs with

its current aorestation portfolio and planting programme (based on c.4,000 hectares

planted). During the 2.5 years that the WCC index covers, the price of WCC carbon credits

has grown by 69.9%.

OUR MARKETS CONTINUED

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Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

OUR MARKETS CONTINUED

Voluntary carbon market (“VCM”) continued

Monthly volume weighted average voluntary carbon credit price

by project type

REDD+ Market average

Nature restoration

Sep

2021

Nov

2021

Jan

2022

Mar

2022

Sep

2022

Jul

2022

May

2022

Nov

2022

Jan

2023

Mar

2023

Sep

2023

Jul

2023

May

2023

USD/tCO

1. Note: only market average is available for Q3 2023.

Source: Trove Intelligence database. Graph based on approximation.

Following a Guardian article that exposed the low-integrity nature of many avoided

deforestation (“REDD+”) voluntary carbon credits, we have observed a signiﬁcant shift

in buyer preferences towards higher-integrity nature-based carbon removal credits of

the sort which FSF creates with its aorestation schemes. Globally, nature restoration

voluntary carbon credits, which include the WCC credits that FSF creates with its

aorestation schemes, have increased by 63% from Q1 2023 to Q2 2023. During the

same period, demand for carbon avoidance based REDD+ voluntary carbon credits has

diminished, which has been reﬂected in prices falling by 17% from Q1 2023 to Q2 2023.

The Investment Manager has been encouraged by the progress made within voluntary

carbon markets this year. The combination of a near doubling of corporate climate

SBTi pledges, which further bolsters the long-term demand outlook, combined with a

material shift in buyer preferences towards scarcer, higher-integrity, nature-based carbon

removals credits of the sort which FSF creates, currently suggests that over the medium

to long term, there will be sustained upward pressure on pricing.

FSF’s aorestation carbon credits are to be issued, validated and independently veriﬁed

using the WCC’s UK Standard. The WCC is well recognised as being of high integrity and

has secured International Carbon Reduction and Osetting Accreditation (“ICROA”).

ICROA is a non-proﬁt organisation that promotes best practices across the voluntary

carbon market. ICROA certiﬁcation is an existing badge demarking WCC’s high-integrity

standards.

Global update: c.£30 billion invested into carbon credit projects from 2012

to 2022

Trove Research published a paper in September 2023, which shows that investment

into carbon credit projects between 2012 and 2022 totalled $36 billion. Half of this

occurred in the last three years. There is also a further $3billion in future investment

already committed. This wave of investment facilitates more than a thousand new carbon

reduction projects. More than $18 billion of funding came from carbon credit funds

during the last two and a half years alone. Over 80% of this funding is targeted towards

nature-based projects such as FSF’s aorestation projects and others such as improved

forest management and reducing emissions from deforestation and forest degradation.

Thenature-based projects cover c.30 million hectares.

Regulatory developments

The Integrity Council for Voluntary Carbon Markets (“ICVCM”), an independent

governance body, was speciﬁcally established with the aim of setting and maintaining

global standards for quality within the voluntary carbon market. To assist with this,

the ICVCM, in March 2023, launched the Core Carbon Principles (“CCPs”), which are

intended to establish fundamental principles for high-quality carbon credits that create

a veriﬁable climate impact, based on the latest science and best practice. Buyers and

users of voluntary carbon credits that are certiﬁed as aligning with the CCPs can be

assured of the high integrity of the underlying carbon credit. CCP labels for carbon credit

methodologies are expected to start being issued in late 2023. The Investment Manager

believes WCC could receive conﬁrmation of CCP alignment during 2024 along with

potentially a Carbon Osetting Reduction Scheme for International Aviation (“CORSIA”)

approval.

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Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Demand-side integrity

During the period, as already mentioned, REDD+ has come under scrutiny. The press

articles exposed integrity issues with some avoided deforestation voluntary carbon

credits issued by Verra’s REDD+ methodology. REDD+ and other avoidance credits

improve the relative balance of carbon in the atmosphere by conserving nature and

avoiding deforestation. The additionality case for REDD+ rests on the concept that

without protection and conservation large areas of natural forest (which acts as a

valuable rotational natural storage system for carbon) will be felled to make way for

agriculture and development (usually intensive livestock farming).

However, proving the additionality case for REDD+ has proved challenging as quantifying

the level of threat of natural forest destruction for speciﬁc projects/sites is quite variable

and subjective. With aorestation projects, proving additionality and permanence, and

therefore high levels of integrity of credits, is relatively clearer and simpler as newly

planted trees draw down additional carbon from the atmosphere. In the view of the

Investment Manager, this may explain the apparent shift in buyer preference that has

been observed during the year.

On the demand side (i.e. companies seeking to make climate-related claims), the

Voluntary Carbon Markets Integrity Initiative, whose ambition is to set the standard

for high integrity use of carbon credits in organisations’ climate strategies, issued their

provisional Claims Code of Practice. This outlines clear guidance on how companies

can make transparent and credible claims regarding carbon osetting. Leveraging the

newly developed frameworks, Bloomberg and other media outlets have criticised some

corporate “carbon neutral” claims, that are not science-based and where there is no

obligation to decarbonise (as up to 100% of emissions can be oset), as “junk carbon

neutral claims” enabled by “junk carbon osets” such as avoidance-based carbon

credits. Unlike carbon removals-based credits, avoidance-based carbon credits are

notcompatible with a SBTi net zero claim.

It has also been encouraging to see regulators increasingly pursue legal action against

companies which exaggerate their climate and environmental credentials, with several

large companies abandoning carbon neutral claims, to instead focus on decarbonising

ﬁrst and only osetting the balance. The Investment Manager is encouraged by these

developments. It provides further evidence towards a high integrity market for voluntary

carbon credits establishing and scaling.

Whilst the nuances of how carbon credits can be used to support a science-based

climate claim have been in focus, a recent Trove Research report ﬁnds that ﬁrms that

use carbon credits, of any type and quality, reduced their emissions twice as fast

compared to companies that do not use carbon credits at all. Further, companies that

usedhigher-integrity carbon credits are decarbonising faster still.

The Company remains fully committed to investment in projects that yield carbon credits

that are compatible with internationally recognised high integrity standards (such as

ICROA and the CCPs) that can be used by companies with a high integrity SBTi net zero

claim that adheres to the Claims Code of Practice.

OUR MARKETS CONTINUED

Image: courtesy of

James Jones & Sons Ltd sawmills

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INVESTMENT MANAGER’S REPORT

We are delighted to have fully deployed FSF’s equity and delivered strong capital appreciation

on six planted aorestation schemes completed to date

Executive summary

In its second year, FSF made solid progress on several fronts, in the face of a challenging

market and macroeconomic headwinds. During the year, FSF has further demonstrated

that successfully developing and planting new forests (aorestation) remains the reliable

engine room of value creation. The year saw four new forests planted, taking the total

since FSF’s inception to c.1.4 million trees planted across six properties. Since IPO, the

value of these six properties has increased by 85% versus acquisition costs, based on

their carrying value of £18.9 million as at 30 September 2023. During the year, strong

progress was made in the development of a further 37 properties with aorestation

potential in the portfolio. Many of these will be planted in the current planting season,

which runs from November to May. Once fully planted, FSF’s aorestation portfolio is

expected to create 1.0-1.2 million carbon credits and representing a material upside

opportunity forinvestors.

During the year, the Woodland Carbon Code (“WCC”) published new ﬁnancial

additionality test rules for aorestation schemes. Whilst good for carbon credit integrity

levels, the Company has reduced the level of grant taken in order for commercial forestry

projects to pass. The Investment Manager holds a seat on the WCC Advisory Board

and has led an industry group to provide feedback to the WCC on how the test could

be improved. Through a combination of engagement with the WCC and optimising

aorestation designs we are conﬁdent that the Company’s position can be improved

overall whilst maintaining the high integrity levels of the carbon credits.

NAV summary

In the year, the NAV declined by £11.4 million overall. FSF delivered NAV per share gains

in the ﬁrst half of the year, mostly relating to the outperformance of its aorestation

portfolio, in an otherwise ﬂat market. The second half of the year has seen FSF’s NAV

decline by £17.4 million since the 31 March 2023 valuation. These NAV losses primarily

relate to the relatively less buoyant UK forestry and agricultural land investment market,

rather than any material changes to the physical condition of FSF’s forestry assets or

their long-term outlook. The Company’s portfolio valuation is dictated by the property

specialist, Savills, in their capacity as independent valuer using the Royal Institution

of Chartered Surveyors (“RICS”) Red Book approach. The approach incorporates

comparable market transaction evidence and the valuer’s view of market sentiment

andisreﬂective of current conditions.

In the face of persistently high inﬂation and interest rates, the value of UK forestry

assets sold in the ﬁrst nine-month period of 2023 (to 30 September) represents 12%

of the annual average of the value of assets sold in 2021 and 2022. Prices for land with

aorestation potential declined signiﬁcantly during the year, when compared to market

declines for established forestry properties.

Fordie Estate

Scotland

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NAV summary continued

Whilst this has impacted FSF’s NAV in the short term, it is FSF’s intention to change

the land use of its aorestation properties and only exit the property once it has been

established as a new forest. Further, acquiring land with aorestation potential at lower

entry prices increases the total return prospects that can be achieved by successfully

developing it. Carbon credit prices relating to nature restoration have remained highly

resilient throughout the year, driven by a signiﬁcant shift in corporate demand towards

higher-integrity carbon credits of the sort FSF creates. We have been pleased to add

aorestation properties to the portfolio throughout the year, which have enhanced

capital appreciation prospects.

Established forestry values proved to be more resilient versus aorestation values, but

were still down on the year. Forest asset prices’ relative resilience is underpinned by the

fact that trees continue to grow and add timber value regardless of macroeconomic

conditions. Their values are driven more by investors’ long-term views on future timber

prices, than they are from spot timber prices. Whilst UK forestry is well recognised for

itsresilient and inﬂation-beating qualities over the long term, it is not completely immune

to current market conditions (elevated base rates and constrained capital supply) in the

short term. Overall, whilst it is disappointing to see a subdued forestry investment market

in the second half of the year having a negative impact on the portfolio valuation, we are

pleased by the operational achievements and opportunistic acquisitions we have made

in the period. We are excited about the year ahead with a particular focus on successfully

planting many millions of trees and establishing multiple new forests.

Acquisitions

At the beginning of the ﬁnancial year FSF had approximately £30.0 million of cash

available for further acquisitions which remained from the £45.0 million equity

placing that took place in June 2022. In January 2023, FSF had successfully acquired

12properties, which saw the June 2022 equity proceeds fully deployed, ahead of the

committed six-month target. The Company bought six more properties during the period.

These acquisitions have substantially completed FSF’s acquisition of land in preparation

for its 2024/25 planting programme and there are no material additions expected in the

near term. The acquisitions completed in September 2023 were funded by the RCF and

repayment of the borrowings will occur through a combination of timber harvesting and

the planned disposal of non-core or other assets.

The majority of acquisitions in the year were directly originated o-market and bilateral

opportunities, where we continue to see better value. These opportunities are sourced

from a combination of Foresight’s proprietary market-mapping deal procurement

approach and by leveraging our extensive network of contacts. We are also increasingly

enjoying inbound approaches from vendors who recognise FSF’s strong track record

as a reliable, all-cash counterparty that operates a highly ecient transaction process.

Immediate mark-to-market gains on new acquisitions have been underpinned in many

instances through the realisation of marriage value with existing properties in the

portfolio. The Company has continued to acquire properties that are either directly

adjacent, or in close proximity, to existing FSF properties, which can result in scale

economies that are reﬂected in uplifted valuations when combined.

Pipeline and deal procurement

Foresight sources deals and acquisition opportunities via selling agents, on-market bids,

bilateral deals, direct origination and inbound direct approaches. Approximately 4,500

speciﬁc properties (c.900,000 hectares) which are highly suitable for aorestation have

been identiﬁed by the Investment Manager.

Robert Guest

Co-Lead, Foresight Sustainable

Forestry Company Co-Lead

5 December 2023

Richard Kelly

Co-Lead, Foresight Sustainable

Forestry Company Co-Lead

5 December 2023

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Overview

As at 30 September 2023, the Company’s portfolio comprised 68 properties covering a

total area of 12,545 hectares. An overview of the portfolio is provided on page 5 as well

as the split of hectares by country and by property type. The portfolio’s allocation

continues to be weighted towards Scotland (85% of FSF’s portfolio by land area),

whichisthe most forested of the UK’s nations and the least far behind in achieving its

tree planting targets.

Portfolio breakdown

During the year, FSF updated the categorisation of aorestation properties into three

separate categories to help stakeholders to more clearly follow the progression of

portfolio development. Properties are now classiﬁed as Development Stage, Planting

Stage and Establishment Stage, with full deﬁnitions provided below.

Hectares

Forest Area

30 September

2023

Other

land area

30 September

2023

Total area

30 September

2023

Forest Area

at time of

writing report

17 November

2023

Development Stage Aorestation 4,446 721 5,167 4,226

Planting Stage Aorestation 93 — 93 373

Establishment Stage Aorestation 937 98 1,035 937

Established Stage Forestry 5,184 1,067 6,251 5,184

Total 10,660 1,886 12,545 10,720

1. Includes commercial stocked/stockable; broadleaf stocked/stockable; designed open ground; natural

forest/ woodland regeneration zones; and other land considered part of the forest area.

2. Includes areas of land that sit outside the forest area; this includes, but is not limited to, land leased for grazing;

regenerative grazing land; peatland/wetland; hill ground; non-core land considered for disposal; non-core land

not considered for disposal; house/farm curtilage.

Category Deﬁnition

(1) Development Stage Aorestation Area Land prior to the securing of planning

permission and grant application.

(2) Planting Stage Aorestation Area Planning permission and grant application

completed but initial planting of trees not yet

completed.

(3) Establishment Stage Aorestation Area Initial planting of site completed but trees

establishing (typically three to ﬁve years).

(4) Established Stage Forestry Area Trees established.

A particular area of interest for stakeholders will be the progression from the

Development Stage Aorestation to Planting Stage Aorestation, as this will be the

signal of the amount of land which has received all permissions and grants and is ready to

commence their respective planting programmes. It can be considered an early indication

of expected capital appreciation of this area, which is recognised by FSF’s valuer at the

point of planting completion and the entering of the Establishment Stage.

Portfolio breakdown by value

Geographic split

by area

England

84%

Scotland

10%

Wales

Property types

52%

Forestry

45%

Aorestation

Non core

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Development Stage Afforestation

Total hectares (Forest Area)

At year end

30 September 2023

At time of

writing report

17 November 2023

Survey and design stage 2,701 2,671

Initial public consultation stage 1,416 469

Admitted to public register stage 329 1,086

Total 4,446 4,226

The Investment Manager and their contractors and advisers continue to hold public

consultations and progress the projects through to getting onto the public register for

review and further comments by the public and statutory consultees. If the consultation

with communities and statutory consultees is well run and done in advance, it can take

circa one to two months from point of going on the register to receiving permission and

grant contract, after which point the Planting Stage can commence.

Planting Stage Afforestation

Total hectares (Forest Area)

At year end

30 September 2023

At time of

writing report

17 November 2023

Development Stage Aorestation 4,446 4,226

Planting Stage Aorestation 93 373

Establishment Stage Aorestation 937 937

Total 5,476 5,536

It is anticipated that approximately 19 sites covering 2,700 hectares of Forest Area will

have completed the Development and Planting Stages and entered the Establishment

Stage by the next valuation cycle, with the vast majority of the balance of Development

Stage and Planting Stage Aorestation entering the Establishment Stage either in April/

early May 2024 orinthe subsequent planting season between November 2024 and

May2025.

An aorestation progress to date and development outlook summary is provided below.

Afforestation timeline

1,000

4,000

2,000

6,000

Other Land Considered Part of the Forest Area

Broadleaves

Calendar quarter, period ending

2022

2023

2024

2025

2024

Hectares

Designed Open Ground

5,000

3,000

Conifer

1. This is the grant funded area in Scotland.

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Establishment Stage Afforestation

Overall, FSF has planted six woodland creation schemes since IPO. All six planted

schemes continue to establish well. A breakdown of FSF’s Establishment Stage

Aorestation assets can be found below:

Newly planted

Establishment Stage

Aorestation

(1 October 2022 –

30 September 2023)

Total

Establishment

Stage

Aorestation

Properties (number) 4 6

Total Establishment Stage Aorestation creation

(hectares) 472 937

Commercially stocked aorestation (%) 44% 50%

Non-commercially stocked aorestation (%) 15% 14%

Designed open ground (%) and other land

considered part of the forest area 41% 36%

Number of carbon credits awaiting validation

(exclusive of 20% buer) 107,592 143,707

Anticipated tonnes of sustainable timber to be

produced from the ﬁrst rotation 190,500 283,150

Trees planted

FY23 – Present FY22 – Present

300,000

600,000

900,000

1,200,000

1,500,000

Commercial trees plantedNon-commercial trees planted

Tree count

FY23 – Present FY22 – Present

100

200

300

400

500

600

700

800

900

Designed open ground Non-commercial Commercial Other Land Considered Part

of the Forest Area

Hectares

1000

Planting breakdown across afforestation to date

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CASE STUDY

1. Aorestation scheme planning (summer 2022)

Surveys were undertaken and the scheme was drawn

up by Scottish Woodlands, the appointed Forest

Manager (“FM”), with asset and portfolio management

oversight from EJD Forestry and Foresight’s portfolio

management team respectively.

2. Community consultation

The community has been at the heart of this

development process and several key initiatives

were presented to a variety of community groups

forfeedback.

3. Planning approval

Planning approval and a woodland creation grant

contract were obtained.

4. Planting scheme (completed March 2023)

5. Establishment Stage Aorestation (ongoing)

Employment continued throughout the summer,

bringing the total hours worked for the year to 2,070

hours or 0.99 FTE. There have been no issues with the

establishment of the crops and minimal tree loss is

anticipated.

6. Valuation (March 2023 valuation)

Recognition of the successful planting at the property

delivered an 83% valuation uplift to the acquisition price

paid for the property.

7. Carbon credits (ongoing)

Upper Barr has been registered with the Woodland

Carbon Code and is due to beneﬁt from carbon credits

associated with the sequestration achieved by the new

planting. A total of c.40,000 Pending Issuance Units

are expected to be registered following a conﬁrmatory

inspection by the Soil Association.

8. Environmental and community beneﬁts (ongoing)

FSF has made an agreement with the Upper Urr

Environmental Trust to develop a volunteer-led

woodland planting and habitat restoration project

(more information on page 16).

9. Working with the Eden Project, FSF was able to host

a wildﬂower seed collection day with members of the

local community and school that focused on harvesting

and protecting the local seed source. The seeds that

were collected have been transferred to the Eden

Project’s seed bank and are now available for dispersion

to create further areas of wildﬂower meadow at both

Upper Barr and potentially other properties within

FSF’s portfolio.

UPPER BARR

AFFORESTATION SITE

Location Dumfries & Galloway, Scotland

Size 344 hectares

Land designated for aorestation 151.7 hectares

Date of acquisition March 2022

Tree species type

Native broadleaves, mixed

conifers (Sitka Spruce,

Norway Spruce, Noble Fir,

Paciﬁc Silver Fir, Scots Pine)

Total trees planted 288,299

Gross area planted 151.7 hectares

Jobs provided 1,460 hours (0.5 FTE)

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Established forestry

FSF has designed a portfolio that should supply a steady stream of potential harvesting

over the coming years. The table below gives an overview of the quantity of standing

timber in each category within the FSF portfolio. Where gaps are present, FSF will, over

time, look to inﬁll and generate the ability to harvest to provide the Company with cash

ﬂow each year should it be required.

Age profile of existing forestry

To be

restocked

Age class

<15

Age class

15 to 20

Age class

21 to 25

Age class

26 to 30

Age class

31 to 35

Age class

36 to 40

Age class

>41

To be restocked Scots Pine

Commercial Conifers

Broadleaves

500

1,000

1,500

2,000

Age class in years

Hectares

The above chart excludes aorestation assets at any stage.

Harvesting overview

There has been ongoing harvesting at ﬁve sites during the year. Largely, these harvesting

operations have focused on either continued clear up of windblow or addressing

Statutory Plant Health Notiﬁcations (“SPHNs”). An SPHN is issued by either the Forestry

Commission, Scottish Forestry or Natural Resources Wales where infected plants have

been identiﬁed. In the cases seen within the FSF portfolio, these are Larch crops at low

volumes and this is not considered by the Investment Manager to represent a material

issue for the Company or to be out of keeping with standard woodland management

practice in UK forestry. Income is still generated by this harvesting. During the year a

total of 17,000 tonnes of timber was harvested generating net income of £750,000.

Harvesting strategy (short term)

Timber prices are yet to recover from the softening seen towards the end of 2022 and the

harvesting plan has been adjusted accordingly. Harvesting is being included in the short-

term programme where it results in NAV accretion or there is a good silvicultural reason

to pursue the harvesting. It is not currently the intention to harvest all the available timber

within the portfolio. The Investment Manager will continue to monitor prices closely,

commencing harvesting activities at the optimal time giving consideration to timber

market conditions and Company cash revenue requirements.

Across all planned harvesting activities expected in the next 12 months, a total of

118,000tonnes are anticipated to be harvested.

1. Includes only costs associated with harvesting. Does not account for additional management costs.

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Harvesting plan (long term)

In addition to the short-term view, FSF has reviewed the long-term harvesting

plan. Harvesting does not need to be undertaken immediately and can be delayed.

Makinguseof the additional biological growth, it is useful to forecast what timber will

be available over the coming years. The chart below is illustrative only and is subject

tovariation depending on the Company’s strategy and requirements.

Harvesting forecast

Clearfell Thinning

2023 2024 2025 2026 2027 2028 2029 2030

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Tonnes

Upside opportunities

A number of upside opportunities continue to be developed across the portfolio.

Knock Fell – Peatland restoration with the potential to create up to 20,000 peatland

carbon credits.

Drumelzie – Full planning application for a three turbine wind farm development has

been submitted by a developer for this site. Negotiations regarding felling requirements

areongoing.

Fordie Estate – A glamping project continues to be developed. This would see eight

glamping pods being constructed at Fordie in 2024.

•

Re-negotiation of the existing hydro scheme onto a much improved tari of

£485/MWh for exported electricity, good through until April 2025.

•

Plans to increase water retention on the hill ground through re-wetting projects

outside the woodland creation scheme. Improving habitats for several key bird

speciesand also improving consistency of supply to the hydro scheme.

Forest Stewardship Council (“FSC”) and Programme for the Endorsement

of Forest Certification (“PEFC”)

As at 30 September 2023, FSF has maintained compliance with its Prospectus

commitment to dual certify all forests within 12 months of either acquisition or planting

completion.

Number of projects As a %

Projects certiﬁed 34 50%

Projects requiring certiﬁcation 5 7%

Projects yet to require certiﬁcation 29 43%

The importance of obtaining the correct certiﬁcation for timber ahead of selling

continues to increase. The largest sawmilling companies are placing ever-more stringent

restrictions on uncertiﬁed timber. Speciﬁcally, James Jones have recently announced that

they will only process dual certiﬁed timber. Therefore, there continues to be a premium

associated with certiﬁed timber.

Quality and Environment Management Systems

ISO 9001 sets the requirements for a company’s Quality Management System (“QMS”)

and ISO 14001 is the equivalent standard for an Environmental Management System

(“EMS”). To date a review has been completed in relation to the two ISO standards to

assess the current level of accreditation across the companies of the portfolio, where

gaps in this exist and where the standards should be implemented.

FSF’s focus at present is on its suppliers to attain ISO accreditation to provide an initial

layer of ISO accreditation. further details will be provided in the Company’s 2023

S&ESGreport.

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Biodiversity

A biodiversity monitoring tool called Biodiversity HAB-CON Alpha has been developed

by experienced ecology consultants in collaboration with the Investment Manager.

Thistool is based on the UK Habitat Classiﬁcation System and condition assessment

andhas the following notable key features:

Biodiversity value is ascribed to the transitional habitats that both commercial softwood

conifer forests and long-term broadleaf woodland provide during the cyclical forest

process (i.e. trees grow in establishment stage, canopy closure occurs, natural/planned

thinning occurs, trees are harvested or naturally perish, trees are re-stocked or naturally

re-generate).

Time frames have been extended from 30-years to 60-years to recognise the long-term

nature of forestry management and enable managed woodlands additional time to reach

target condition (e.g. moderate or good condition).

Biodiversity HAB-CON Alpha is being pilot-tested across six FSF pilot sites. After the pilot

phase, the measurement and monitoring tool will be rolled out over thirty FSF properties

as part of the next stage. FSF is seeking to deliver an overall biodiversity uplift across the

portfolio, using the tool to monitor the environmental status of the Company’s assets and

drive nature positive management decisions within the portfolio in the future.

More information on this will be included in the Company’s 2023 S&ESG report.

Health and safety

Health and safety (“H&S”) is a focus for the Company’s Board and the Investment

Manager’s portfolio management team. The target of the portfolio management team is

to position FSF as a market leader for forestry H&S best practices. Regular reporting on

notiﬁable incidents is provided to the Company’s Directors to ensure Board oversight on

H&S matters.

Health and safety event

Number during

the period

Reporting of Injuries, Diseases and Dangerous Occurrences Regulations

(“RIDDOR”) 0

Near miss events 7

RIDDOR events are serious and must be reported to the Health and Safety Executive,

which is administered by the UK Government. The Company is pleased to report that no

RIDDORs occurred during the period.

“Near miss” events are categorised as all H&S incidents that are not reportable under

the RIDDOR framework. There were only seven events throughout the year, which is

considered low. Near miss reporting is embedded in day-to-day forest management and

the portfolio management team continually reviews measures that can further improve

the quality of reporting. For the period these include:

•

Deploying lone working devices throughout the portfolio to prevent individuals from

becoming stranded and out of communication should an accident occur.

•

Requiring Forest Managers to produce hazard maps for each site that they manage

giving an overview of all the known key identiﬁable hazards. The established protocol

is that these are provided to all contractors ahead of the pre-commencement meeting

and also posted on the entrances to each site for members of the public accessing

the site to view. In addition to this, where the risk associated with each hazard can be

mitigated, this will be explored.

•

Re-engaging H&S experts to conduct a third annual review of operational H&S

practices within the portfolio.

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Portfolio valuation

Valuation bridge

130

140

150

160

170

180

190

200

£144.8m

£36.4m

(£3.2m)

(£2.3m)

(£1.0m)

(£1.9m)

£172.8m

£2.1m

£174.9m

September

2022 (incl.

£0.6m carbon

credits )

Acquisitions

since

FY22

Aorestation

revaluation

Mixed

forestry

revaluation

September

2023

Non-core

disposals

Carbon

credit

creation

and uplift

September

2023

(incl. carbon

credits )

Mature

forestry

revaluation

£m

As at 30 September 2023, the forestry portfolio, excluding additional carbon credits

heldthrough SPVs as described on page 47, was valued at £172.2million. Since

30September2022, 18 assets valued at £38.4 million (inclusive of tax and transaction

costs) were acquired and the property revaluation in the portfolio delivered a gain of

£2.7million, representing aweighted average (across the three investment categories)

valuation lossof5.8%.

Aorestation properties observed unrealised losses of £2.3 million, representing a 7.5%

decrease in that category, despite observing mark-to-market gains and recognition of

the successful completion of planting at four properties (Auchensoul, Redding Farm,

Upper Barr and Frongoch). Forestry properties observed unrealised losses of £3.2million,

representing a 4.8% decrease in that category. Mixed aorestation and forestry

properties delivered unrealised losses of £1.0million, representing a 4.9% decrease in

that category.

During the year to 30 September 2023, four aorestation schemes completed planting

and FSF has recognised an additional £2.1 million of value ascribed to the creation of

carbon credits, bringing the overall portfolio value to £2.7million. This estimate takes

into consideration the veriﬁer’s 20% buer to ensure that the number of units oset or

traded is conservative versus the amount of carbon that will be sequestered. The four

properties are estimated to create c.108,000 voluntary carbon credits (net of the 20%

buer) and are part of a wider aorestation programme that is expected to see the

creation of 1.0-1.2million voluntary carbon credits in total from the current portfolio.

Themethodology and treatment of the additional value added at 30September 2023

has remained consistent with the audited ﬁnancial statements as at 30 September 2022.

Theunit pricing of voluntary carbon has increased from £17.50 at 30 September 2022 to

£19.00at30September 2023.

Redding Farm

Scotland

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ADDITIONAL

INFORMATION

OPERATIONAL REVIEW CONTINUED

Portfolio valuation methodology

Savills Advisory Services Limited (“Savills”) was engaged by the Company to provide a

fair value valuation of the portfolio in accordance with the Royal Institution of Chartered

Surveyors (“RICS”) Valuation – Global Standards July 2017 (the “Red Book”).

The Red Book valuation falls within the International Financial Reporting Standards

(“IFRS”), as part of the International Valuation Standards which requires investment

properties to be considered on the basis of fair value at the balance sheet date. IFRS 13

outlines the principles for fair value measurement which Savills’ valuation is consistent

with. The Red Book valuations are undertaken on a property-by-property basis and are

completed semi-annually.

The fair value assessment of the properties has been completed by Savills on a

comparable basis by looking at transactions of similar properties. Development Stage

and Planting Stage Aorestation property comparables include the rights to future

potential voluntary carbon credit creation. Establishment Stage Aorestation and

Established Forest property comparables exclude any value ascribed to any associated

voluntary carbon credits that have been created.

In addition to the fair value, the Red Book methodology considers a number of additional

factors impacting the valuation. A reasonable view of the potential for aorestation

properties’ value uplift over time is considered rather than valuing the land in its

current state. Savills also considers the stage of each property within the forestry grant

application process and may make reassessments as to the value of properties when a

new developmental milestone occurs. Additionally, as the properties under ownership

are located across the UK (Scotland, Northern England and Wales), the external

valuer accounts for the potential dierences in market interest and demand at the

dierentlocations.

The value associated with the carbon credits attached with the Establishment Stage

Aorestation properties is excluded from the RICS Red Book valuation of these

properties. Value recognition for carbon credits is ascribed separately using the

Investment Manager’s assessment based on a range of recent comparable voluntary

carbon credit transactions that occurred in the period and observed by leading

third-party carbon credit consultants and brokers. When establishing the value of carbon

credits, a 25% risk discount is applied to the average observed unit price of a validated

carbon credit. The risk discount accounts for the Woodland Carbon Code validation

process not having fully completed.

Redding Farm

Scotland

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Sustainable Development Goals impact reporting

FSF’s vision and management of its assets, with a focus on its key S&ESG objectives, are

closely aligned with ﬁve of the UN Sustainable Development Goals (“SDGs”). The SDGs

represent a key consideration of the Company’s investment activities and, in the following

pages, we demonstrate the progress made by the Company in each of these core areas

for the period 1 October 2022 to 30 September 2023.

SUSTAINABILITY AND ESG

Sustainability and strong governance are fundamental to FSF’s

business model, as captured in the Company’s three key Sustainability

and ESG objectives

1. Available on the Company website:

https://media.umbraco.io/foresight/ar0gzg2h/sustainability-and-esg-report-2022.pdf

Key objective 1: timber

supply

To deliver and increase

the supply of home-grown

UK timber to reduce the

country’s reliance on

imports.

Key objective 2: sustainable

returns

To do so in a way that

combines sustainable

ﬁnancial returns with carbon

sequestration, biodiversity

protection and other

positive environmental and

social impacts.

Key objective 3:

progressive industry

leadership

To be a sustainability

leader in the UK forestry

industry whilst delivering

both traditional commercial

timber products and

innovative natural capital

services.

2023 highlights

Frongoch

Wales

12,545

Total hectarage of portfolio

(inc. forests and open

ground)

Schoolchildren from

CarregHirfaen School to

play a part in the planting

at Frongoch

Expansion of the Forestry

Skills Training Programme

to Scotland, with

placements awarded across

Scotland and Wales

First

publication of the

Company’s dedicated

S&ESG Report

£2.1

million

Additional value ascribed

towards creation of carbon

credits with 143,707 PIUs

held on balance (as at

30September 2023)

35,081

tCO

Sequestered

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SUSTAINABILITY AND ESG CONTINUED

Timber supply chain

UN SDG 12 (Responsible Consumption and Production) is most closely aligned with FSF’s

Key S&ESG Objective 1 (Timber Supply). There is also strong overlap with Objective 2

(Sustainable Returns) and Objective 3 (Progressive Industry Leadership). Timber in the

UK is used in a variety of ways; from a construction material as an alternative to concrete

and steel, through to biomass to produce renewable power and heat. FSF’s timber plays a

role in meeting these demands.

Goal SDG target

Contribution

12.2 Achieve the sustainable

management and ecient use of

natural resources.

Number of m

of sustainably grown,

standing timber.

Percentage of commercial forestry projects

that are dual certiﬁed within 12 months of

acquisition.

1,062,325 m

of standing commercial timber

100%

existing forestry dual FSC and PEFC

certiﬁed, in line with commitment to

dual certify within 12 months

Environmental impact

Pollutant removal

UN SDG 3 (Good Health and Wellbeing) is most closely aligned with FSF’s Key

S&ESG Objective 2 (Sustainable Returns), speciﬁcally the delivery of “other positive

environmental and social impacts”. Aside from sequestering carbon, our trees help to

actively remove pollutants from the air.

Goal SDG target

Contribution

3.9 Substantially reduce the

number of deaths and illnesses

from hazardous chemicals and

air, water and soil pollution and

contamination.

Number of tonnes of pollutants

removed

from the atmosphere, including:

(Nitrous Oxide), SO

(Sulphur Dioxide),

PM10 (m10 Particulate Matter), PM2.5 (m2.5

Particulate Matter), Ground-level Ozone, NH

(Ammonia).

366.3 tonnes

of Ground-level Ozone

25.5 tonnes

of PM10 (m10 Particulate Matter)

16.3 tonnes

of NH

(Ammonia)

11.7 tonnes

of SO

(Sulphur Dioxide)

21.6 tonnes

of PM2.5 (m2.5 Particulate Matter)

5.2 tonnes

of NO

(Nitrous Oxide)

446.6 tonnes

of pollutants removed from the atmosphere

0 tonnes

50,104

163,684

866,349

(17,813)

1,062,325

Opening

balance

New

acquisitions

HarvestedBiological

growth (in year)

Other

loss

Closing

200

400

600

800

1,000

1,200

Key:

Ground-level Ozone

PM10

PM2.5

1. Oce for National Statistics, woodland natural capital accounts, UK 2020.

Note: 1m

of standing timber on average equates to 0.81 green tonnes of softwood

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SUSTAINABILITY AND ESG CONTINUED

Environmental impact continued

Sustainably managed watercourses

UN SDG 6 (Clean Water and Sanitation), speciﬁcally the delivery of “biodiversity

protection and other positive environmental and social impacts”, is most closely aligned

with FSF’s Key S&ESG Objective 2 (Sustainable Returns). Greater focus is being placed

on the interconnectedness of our ecosystems. Watercourses and peatlands within

and around FSF’s portfolio provide habitats for wildlife and support biodiversity and

drainage.

Goal SDG target

Contribution

6.6 Protect and restore water-related

ecosystems, including mountains,

forests, wetlands, rivers, aquifers and

lakes.

Number of kilometres of sustainably

managed watercourses.

349

kilometres of sustainably managed watercourses

Carbon sequestration

UN SDG 13 (Climate Action) is most closely aligned with FSF’s Key S&ESG Objective

2 (Sustainable Returns), speciﬁcally the delivery of “carbon sequestration”. As FSF’s

operations grow, the overall beneﬁt here is twofold: carbon sequestration is increased

and simultaneously timber production is increased.

Goal SDG target

Contribution

13.3 Strengthen resilience and

adaptive capacity to climate-related

hazards and natural disasters in all

countries.

Total annual portfolio sequestration

(tCO

e/annum).

Average annual sequestration per stocked

ha (tCO

e/stocked ha).

Average annual sequestration per gross ha.

35,081 tCO

arboreal sequestration achieved

over the reporting period within the

portfolio

2.80 tCO

e/ha

average arboreal sequestration per

gross hectare

7.53 tCO

e/stocked ha

average arboreal sequestration on a per stocked hectare basis (commercial +

non-commercial)

1. Includes all permanent water courses and larger drains whether wholly inside the property boundaries or located on the property boundary with a shared responsibility for watercourse management.

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SUSTAINABILITY AND ESG CONTINUED

Natural capital services

Biodiversity

UN SDG 15 (Life on Land), speciﬁcally the delivery of “biodiversity protection”, is most

closely aligned with FSF’s Key S&ESG Objective 2 (Sustainable Returns). As a natural

capital fund, we believe that, when managed responsibly, forestry and aorestation can

provide a wide-ranging ﬂow of ecosystem services which are valuable to society in which

biodiversity plays a vital role.

Goal SDG target

Contribution

15.2 By 2020, promote the

implementation of sustainable

management of all types of forests,

halt deforestation, restore degraded

forests and substantially increase

aorestation and reforestation

globally.

Number of hectares of sustainably

managed forests.

Of which:

•

Number of hectares that are long-term,

mixed broadleaf carbon sinks.

•

Number of hectares that are SSSI

/SAC

Key:

Hectares of commercial

forestry

Hectares of Designation

(SSSI/ SAC)

Hectares of broadleaf

Hectares of open

ground

12,545 ha

total hectarage of portfolio

(inc. forests and open ground)

7,884 ha

of open ground and land awaiting

approval for aorestation

769 ha

of which is SSSI

/SAC

3,819 ha

of which is sustainably managed

commercial forest (excludes open

ground)

843 ha

of which is long-term, mixed broadleaf woodland (excludes open ground)

Carbon credits

Carbon credits generated:

PIUs awaiting validation held on balance 143,707

PIUs held on balance —

PIUs sold —

PIUs pipeline 897,427

WCUs held on balance —

WCUs sold —

Total carbon credits held on balance 143,707

Total carbon credits sold —

1. Site of Special Scientiﬁc Interest.

2. Special Area of Conservation.

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SKILLS TRAINING

CASE STUDY

One of the major issues that faces rural communities

throughout the UK is a shortage of skills. There are

fewer individuals with the necessary skills to undertake

avariety of roles. The Forestry Skills Training Programme,

sponsored by FSF and administered by Tilhill, aims at

redressing the balance of skills within the community.

In May of this year, FSF announced that following

the success of the pilot of the Forestry Skills Training

Programme launched in 2022, it will repeat and

signiﬁcantly expand the initiative for 2023.

The skills training programme

Fully funded three-week programme that provides

candidates with the skills and equipment needed to

commence a career in forestry. The programme focuses

on three key areas:

• Forestry skills training

• Mentoring

• Provision of health and safety equipment

Scope of programme

Scope of

programme in

2022

Scope of

programme in

2023

Geographic area covered Wales Scotland and

Wales

Number of candidates 4 10

Number of candidates

going onto receive paid

forestry work at an FSF

aorestation property

4 TBC

Outcome

FSF has closely followed candidates from the pilot and

has been proud of the positive professional and personal

impact that has had on the individuals involved.

Richard Kelly, Co-lead Manager of FSF, with

three of the four successful FSF Forestry Skills

Training Programme graduates at a community

tree planting dayat Frongoch, Wales,

inMarch2023

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Strategy

Performance

TCFD AND EMISSIONS REPORTING

TCFD

The Company’s 2022 S&ESG report, published in April

2023

, provides a comprehensive response to all 11 of the

TCFD recommended disclosures and can be found on the

Company’s website. For the period to 30 September2023,

the Company will be publishing its 2023 report in the new

year. However, for the year ended 30 September 2023,

the below reports on the Company’s emissions proﬁle,

using Scope 1, 2 and 3 emissions data and the TCFD

Core Metrics, calculated in accordance with the TCFD

recommended methodologies

Scope 1 emissions 349.8 tCO

Scope 2 emissions 0 tCO

Scope 3 emissions 863.5 tCO

Weighted average carbon intensity (tCO

e/£m revenue)

Portfolio’s exposure to carbon-intensive assets, expressed

in tonnes CO

e/£m revenue.

149.7

Total carbon emissions (tCO

The absolute greenhouse gas emissions associated with

the portfolio, expressed in tonnes CO

349.8

Carbon footprint (tCO

e/£m invested)

Total carbon emissions for a portfolio normalised by

the market value of the portfolio, expressed in tonnes

e/£m invested

2.0

Carbon intensity (tCO

e/£m revenue)

Volume of carbon emissions per million pounds of revenue

(carbon eciency of a portfolio), expressed in tonnes

e/£m revenue

183.9

Exposure to carbon-related assets (%)

The amount or percentage of carbon-related assets in the

portfolio, expressed in £m or percentage of the current

portfolio value

Climate scenario analysis

As part of the Company’s disclosures under TCFD, the

S&ESG report

demonstrated the approach it has taken to

conducting robust scenario analysis using S&P Global’s

Climanomics platform. This integrated not only physical

and transition risks, but also climate-related opportunities,

providing a single output reﬂecting the resilience of the

portfolio under dierent climate futures. The Company

does not intend to repeat this test for future years.

The Sustainable Finance Disclosure

Regulation (“SFDR”)

SFDR is a framework designed to increase transparency

on sustainability reporting with a view to facilitating

sustainable investment practices and to aid the

understanding of the sustainability credentials as

published by funds and/or companies.

The Company is classiﬁed as an Article 9 fund, meeting

the necessary disclosure requirements as stipulated in the

Level 2 Regulatory Technical Standards under SFDR. FSF

updated its pre-contractual and website disclosures, both

of which can be found on the Company’s website and are

summarised below:

Sustainable investment objective of the Company

The Company’s investment objective stipulates the

targeted sustainable impact it aims to achieve through

predominantly investment in sustainably managed forestry

assets (including standing forests and aorestation

assets).

FSF has a climate change mitigation objective, seeking

to make a direct contribution in the ﬁght against climate

change through its forestry and aorestation carbon

sequestration initiatives.

Performance of sustainability indicators

The indicators for the portfolio are reported in the SDG

tables on pages 34 to 36.

SFDR RTS Website Disclosure, Annex III

and Annex V

FSF’s Annex III Pre-Contractual Disclosure, RTS Website

Disclosure and Article V Periodic Disclosure are all

available on the Company’s website

. For the purposes of

periodic disclosure updates, the Company will be aligning

its reference period with its annual reporting period,

namely 1 October to 30 September.

1. Available on the Company’s website here: https://fsfc.foresightgroup.eu/shareholder-centre.

2. TCFD recommended methodologies for calculation of the Common Carbon Footprinting and Exposure Metrics https://www.fsb-tcfd.org/recommendations/

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RISK AND RISK MANAGEMENT

FSF has a comprehensive risk management framework overseen by the Audit

andRisk Committee, comprising the Independent Non-Executive Directors

Risk is the potential for events to occur that may result in

damage, liability or loss. Such occurrences could adversely

impact the Company’s business model, reputation or

ﬁnancial standing. Alternatively, under a well-formed risk

management framework, potential risks can be identiﬁed

in advance and can either be mitigated or possibly

converted into opportunities. Pages 41 to 45 of this report

detail the risks that the Directors consider are the top ten

risks to the Company.

Risk identiﬁcation and monitoring

Risks are monitored by the Audit and Risk Committee,

comprising the full Board, which is responsible for

overseeing the current and potential risk exposures of

the Company, with particular focus on the principal and

emerging risks, being those with the greatest potential

to inﬂuence Shareholders’ economic decisions, and the

controls in place to mitigate those risks.

The identiﬁcation, assessment and management of risk

are integral aspects of the Investment Manager’s work

inmanaging the portfolio on a day-to-day basis.

Mitigation actions have been developed with respect to

each risk so as ﬁrst to reduce the likelihood of such risk

occurring and secondly to minimise the severity of its

impact in the case that it does occur.

The risk register is reviewed and updated regularly

by the Investment Manager and the Audit and Risk

Committee as new risks emerge and existing risks change.

The portfolio managers maintain strong relationships

between counterparties, contractors, third-party asset

managers and other stakeholders. This ensures eective

management of potential risks.

The Audit and Risk Committee regularly seek assurances

as to the resilience of the reporting and control systems

in place for both the management of the portfolio and for

the Company’s investment activities. The Committee will

continue to evaluate and challenge the resilience of all key

agents to the Company.

The Board undertook a robust assessment of the

Company’s emerging and principal risks during the year.

More information can be found in the Governance section

on page 54.

Emerging risks and risks relevant

to the year under review

The following represent the most relevant emerging risks

as viewed by the Board and the Investment Manager:

Changes in the macroeconomic environment

The UK economy has seen signiﬁcant ﬂuctuations in

growth over the last two years, predominantly due to

rising debt costs, high inﬂation and Russia’s invasion of

Ukraine. However, the Company is in a relatively strong

position to withstand changes in the macroeconomic

environment as it is invested in real assets, principally

freeholds of UK land and forest stock. The forest stock

enjoys biological growth regardless of occurrences in

ﬁnancial markets. UK freeholds, real assets and the value

of commodities, such as timber, have a strong track record

of good performance during periods of inﬂation and

instability of equity markets. In the view of the Investment

Manager, the continued global supply and demand

imbalance in timber markets, which is accentuated in the

UK as a net timber importer and during a period where

GBP is weak versus EUR and USD, leaves the Company

well positioned to deliver real-term value growth for

Shareholders. Moreover, FSF is in a position to mitigate

the impact of any intra-quarter or intra-year falls in timber

prices by postponing parts of its harvesting programme,

and allowing the trees to continue to grow until the

underlying imbalance between supply and demand begins

to be reﬂected in market prices again.

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RISK AND RISK MANAGEMENT CONTINUED

Emerging risks and risks relevant to the year

under review continued

Financing capital

In order to achieve its growth ambitions and to ensure

the Company is able to take full advantage of the

opportunities in its pipeline, additional ﬁnancing will be

required in the short to medium term. The Company’s

borrowing policy enables the Directors to use gearing

for liquidity and working capital purposes, or to ﬁnance

acquisition of investments subject to following a prudent

approach and maintaining a conservative level of

aggregate borrowings that will not exceed 30% of Gross

Asset Value, calculated at the time of drawdown. The

Company has a £30 million Revolving Credit Facility,

that at the end of the period was partially drawn by

£10.4million. The equity levels of the Company are closely

monitored by the Board and the Investment Manager on

a regular basis. The Company continues to work closely

with its broker and the Investment Manager’s in-house

Retail Sales team will conduct market research ahead of

any future funding rounds to gauge demand from existing

andnew investors.

Timber market volatility

Timber prices can be volatile periodically. However,

demand over the medium to long term has historically

created real-term pricing growth. In the context of global

under-supply and increasing demand, this reduces market

risk for the sale of the Company’s key products and

revenue streams. Should timber prices be less attractive

atthe point of felling, the Investment Manager also has

theoption to delay felling, allowing trees to continue to

grow and provide time for a recovery from short-term

pricing volatility.

Community engagement

The development of aorestation assets in rural

areas is sensitive for local residents and, if managed

unsatisfactorily, could result in poor relationships

developing between the Company and local communities.

This in turn could impact both its ability to obtain

the necessary planning consent for planting to

commence and potentially the Company’s reputation.

The Investment Manager selectively commissions an

independent community risk assessment and only pursues

opportunities where the risk of not obtaining planning

consent, including for reasons relating to objections raised

by the local community, is assessed to be low.

Once aorestation properties are acquired, the Investment

Manager runs a co-ordinated programme of community

engagement and seeks to respond and, wherever

possible, adapt the scheme design to meet concerns

raised by community members. In addition, in the event

that planting was unable to go ahead, the acquired land

would still have inherent agricultural value. Therefore,

whilst the return generated from this would be lower, an

income stream would still be available to the Company.

The Company is also working closely with industry bodies

such as Confor and Timber Development UK to promote

the merits of increased sustainable UK timber supply.

For more information on the Company’s community

engagement initiatives, please see the community

engagement case study on page 16.

Principal risk register

The Company is exposed to a number of risks that have

the potential to materially aect the Company’s valuation,

reputation and ﬁnancial or operational performance.

Thenature and levels of risk are identiﬁed according to the

Company’s investment objectives and existing policies,

with the levels of risk tolerance ultimately deﬁned by

theBoard.

The Company’s risk register covers seven main areas

of risk: ﬁnancial, market, forestry, legal and regulatory,

operational, economic and investment, although not all

ofthese risks will fall into the top ten risk category.

Forestry as an asset class has its own set of unique risks

which are considered and managed by the Investment

Manager’s dedicated team and external advisers.

Aftermitigations are taken into account, most of these

risks have a low residual risk score and those that do not

are covered in more detail in the top ten risks section of

thisreport.

Climate-speciﬁc risks are also monitored by the Board and

the Investment Manager and an extensive climate change

scenario analysis has been undertaken. The Investment

Manager uses the S&P Global Climanomics platform to

undertake this work and their ﬁndings are included in the

Company’s most recent Sustainability and ESG Report.

After mitigations are taken into account, physical climate

risks have a low residual risk score while some transition

risks feature in the Company’s top ten risks.

The Company’s top ten risks are summarised on pages

41to 45, followed by a detailed discussion of the

mitigating factors.

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This risk map shows our assessment of each area of principal risk after mitigation.

Likelihood

Impact

Minor Moderate Major Severe Critical

Very high

probability

High

probability

Medium

probability

Low

probability

Very low

probability

Residual risk

Economic risks

Interest rates

Inﬂation

Macroeconomic

Financial risks

Equity risk

Valuation

Market risks

Demand for carbon credits

Demand for timber

Cost to transition to lower emissions

technology

Forestry risks

Reputational

Legal and regulatory

Government commitment to net zero

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Economic risks

Interest rates



Potential impact

The risk that there will be changes in the interest expense

for debt, or interest received on deposits, as measured in

the currency of that debt, due to movements in market

interest rates. Higher interest rates could also eectively

increase the risk-free rate and reduce the valuation of long-

dated forestry assets. There is a risk that rising interest

rates could result in a higher cost of debt than on the

associated projects' return on equity, which would be NAV

destructive over time.

Mitigation

• Manage the cost of borrowing potentially by borrowing

using ﬁxed rate instruments, and/or by overlaying

interest rate derivatives against the Company’s debt

portfolio

• In considering whether to execute hedging transactions,

the costs and beneﬁts of hedging are to be balanced

against the eects of movements in interest rates on

thedebt portfolio

• The Investment Manager ensures there is a sucient

margin between the expected rate of return on the

investment portfolio and the cost of any borrowing,

to ensure there is a buer before rising interest rates

become dilutive to overall NAV

• The Investment Manager undertakes interest rate

scenario analysis to inform the level of borrowing FSF

iscomfortable taking



Inflation



Potential impact

The risk that inﬂation remains at persistently high levels

and this increases future costs of developing and operating

the portfolio. High inﬂation could also erode the valuation

of the existing portfolio.

Mitigation

• Historically, over the long term, timber and forest asset

values have been positively correlated to inﬂation.

General recognition is for forestry as an asset class

having inﬂationary protection characteristics, but it

should be noted that there is no contracted link between

inﬂation and timber or forest asset prices

• Agricultural land with aorestation potential is less

sensitive to inﬂationary pressures, therefore the strategy

of the Investment Manager is to increase the amount of

aorestation investment within the portfolio



Macroeconomic

Potential impact

Changes in economic, technological, political or regulatory

environment and market sentiment can impact the returns

expected from the assets in the Company’s portfolio.

Mitigation

• Diversity of revenue streams is targeted where possible,

preventing over-concentration to speciﬁc risks

• The Company invests in forestry markets that have

displayed long-term political regulatory stability

• The Investment Manager participates in industry forums

linked to the carbon markets and the related regulation

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

Valuation

Potential impact

The risk that valuations are prepared incorrectly by either

the Investment Manager or the valuer, leading to a publicly

stated NAV that is not representative of the value of the

portfolio. There is a risk that there are an insucient

number of comparable transactions used to inform the

RICS Red Book valuation which is less representative of

FSF’s actual value. This could reduce investor conﬁdence

in the Company and could result in investors selling FSF’s

shares.

Mitigation

• The Company has appointed an independent forestry

valuation specialist, Savills, to value the portfolio.

Savills are highly experienced in forestry valuations

and valued over £1 billion of UK forestry assets in 2021.

Savills will use the RICS Red Book valuation approach to

ensure valuations are conducted using a consistent and

well-recognised methodology

• The Savills valuation agreement leaves it as a contractor

with a liability exposure of c.4% of the valuation ﬁgure

and FSF would have recourse up to that amount in the

event of manifest error

• If the Company was concerned about the Red Book

valuation it could seek to pursue one or a number of

exits above holding value, providing additional actual

transactional evidence, to provide conﬁdence to

investors

Financial risks



Equity risk

Potential impact

The risk that the Company is unable to access sucient

funding to complete its operations.

Mitigation

• The Company’s broker will conduct market research

ahead of any future funding rounds to gauge demand

from existing and new investors

• The Investment Manager and the Board have set

budgets such that a working capital buer is held.

Thebudgets include forecasts of timber and grant

income streams that are expected in the next 18 months

• The Company can recycle capital through the sale of

non-core assets and could also decide to exit one or

multiple forestry assets

• In periods where the discount opens up, the Board

hasthe option to consider share buybacks

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Strategy Performance

RISK AND RISK MANAGEMENT CONTINUED



Demand for timber

Potential impact

The risk that a reduction in demand from the purchasers

of timber would negatively impact the Company’s

proﬁtability.

Mitigation

• The fundamental under-supply of standing timber in

the UK and globally in the context of strong increasing

demand reduces market risk for the sale of the Company’s

key product and revenue stream and which aects the

underlying asset values (land and crop value). Timber

prices can be volatile on an intra-month, intra-quarter and

sometimes intra-year basis. However, demand over the

medium to long term has historically created real terms

pricing growth over the medium to long term and in the

context of global under-supply and increasing demand

this risk is reduced if a medium to long-term investment

view is applied

• The Investment Manager has set a long-term ﬁve-year

rolling average returns target for the Company in order

todeter investors from a short-term investing approach

• Due to no regular dividend yield commitments to

Shareholders, the Investment Manager will be able to

postpone harvesting programmes during periods of

short-term timber pricing volatility



Cost to transition to lower

emissions technology

Potential impact

The risk that timber sawmills/processors could face

increased energy supply costs e.g. if biomass energy is

phased out, or if the supply chain have increased costs with

mitigating their GHG emissions. Costs could be passed

onto FSF, in the form of lower prices paid for FSF’s timber

and in higher prices charged for downstream timber

products leading to reduced timber demand.

Mitigation

• FSF is in a strong position where its product has a very

low carbon intensity and a long time horizon (notably

only processing and delivery costs with product going

to mills approximately every 40 years)

• Downstream wood processors in Europe and North

America (where the UK sources most of its imported

wood from) likely to follow a similar energy transition

pathway; risk is reduced while FSF keeps in step with

itspeer group

• FSF is proactively participating with the UK wood

processing industry to engage and consult with the UK

Government on policies and incentive schemes. FSF is

a member of Timber Development UK, of which FSF

Non-Executive Director Christopher Sutton is Chairman

• Timber products are low carbon and renewable

materials versus the alternatives for the same use.

Ifwood processors are under pressure to decarbonise

then so will the producers of the alternative materials

available. Overall, the demand for and value of timber is

likely to increase as its sustainability credentials become

increasingly valued versus the alternatives



Demand for carbon credits

Potential impact

The risk that demand or volume leads to a reduction in

demand from the users of carbon credits that negatively

impacts proﬁtability.

Mitigation

• As outlined in the Prospectus, the demand for carbon

credits is expected to materially increase in the run-up

to 2030 and 2050, driving carbon price increases.

Decreases in prices paid and issues with supply of

volume of carbon credits are more likely to be driven

by regulatory challenges than by overriding supply

anddemand dynamics

• The Investment Manager is part of the working/

consultation groups for the Woodland Carbon

Code (carbon credits body/veriﬁer in the UK) and

the LSE Voluntary Carbon Markets delivery group,

withthe goal of ensuring continued additionality of

carbon credits and an orderly functioning market for

tradeofcarboncredits

Market risks

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Strategy Performance

RISK AND RISK MANAGEMENT CONTINUED



Government commitment

to net zero

Potential impact

The risk that the UK Government changes its net zero

strategy, leading to less support for sustainable forestry and

climate action; timber regulation changes in favour of only

broadleaf aorestation schemes to achieve net zero action;

fewer grants; commercial timber falling out of favour; WCC

changing the Carbon Credit Policy; and convoluted policy

developments.

Mitigation

• Considered unlikely given the level of consensus and

commitment to achieve UK net zero by 2050

• Per hectare, planting commercial conifers makes

approximately three times the climate contribution

versus planting broadleaves; this is due to the much

faster biological growth rate of conifers and to carbon

remaining locked up in timber-based products for

decades in wood products

• Proactive engagement with the market around this

point, continuing to educate around the dual beneﬁts

of sustainable forestry to tackle climate change and

biodiversity loss; in particular, the argument against

broadleaf aorestation sites and monoculture risks

• Changes to planting strategy would be considered

if grants are no longer available and action taken if

necessary

Legal and regulatoryForestry risks



Reputational

Potential impact

The risk that there is resistance to change of land use from

the public generating negative PR.

Negative press and media coverage could negatively

impact investor sentiment, ultimately impacting the ability

to raise more capital.

Mitigation

• During the due diligence phase of aorestation

investments, the Investment Manager commissions

an independent community risk assessment. This is

intended to ensure that aorestation only takes place

in lower community risk areas, where tree planting is

considered unlikely to be contentious and the expected

likelihood of community resistance is considered low

• The Investment Manager has launched a Forestry Skills

Training Programme that directly enables rural farming

communities to adapt to aorestation related land use

change, by providing local community members with

the skills, training, qualiﬁcations, mentoring and safety

equipment required to commence in the work and

jobs created by the Company’s aorestation schemes.

Moreinformation can be found on page 37

• The Investment Manager is engaging with industry bodies

such as Confor and Timber Development UK to promote

the merits of increased sustainable UK timber supply

• The Company pursues community engagement plans

and conducts in-person community days to enable the

local community to engage with and express their views

about FSF’s aorestation development plans

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Strategy Performance

FINANCIAL REVIEW

Analysis of ﬁnancial results

The ﬁnancial statements of the Company for the year ended 30 September 2023 are

setout on pages 88 to 106.

The Company prepared the audited ﬁnancial statements for the year to

30 September 2023 in accordance with the UK adopted International Accounting

Standards as applicable to companies reporting under those standards. The Company

applies IFRS 10 and Investment Entities: Amendments to IFRS 10, IFRS 12 and measures

all their subsidiaries that are themselves investment entities at fair value. The Company

accounts for its interest in its wholly owned direct subsidiary FSFC Holdings Limited as

an investment at fair value through proﬁt or loss in accordance with IFRS 13 Fair Value

Measurement.

The primary impact of this application, in comparison to consolidating subsidiaries, is

that the cash balances, the working capital balances and borrowings in the intermediate

holding companies and project companies are presented as part of the Company’s fair

value of investments.

The Company, its subsidiaries FSFC Holdings Limited and FSFC Holdings 2 Limited

(together the “Group”), hold investments in 68 portfolio properties held within ﬁve

special purpose vehicles which intend to make distributions in the form of interest on

loans and dividends on equity as well as loan repayments and equity redemptions.

For more information on the basis of accounting and Company structure, please refer

tothe notes to the ﬁnancial statements on pages 92 to 106.

Key ﬁnancial metrics for the year ended 30 September 2023

All amounts presented in £million (except as noted)

As at

30 September

2023

As at

30 September

2022

Gross Asset Value (“GAV ”)

179.6 180.6

Market capitalisation 140.2 182.4

Net Asset Value (“NAV ”)

169.2 180.6

NAV per share (pence) 98.4 105.0

Total return on investment (8.7) 11.0

Proﬁt/(loss) before tax (11.3) 8.8

Earnings/(losses) per share (pence) (6.6) 6.2

1. Calculated as the sum of the NAV and total outstanding debt on page 47.

2. Total equity as per the statement of ﬁnancial position on page 89.

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Strategy Performance

FINANCIAL REVIEW CONTINUED

Net assets

Net assets decreased 6.3% from £180.6 million at 30 September 2022 to £169.2 million

at30 September 2023.

The net assets of £169.2 million comprise £172.2 million of forestry and aorestation

assets, with an additional £2.7 million carbon credit valuation and cash balances of

£1.2million in the Company and £2.7 million in the project companies. Oset by the

drawn Revolving Credit Facility ("RCF") balance of £10.4 million, £2.0million of other

assets in the Company and £1.2 million of other liabilities in the project companies.

At 30 September 2023, £10.4 million of the Group’s £30 million RCF had been drawn.

The GAV is equal to the sum of the NAV of £169.2 million and the outstanding debt of

£10.4 million as described in the alternative measures table on page 50. The GAV as at

30September 2023 was £179.6million.

Analysis of the Group’s net assets at 30 September 2023

All amounts presented in £million (except as noted)

As at

30 September

2023

As at

30 September

2022

Red Book valuation

172.2 144.2

Carbon credits valuation

2.7 0.6

Portfolio value 174.9 144.8

Project companies’ cash 2.7 2.0

Project companies’ other net liabilities (1.2) (0.5)

Revolving Credit Facility (10.4) —

Investments at fair value through proﬁt or loss 166.0 146.3

Company’s cash 1.2 34.3

Company’s other net assets 2.0 —

Net Asset Value 169.2 180.6

Number of shares 172,056,075 172,056,075

Net Asset Value per share (pence) 98.4 105.0

1. Classiﬁed as the fair value of the underlying forestry assets held through the SPVs.

2. The carbon credit valuation noted is based on value ascribed to progress towards creation of carbon credits.

Third-party debt arrangements and gearing position

As at 30 September 2023, the Company had used £10.4 million of its RCF with

£19.6million remaining undrawn. The total outstanding £10.4 million RCF balance

represented 5.8% of GAV (30 September 2022: 0%).

Details of the debt arrangements:

Borrower Provider Facility type Outstanding Maturity Applicable rate

FSFC

Holdings 2

Clydesdale

Bank PLC

Revolving

credit £10.40m July 2025

SONIA +

(2.00%-2.20%)

1. The margin varies depending on the completion of deﬁned S&ESG targets linked to the facility. Inthe ﬁrst year of

the facility these targets were met, and the Company achieved a margin of2.00%.

NAV bridge

NAV bridge from 30 September 2022 to 30 September 2023

160

165

170

175

180

185

190

£180.6m

£0.9m

£0.8m

£0.0m

(£1.9m)

(£2.0m)

(£3.4m)

(£1.3m)

(£6.5m)

£169.2m

£2.1m

September

2022:

105.0p

Asset-level

grant

income

0.5p

Non-core

disposals

0.0p

Asset-level

opex

(1.1)p

Acquisition

costs

(1.2)p

Fund costs

(2.0)p

Capital

expenditure

(0.8)p

Revaluation:

assets

(3.8)p

Carbon

credit

1.2p

September

2023:

98.4p

Asset-level

timber

income

0.4p

£m

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Strategy Performance

FINANCIAL REVIEW CONTINUED

Net Asset Value bridge continued

The Net Asset Value at 30 September 2023 was £169.2 million, compared to

£180.6million at 30 September 2022. The decrease of £11.4 million is the net impact of a

reduction of the fair value of the existing aorestation and forestry assets by £6.5million,

acquisition costs of £2.0 million, fund operational expenditure of £3.4 million, asset-level

operational expenditure of £1.9 million and £1.3 million of capital expenditure, oset by

grant and timber income of £1.7 million and an additional £2.1 million for 107,591 carbon

credits attributed to four underlying aorestation assets where planting has been

completed during the year.

Company performance

Profit and loss

The Company’s loss before tax for the year to 30 September 2023 was £11.3 million,

generating negative earnings of (6.6) pence per share.

For the period to 30 September 2023, the total return on investments was £(8.7) million,

which relates to £2.6 million of interest on the FSFC Holdings loan notes and £11.3 million

net losses on investments at fair value. The interest income is from the Company’s

Shareholder loan to FSFC Holdings Limited. The net loss on investment is generated by

the net fair value movement on the Company’s investment in FSFC Holdings Limited.

Operating expenses included in the income statement for the period were £2.7 million,

inline with expectations. These comprise investment management fees of £1.6 million

and £1.1 million of operating expenses. The details on how the investment management

fees are charged are set out in note 5 to the ﬁnancial statements.

All amounts presented in £million (except as noted)

Year to

30 September

2023

Period from

31 August 2022

to 30 September

2022

Interest received on FSFC Holdings loan notes 2.6 0.9

Net (losses)/gains on investments at fair value (11.3) 10.1

Total return on investment (8.7) 11.0

Operating expenses (2.6) (2.2)

Proﬁt before tax (11.3) 8.8

Earnings per share (pence) (6.6) 6.2

Ongoing charges

The ongoing charges ratio is an indicator of the costs incurred in the day-to-day

management of the Fund. FSF uses the Association of Investment Companies (“AIC”)

recommended methodology for calculating this ratio, which is an annual ﬁgure.

The ongoing charges ratio for the year to 30 September 2023 was 1.46% (30 September

2022: 1.43%). The ongoing charges have been calculated, in accordance with AIC

guidance, as annualised ongoing charges (i.e. excluding acquisition costs and other

non-recurring items) divided by the average published unaudited Net Asset Value in the

period. The ongoing charges percentage has been calculated on the consolidated basis

and therefore takes into consideration the expenses of the Company, FSFC Holdings

Limited and FSFC Holdings 2 Limited.

The Investment Manager believed this to be competitive for the market in which FSF

operates and the stage of development and size of the Fund, demonstrating that

management of the Fund is ecient with minimal expense incurred in its ordinary

operation.

Ongoing charges

All amounts presented in £million (except as noted) FSFC FSFC H2

Investment management fees 1.56

Directors' fees 0.10

Administration fees 0.15

Audit fees 0.15

Other legal and professional fees 0.33

Other ongoing fees 0.19 0.13

Total 2.61

Ongoing charges ratio 1.46%

NAV

31 March 2023 186.6

30 September 2023 169.2

Average 177.9

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Strategy Performance

FINANCIAL REVIEW CONTINUED

Cash ﬂow

The Company held cash balances at 30 September 2023 of £1.2 million. This amount

excludes cash held in subsidiaries. The breakdown of the movements in cash during the

year is shown below.

Cash flows of the Company for the year to 30 September 2023 (£million)

Year to

30 September

2023

31 August 2021

to 30 September

2022

Opening cash balance 34.3 —

Gross proceeds from IPO and fundraising — 175.0

IPO and share issuance costs — (3.2)

Investment in FSFC Holdings Limited

(equity and loan notes) (31.0) (136.2)

Loan interest receipts 0.4 —

Group movements in working capital 0.2 0.9

Directors’ fees and expenses (0.2) (0.1)

Investment management fees (1.5) (1.1)

Administrative expenses (1.0) (1.0)

Company’s closing cash balance 1.2 34.3

Cash flows of the Group for the year to 30 September 2023 (£million)

The Group is deﬁned as the Company and its two intermediate holding companies.

Thecash ﬂows for the Group of £1.2 million include £0.01 million in FSFC Holdings2Limited.

Combined asset-level income analysis

The underlying investments generate revenue from grants, timber harvesting and a

number of isolated activities across a number of sites. Details of the combined income

atthe asset level for the year to 30 September 2023 are shown below:

Asset-level revenue type Revenue (£m) Details

Grant income 0.9 472 hectares of planting

Timber income 0.7 16,755 tonnes of harvesting

Livestock sales and agricultural rent 0.2 Includes livestock sales and land

rental for livestock

Hydro power 0.1 Hydro electricity sales at Fordie

Other income 0.2 Includes sporting and hospitality

rental income

Total asset-level revenue 2.1

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Strategy Performance

ALTERNATIVE PERFORMANCE MEASURES (“APMs”)

APM purpose Calculation APM value Reconciliation to IFRS

Net Asset Value (“NAV”)

A measure of the value of the Company’s

total assets.

The sum of net assets of the Company as

shown on the statement of ﬁnancial position.

£169.2 million The calculation uses the Net Asset Value as per the

statement of ﬁnancial position on page 89.

Gross Asset Value (“GAV”)

A measure of the value of the Company’s

total assets. Gross Asset Value on

investment basis including debt.

The sum of total assets of the Company as

shown on the statement of ﬁnancial position

and the total debt of the Group.

£179.6 million The calculation uses the Net Asset Value as per the

statement of ﬁnancial position on page 89 and total

outstanding debt on page 47.

Net Asset Value per share

Allows investors to gauge whether shares

are trading at a premium or a discount by

comparing the Net Asset Value per share

with the share price.

The net assets divided by the number of

Ordinary Shares in issuance.

98.4 pence As per the closing Net Asset Value per the statement of

ﬁnancial position on page 89 and the closing number of

Ordinary Shares as per note 13 of the ﬁnancial statements on

page 100.

Total NAV return since IPO

A measure of ﬁnancial performance,

indicating the movement of the value of

the Fund since IPO and expressed as a

percentage.

Closing NAV per share as at 30 September

2023 plus all dividends since IPO assumed

reinvested, divided by the NAV at IPO,

expressed as a percentage.

0.3% The calculation uses the Net Asset Value as per the

statement of ﬁnancial position on page 89 and cash

dividends as per the statement of cash ﬂows on page 91.

Market capitalisation

Provides an indication of the size of the

Company.

Closing share price as at 30 September 2023

multiplied by the closing number of Ordinary

Shares in issuance.

£140.2 million The calculation uses the closing share price as per the key

investment metric table on page 44 and the closing number

of Ordinary Shares as per note 13 of the ﬁnancial statements

on page 100.

Ongoing charges

A measure, expressed as a percentage

of average net assets, of the regular,

recurring annual costs of running the

Company.

Calculated and disclosed in accordance with

the AIC methodology. Annualised expenses

divided by average NAV.

1.46% Ongoing charges are detailed on page 48.

Gearing

A measure of ﬁnancial risk on the balance

sheet of the Group.

Total debt of the Group and underlying

investments as shown on page 47 as a

percentage of GAV.

5.8% The calculation uses the total debt on page 47 and the Net

Asset Value as per the statement of ﬁnancial position on

page 89.

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Strategy Performance

WHAT’S IN THIS SECTION

GOVERNANCE

BOARD OF DIRECTORS 52

BOARD LEADERSHIP AND

COMPANYPURPOSE 53

DIVISION OF RESPONSIBILITIES 55

REPORT OF THE AUDIT AND

RISKCOMMITTEE 56

REPORT OF THE MANAGEMENT

ENGAGEMENT COMMITTEE 60

REPORT OF THE SUSTAINABILITY

ANDESG COMMITTEE 62

REPORT OF THE NOMINATION AND

REMUNERATION COMMITTEE 64

DIRECTORS’ REMUNERATION

REPORT 68

DIRECTORS’ REPORT 71

DIRECTORS’ RESPONSIBILITIES

STATEMENT 79

STRATEGIC REPORT

OVERVIEW

GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

BOARD OF DIRECTORS

Richard Davidson

Chair of the Board, Management

Engagement Committee Chair

Richard has a 20-year track record of

investing in UK forestry and has been heavily

involved in the management of his own

Scottish forestry investments, including the

planning and design of several new planting

projects. He was previously the chair of the

investment committee of Gresham House

Forestry.

Richard was formerly a Managing Director

and Investment Strategist at Morgan

Stanley. He was also previously a partner of

Lansdowne Partners, running the macro fund.

Richard chairs the University of Edinburgh

investment committee, overseeing the

university’s endowment.

External directorships

Aberforth Smaller Companies Trust Plc

MIGO Opportunities Trust Plc

Sarika Patel

Non-Executive Director, Audit and Risk

CommitteeChair, Senior Independent

Director

Sarika has nearly 30 years’ experience in a

mixture of public and private organisations.

She is a chartered accountant and a chartered

marketer. Sarika is also currently Chair of

Action for Children and is a Board Member of

the Oce for Nuclear Regulation where

she chairs the Audit, Risk and Assurance

Committee.

External directorships

abrdn Equity Investment Trust Plc

SDCL Energy Eciency Income Trust Plc

Oce for Nuclear Regulation

Action for Children

London General Surgery Ltd

Josephine Bush

Non-Executive Director, Sustainability

and ESG Committee Chair

Josephine was a senior partner at EY for

14 years, specialising in the renewable

energy sector. She is a qualiﬁed solicitor

and chartered tax adviser, as well as earning

the CFA ESG investing qualiﬁcation and a

sustainable ﬁnance certiﬁcation. She is a

fellow of the Royal Geographic Society.

External directorships

JRB Consulting Limited

Vulcan Energy Resources

Sustineri Strategy Ltd

NextEnergy Solar Fund Plc

Christopher Sutton

Non-Executive Director, Nomination and

Remuneration Committee Chair

Christopher was a director of James Latham

plc, one of the UK’s largest independent trade

distributors of timber, panels and decorative

surfaces, for 14 years. He is currently the

Chairof Timber Development UK,

a Non-Executive Commercial Director of

UNWASTED and an ambassador for the

National Forest Company.

External directorships

Timber Development UK Limited

CDS Consultants Limited

UNWASTED Group Plc

          

Committee membership key

Audit and

Risk Committee

Nomination and

Remuneration Committee

Sustainability and ESG

Committee

Management Engagement

Committee

Chair

OVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

STRATEGIC REPORT

GOVERNANCE FRAMEWORK

BOARD LEADERSHIP AND COMPANY PURPOSE

Shareholders and stakeholders

THE BOARD

The role of the Board is to collectively

promote the long-term success of the

Company. The Board shapes the Company’s

strategy, having regard to all stakeholders

within a framework of eective controls.

The “Matters Reserved for the Board” is

available to view on the Company’s website

or by writing to the Company Secretary at

the registered oce.

Section 172 statement

Principal risks

THE INVESTMENT MANAGER

The day-to-day management of the

Company and in particular the management

of its forestry and aorestation portfolio.

Investment Manager’s

report

Operational review

STAKEHOLDERS

The Company’s stakeholders play

an important role in monitoring and

safeguarding its governance. The Board

ensures that its highly experienced

third-party advisers, such as its corporate

broker and legal adviser, are consulted on

appropriate matters.

Section 172 statement

Relationships with

Shareholders

SUPPORTING COMMITTEES

The Board has established four Committees

to focus on the speciﬁc activities of the

Company, under the chairmanship of

dierent members of the Board, and

ultimately all reporting to the full Board.

Audit and Risk

Committee

Oversees ﬁnancial reporting, maintains a

constructive relationship with the external

auditor and monitors the eectiveness of

the Company’s risk management systems.

Nomination and

Remuneration Committee

Ensures the Board and its Committees

have the appropriate balance of skills,

knowledge, diversity, experience and

independence. Establishes a remuneration

policy and ensures there is a clear link

between performance and remuneration.

Sustainability and ESG

Committee

Provides oversight in relation to its

Sustainability and ESG strategy.

Management

Engagement Committee

Reviews the performance of the Investment

Manager, Fund Administrator, Company

Secretary and key external service

providers.

Pages 13 and 14

Pages 41 to 45

Pages 56 to 59

Pages 64 to 67

Pages 62 and 63

Pages 60 and 61

Pages 22 and 23

Pages 24 to 32

Pages 13 and 14

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED

Purpose and governance culture

The Company has a clear and consistent purpose, which forms the foundation of its

strategic objectives. The Company’s Board embeds a strong culture of governance,

informed by a number of factors including its focus on long-term net total return

through targeting sustainable impact investments and openness and transparency with

stakeholders. This approach is at the heart of how the Directors fulﬁl their duty under

Section 172 of the Companies Act 2006 and the Board feels strongly that its policies,

practices and behaviours contribute eectively to the success of the Company and its

stakeholders.

Meetings and attendance

The Board meets formally on a quarterly basis and, in addition, also meets to review

and discuss the Company’s strategy annually. The Board also holds ad hoc meetings for

matters such as to approve the half-yearly Net Asset Value, receive trading updates and

other general corporate matters. The Company Secretary attends all scheduled meetings,

whilst representatives of the Investment Manager, the external auditor and other advisers

are invited to attend as required.

In addition to the scheduled Board and Committee meetings for FY23, there were a

further seven Board meetings held during the period. Attendance at all scheduled

meetings can be seen in the table below.

Richard

Davidson

Sarika

Patel

Josephine

Bush

Christopher

Sutton

Quarterly Board meetings 4/4 4/4 4/4 4/4

Audit and Risk Committee meetings 2/2 2/2 2/2 2/2

Nomination and Remuneration Committee

meetings

1/1 1/1 1/1 1/1

Management Engagement Committee meetings 1/1 1/1 1/1 1/1

Sustainability and ESG Committee meetings 0/1 1/1 1/1 1/1

Statement of compliance with AIC Code

The Company has complied throughout the accounting period ended 30 September2023

with the Provisions set out in Sections 5 to 9 of the AIC Code.

The Board has considered the need for an internal audit function and, as all the

day-to-day operations of the Company are outsourced, this was not deemed necessary

at this time. Due to the size of the Board and the nature of the Company’s business, the

Board considers it appropriate for the entire Board, including the Chair, to fulﬁl the role

ofthe Audit and Risk Committee.

Going concern

Under the AIC Code, the Board needs to consider whether it is appropriate to adopt

the going concern basis of accounting in preparing the ﬁnancial statements. The Board

continues to adopt the going concern basis and the detailed consideration is contained

on page 77.

Viability statement

The viability statement, under which the Directors assess the prospects of the Company

over a longer period, is contained on page 77 and 78.

Assessment of principal and emerging risks

The Board undertook a robust assessment of the Company’s emerging and principal risks

during the year. Particular focus was given to the liquidity of the Company’s assets and

subsidiaries. Further details can be found on page 93.

CORPORATE GOVERNANCE REPORT

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

DIVISION OF RESPONSIBILITIES

Board Role overview

Chair

•

Sets the agenda for Board meetings

•

Works with the Company Secretary to manage the meeting timetable

•

Facilitates open and constructive dialogue amongst Directors during meetings

•

Ensures timely ﬂow of accurate and reliable information within the Board

Non-Executive

Directors

•

Work closely with the Chair and Foresight in monitoring the Company’s delivery of strategy

•

Ensure internal controls are robust and that an external audit is carried out

•

Provide constructive input to the development of the Company’s strategy

•

Serve on the Board’s Committees

Role overview

Investment Manager

•

Provides portfolio and risk management services

•

Ensures compliance with the Company’s investment policy and the requirements of the AIFM Directive, pursuant to the Investment Management Agreement (“IMA”)

•

Fulﬁls the duties set out in the IMA, which sets out the matters over which the Investment Manager has authority

•

Works alongside the Board on corporate strategy, risk management and corporate governance procedures

•

Provides full information on the Company’s investment performance, assets, liabilities, projected cash ﬂow and other relevant information to the Board at its

quarterlymeetings

Administrator

•

Maintains the Company’s books and records

•

Prepares the management and ﬁnancial accounts

•

Calculates, in conjunction with the Investment Manager and Savills, the Company’s NAV

Company Secretary

•

Ensures regulatory compliance

•

Supports the Board’s corporate governance processes and continuing obligations

•

General secretarial functions required by the Companies Act 2006

•

Provides support to the Chair in ensuring timely and accurate information ﬂows to the Board

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Composition

The Audit and Risk Committee comprises the full Board

and is chaired by Sarika Patel. Due to the size of the

Board and the independent, non-executive nature of

the Directors, the Board considers it appropriate for

all of the Directors to be members of the Committee.

TheCommittee’s terms of reference were reviewed during

the year and are available on the Company’s website.

The Board is satisﬁed that, in line with the

recommendations of the AIC Code, at least one member

of the Audit and Risk Committee has recent and relevant

ﬁnancial experience, and that the Committee as a

whole has experience relevant to the sector in which

the Company operates. As the Chair of the Board was

independent on appointment, it is considered appropriate

for him to be a member of the Audit and Risk Committee

and to bring his considerable experience in the forestry

sector to bear on its activities.

Responsibilities

The role of the Audit and Risk Committee is to ensure

that the ﬁnancial and other reporting of the Company

is accurate, complete, and appropriately audited and

reported thereon. The Committee reviews internal

procedures of its advisers and agents to ensure that the

Company’s signiﬁcant risks have been identiﬁed and that

suitable steps have been taken to ensure that the controls

in place appropriately mitigate these risks.

The duties of the Audit and Risk Committee are, inter alia:

•

To monitor the integrity of the ﬁnancial statements of

the Company, including its annual and interim reports

and any other formal announcements relating to its

ﬁnancial performance, and review and report to the

Board on signiﬁcant ﬁnancial reporting issues and

judgements which those statements contain having

regard to matters communicated to it by the auditor

•

To review the content of the Annual Report and

Accounts and advise the Board on whether, taken as

a whole, it is fair, balanced and understandable and

provides the information necessary for Shareholders

to assess the Company’s position and performance,

business model and strategy and whether it informs

the Board’s statement in the Annual Report on these

matters that is required under the AIC Code

•

To review the Company’s internal ﬁnancial controls

and review the adequacy and eectiveness of the

Company’s internal control and risk management

systems and monitor the proposed implementation

of such controls

•

To review the adequacy and eectiveness of

the Company’s compliance, whistleblowing and

fraud-related processes and procedures

•

To consider and make recommendations to the

Board to be put to Shareholders for approval at the

Company’s Annual General Meeting in relation to

the appointment, reappointment and removal of the

Company’s auditor

•

To assess annually the auditor’s independence and

objectivity taking into account relevant professional

and regulatory requirements and the relationship with

the auditor as a whole, including any threats to the

auditor’s independence and the safeguards applied

to mitigate those threats and the provision of any

non-audit services

AUDIT AND RISK COMMITTEE REPORT

AUDIT AND RISK

Sarika Patel

Chair of the Audit and Risk Committee

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

AUDIT AND RISK CONTINUED

Activities during the year

In March 2023, the Committee undertook a detailed review

of the Company’s risk register and emerging risks. Therisk

increased inﬂation and interest rates and the general

macroeconomic challenges in the market.

During the year, the Audit and Risk Committee has sought

assurances as to the resilience of the reporting and

control systems in place for both the management of the

portfolio and for the Company’s investment activities.

TheCommittee will continue to evaluate and challenge

theresilience of all key agents to the Company.

Although the Board has overall responsibility for

preparing the Annual Report and Financial Statements,

the Audit and Risk Committee considers the form and

content of the Annual Report and Financial Statements

and any signiﬁcant areas of complexity, judgement and

estimation that have been applied in the preparation

of the ﬁnancial statements. These areas of judgement

and estimation were discussed with the Investment

Manager, Administrator and auditor during the year and

the Audit and Risk Committee reviewed and agreed the

auditor’s audit plan and audit ﬁndings report following

theconclusion of its year-end audit.

Meetings

The Committee formally met twice during the year and

attendance is set out on page 54. The meetings allowed

sucient time to enable the Committee to consider

all the matters of importance and the Committee was

satisﬁed that it received full information in a timely

manner to allow it to fulﬁl its obligations. Theformal

Auditand Risk Committee meetings were also attended

byrepresentatives of the Investment Manager,

Administrator and Company Secretary.

Risk management and internal controls

Risks

The Board has ultimate responsibility for the eective

management of risk for the Company including

determining its risk appetite and identifying key strategic

and emerging risks. The Audit and Risk Committee serves

as a governance body to oversee, review and challenge

the risk management processes. The Committee has

conducted a robust assessment of the principal risks faced

by the Company and was satisﬁed on the adequacy and

eectiveness of the Company’s risk management systems

with appropriate operational and assurance reporting

from third parties. A description of these risks, including

procedures employed to manage or mitigate them, is

included in the strategic report on pages 41 to 45.

Internal controls

The Board is responsible for the internal ﬁnancial

control systems of the Company and for reviewing their

eectiveness. It has contractually delegated these services

to third parties, but the Directors annually review the

internal control framework established by the Investment

Manager and Administrator to satisfy itself on the

eectiveness of internal ﬁnancial control.

The Directors receive and consider quarterly reports from

the Investment Manager, giving full details of the portfolio

and of all aspects of the ﬁnancial position of the Company.

Additional ad hoc reports are received as required and

Directors have access at all times to the advice and

services of the Company Secretary, which is responsible

for ensuring that Board procedures are followed, and that

applicable rules and regulations are complied with.

The Board has reviewed the need for an internal audit

function. It has decided that the systems and procedures

adopted by the Investment Manager, Administrator,

the Audit and Risk Committee and other third-party

advisers provide sucient assurance that a sound system

of internal control, which safeguards Shareholders’

investments and the Company’s assets, is maintained.

In addition, the Company’s ﬁnancial statements are

audited by external auditors. The Board has therefore

concluded that it is not necessary to establish an internal

audit function at present but this approach will be kept

under review.

AUDIT AND RISK COMMITTEE REPORT

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

AUDIT AND RISK CONTINUED

The auditor

As part of the review of auditor independence and

eectiveness, Ernst & Young LLP (“EY”) has conﬁrmed

that they are independent of the Company and have

complied with the relevant auditing standards. In

evaluation of EY’s performance, the Audit and Risk

Committee has taken into consideration the skills and

experience of the ﬁrm and of the audit team.

The Committee assessed the eectiveness of the audit

process through the quality of the audit planning reports

it received from EY, together with the contribution which

EY made to the discussion of any matters raised in these

reports or by Committee members. The Committee

also took into account any relevant observations made

by the Investment Manager and Company Secretary.

TheCommittee is satisﬁed that EY provides an eective

independent challenge in carrying out its responsibilities.

EY was appointed as the Company’s auditor upon its IPO

in November 2021. Having considered the eectiveness of

the audit, including reviewing the Audit Quality Inspection

Reports in relation to EY published by the Financial

Reporting Council, the Audit and Risk Committee has

recommended the continuing appointment of EY to the

Board. EY’s performance will continue to be reviewed

annually, taking into account all relevant guidance and

best practice.

All non-audit work to be carried out by EY must be

approved in advance by the Audit and Risk Committee to

avoid compromising the independence of EY as auditor.

No non-audit fees were incurred during the ﬁnancial year

to 30 September 2023.

Service provided

(excluding VAT) 2023 fee 2022 fee

Audit services

£143,775 £118,250

Non-audit services

£0 £0

Total

£143,775 £118,250

AUDIT AND RISK COMMITTEE REPORT

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

AUDIT AND RISK COMMITTEE REPORT

AUDIT AND RISK CONTINUED

Conclusion

The Audit and Risk Committee has concluded that the

Annual Report and Financial Statements for the year

ended 30 September 2023, taken as a whole, are fair,

balanced and understandable and provide the information

necessary for Shareholders to assess the Company’s

business model, strategy and performance.

This conclusion was reached through knowledge of the

Company and its activities, a detailed review of this Annual

Report and enquiries of the various parties involved

in the preparation of the Annual Report and Financial

Statements. The Audit and Risk Committee has reported

to, and agreed its conclusions with, the Board.

Committee evaluation

A detailed and rigorous evaluation of the Committee was

undertaken as part of the Board’s annual performance

evaluation. The skills and experience of the members,

including recent and relevant ﬁnancial experience and

industry experience, were found to be appropriate.

TheCommittee was found to be functioning eectively

and all Committee members were satisﬁed with the overall

workings of the Committee. Through the Nomination and

Remuneration Committee, there was also consideration of

succession planning and the continued independence of

all the members of the Committee.

Sarika Patel

Chair of the Audit and Risk Committee

5 December 2023

Matter Committee action

Valuation of the forestry and afforestation

portfolio

Although valued by an independent ﬁrm of valuers, Savills, the

valuation of the Company’s portfolio is inherently subjective,

requiring signiﬁcant judgement by the valuers. Errors in the

valuation could have a material impact on the Company’s

NAV. Further information about the portfolio and inputs to the

valuations are set out in note 10 to the ﬁnancial statements.

The Investment Manager liaises with the valuers on a regular

basis to ensure they have up-to-date management information

to value the portfolio. The Board reviewed the results of the

valuation procedure at each half-year and discussed in detail

the process of producing each valuation with the Investment

Manager.

The Investment Manager discussed with the auditor the work

performed to conﬁrm the valuation and existence of the assets

in the portfolio. The 30 September valuation was also discussed

in detail with Savills to ensure that the Board understood the

assumptions underlying the valuation and sensitivities inherent in

the valuation and any signiﬁcant area of judgement.

Valuation of carbon credits

As the sale of carbon credits is a relatively new area, support

for the pricing and valuations prepared by the Company is more

limited than its forestry and aorestation assets. As carbon

credits now make up a larger area of the portfolio than the

previous year, errors or an overly conservative approach to the

valuation have the potential to impact the Company’s NAV in a

material way.

The Investment Manager and the valuer worked closely together

to consider the process for the valuation of the Company’s

carbon credits. Details of the methodology and assumptions

applied can be found on page 32. The valuers also reported

directly to the Board at its strategy day in August 2023, in

relation to both the forestry and aorestation market and the

outlook for carbon credit valuations.

The Board reviewed the results of the valuation procedure at

each half-year and discussed in detail the process of producing

each valuation with the Investment Manager.

ESG metrics

Veriﬁcation of the ESG metrics contained on pages 34 to 36

does not form part of the scope of the external audit. Incomplete

or inaccurate data contributing to these metrics could lead to

errors in reporting the Company’s signiﬁcant ESG considerations

to Shareholders.

The Audit and Risk Committee worked closely with the

Sustainability and ESG Committee and the Investment Manager

to ensure that this data is reliable, accurate and being suciently

tested. Further detail on how these metrics have been produced

can be found in the Sustainability and ESG Committee report on

pages 62 and 63.

Going concern assessment

The Directors are required to prepare the ﬁnancial statements

on a going concern basis unless they intend to liquidate the

Company or have no alternative but to do so.

In assessing the Company’s going concern, the Committee has

taken into consideration the current economic situation, the

principal risks facing the Company, its loan arrangements and

liquidity position. The Company’s going concern statement can

be found on page 93.

Significant financial reporting areas

The key areas of risk identiﬁed and considered by the Committee in relation to the business activities and ﬁnancial

statements of the Company for the year ended 30 September 2023 were as follows:

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

REPORT OF THE MANAGEMENT ENGAGEMENT COMMITTEE

Composition of the Management Engagement

Committee

The Management Engagement Committee comprises

the full Board with Richard Davidson as Chair. The

Committee’s terms of reference were reviewed during

theyear and are available on the Company’s website.

Responsibilities of the Management Engagement

Committee

The duty of the Management Engagement Committee is to

review the terms of appointment of, and the performance

by, the Investment Manager, the Administrator and the

other key service providers appointed by the Company

and to decide whether it is in the best interests of

Shareholders for those appointments to continue.

The Company’s auditor is not included in this review as

their appointment falls under the remit of the Audit and

Risk Committee.

The following are considered particular areas of focus for

the Committee:

•

To monitor and evaluate the Investment Manager’s

performance (and, if necessary, provide appropriate

guidance) and compliance by the Investment Manager

with the Investment Management Agreement

•

To reasonably satisfy itself that the Investment

Management Agreement is fair and that the terms

thereof comply with all regulatory requirements,

conform with market and industry practice and remain

in the best interests of Shareholders

•

To reasonably satisfy itself that systems put in place

by the Investment Manager in respect of the Company

are adequate to meet relevant legal and regulatory

requirements

•

To reasonably satisfy itself that matters of compliance

are under proper review

•

To regularly review the composition and performance

of the key personnel performing the services on behalf

of the Investment Manager and consider whether the

continuing appointment of the Investment Manager, on

the terms of the Investment Management Agreement,

is in the interests of Shareholders as a whole, and make

recommendations to the Board thereon together with a

statement of the reasons for this view

•

To consider and review the level and method of

remuneration of the Investment Manager pursuant to

the terms of the Investment Management Agreement,

including the methodology of calculation of the annual

fee and any performance fee

•

To review the performance and services provided by

the Company’s other service providers and consider

whether the continuing appointments of such service

providers under the terms of their agreements are in

the interests of Shareholders as a whole and make

recommendations to the Board thereon together with

astatement of the reasons for their view

In addition to the Committee members drawing upon their

own experiences of working with the service providers,

the Committee also had Foresight Group complete

assessments of the performance of the other service

providers. This feedback was carefully reviewed and

discussed by the Committee.

Richard Davidson

Chair of the Management Engagement Committee

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

REPORT OF THE MANAGEMENT ENGAGEMENT COMMITTEE CONTINUED

Activities during the year

Investment Manager

The day-to-day management of the Company, and

in particular the management of its forestry and

aorestation portfolio, is delegated to the Investment

Manager. The Committee carried out a robust assessment

of the Investment Manager during the year, including fee

levels. The feedback was positive. The Board requested a

breakdown of the investment management fees, including

fees paid to EJD Forestry for asset management services,

and these were presented and discussed at the annual

strategy day. It was concluded that, despite the rate of

acquisitions in the 2023 ﬁnancial year being lower than

the previous year, the development of the Company’s

aorestation portfolio required a considerable time

commitment. The Investment Manager also employed

a portfolio manager during the year to assist with the

implementation of the Company’s considerable planting

programme in spring 2024. The increased resource within

the portfolio management team at Foresight is expected

to allow Robert Guest and Richard Kelly additional

time to focus on the overall strategy of the portfolio

and seeking prospects for improved performance and

growth. The Board also reviewed an Investment Manager

prepared fee benchmarking exercise, comparing the

Investment Manager’s fees to other equivalent forestry

investment funds and alternative investment trusts.

TheBoard was satisﬁed that the investment management

fees represented good value for the Company.

Therefore,nofee changes were recommended to the

Board by the Committee for this ﬁnancial year.

The Committee remains ﬁrmly of the view that the

Investment Manager demonstrates the skills and

commitment to perform its role. The Committee

recommended the Investment Manager’s continued

appointment to the Board, and it was unanimously

agreedthat this is in the best interests of Shareholders.

Administrator and Company Secretary

Foresight Group LLP has served as Administrator and

Company Secretary to the Company since its IPO in

November 2021.

Under the terms of the Investment Management

Agreement, Foresight Group is entitled to an annual fee in

respect of administration and company secretarial services

which is calculated and payable monthly in arrears as the

greater of: (i) 0.07 per cent. of the Net Asset Value per

annum; and (ii) £120,000. The Investment Manager is

also entitled to reimbursement of all out-of-pocket costs,

expenses and charges reasonably and properly incurred

on behalf of the Company in connection with these

services. No additional fees were paid to the Administrator

and Company Secretary during the period.

Following the Committee’s recommendation, the

Board agreed that the continued appointment of the

Administrator and Company Secretary is in the best

interests of the Company and its Shareholders.

Other service providers

During the year, the Management Engagement Committee

conducted a review of the Company’s other key service

providers, as listed at the back of this Annual Report.

The Committee reviewed the performance as well as the

fees charged by each service provider and instructed

the Investment Manager to provide feedback to those

providers where it was deemed appropriate. As a

result of this review and following the departure of the

Company’s main corporate broker contact, who had

been instrumental in the Company’s IPO, the Company

undertook a formal and rigorous tender process to select

a new corporate broker. A decision was made after the

year end to appoint Stifel Nicolaus Europe Limited as the

new corporate broker to the Company.

The Company appointed a new PR Adviser, SEC Newgate,

during the year and has been pleased with the results

produced to date.

Committee evaluation

Following a robust review of the Committee as part of the

Company’s annual performance evaluation, the experience

of the Committee’s members was found to be appropriate.

Committee meetings were considered eective and

ecient, and all members contributed appropriately.

Richard Davidson

Chair of the Management Engagement Committee

5 December 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

REPORT OF THE SUSTAINABILITY AND ESG COMMITTEE

Composition of the Sustainability and ESG

Committee

The Sustainability and ESG Committee comprises the full

Board and is chaired by Josephine Bush. It is considered

appropriate that all Directors are members of the

Committee due to the central focus on sustainability of

the Company and the importance of all Board members

remaining up to date with sustainability and ESG matters.

Responsibilities of the Sustainability and ESG

Committee

The Sustainability and ESG Committee is responsible for

reviewing the Company’s ESG strategy and ensuring this

is in line with the aims and objectives agreed by the Board

and the Investment Manager. The Committee’s terms of

reference were reviewed during the year and are available

on the Company’s website.

The duties of the Sustainability and ESG Committee are,

inter alia:

•

To guide, supervise and support the Investment

Manager in drafting and periodically reviewing the

Sustainability and ESG strategy which sets out the

guiding principles, objectives, strategic actions and

policies with respect to ESG matters

•

To have oversight of the overall ESG strategy of

Company, including agreeing the Company’s key ESG

objectives and agreeing the key performance indicators

linked to each of the Company’s chosen ESG objectives,

and monitoring progress against each of these key

performance indicators

•

To assess and prioritise ESG risks and opportunities

for the Company, such assessment to be carried out in

alignment with chosen reporting frameworks, including

assessment of climate change risks, and with relevant

input from the Audit and Risk Committee

•

To receive reports and keep abreast of notable

developments in ESG-related regulation and industry

trends relevant to the Company and the sector in which

it operates

•

To monitor the Company’s adherence to ESG objectives

and KPIs and work with the Audit and Risk Committee

to oversee the reporting of these objectives and KPIs

•

To oversee the selection of non-ﬁnancial reporting/ESG

disclosure frameworks by the Company

•

To oversee the engagement of any external service

providers or consultants retained for the purpose of

auditing the Company’s performance in relation to

ESGmatters

•

To identify relevant ESG training and opportunities and

advise the Board and/or the Company’s key service

providers accordingly

Meetings

The Sustainability and ESG Committee met once during

the year to oversee, guide and discuss the Company’s

approach to sustainability and ESG strategy, review

progress against KPIs, and to assess the disclosures

to make in this report and the separate Sustainability

and ESG report. The Sustainability and ESG Committee

Chair also met with representatives of the Investment

Manager throughout the year to progress and evolve the

approach to sustainability, and oversee the ﬁnalisation of

the standalone Sustainability and ESG report, which was

published in April 2023. The Company Secretary attends

the meetings as Secretary to the Committee. In addition,

representatives of the Investment Manager are also invited

to attend.

Josephine Bush

Chair of the Sustainability and ESG Committee

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

REPORT OF THE SUSTAINABILITY AND ESG COMMITTEE CONTINUED

Activities during the year

ESG strategy

The Company has categorised its ESG commitments into

a series of sustainable business initiatives, measures and

targets, with the core aim of generating “natural capital

alpha” (as deﬁned within the standalone Sustainability and

ESG report) through sustainable forestry management

practice. This strategy is set out on page 33 of this report

and in the standalone Sustainability and ESG report

published on 18 April 2023.

Sustainability and ESG report

In recognition of the increasing importance of

Sustainability and ESG credentials to Shareholders, the

Board prepared and published a separate Sustainability

and ESG report on 18 April 2023, following the publication

of the 2022 Annual Report and Financial Statements.

TheSustainability and ESG report aimed to provide

additional detail on the narrative surrounding the statistics

set out on pages 62 and 63.

Following positive engagement and feedback on the

content of the report, the Committee has taken the

decision to prepare an updated version for the 2023

ﬁnancial year, which will build on the Company’s

sustainability strategy, climate-related risk management,

metrics and targets.

International Sustainability Standards Board

(“ISSB”)

The Committee has considered the ISSB’s ﬁrst

sustainability-related reporting standards, S1 and S2,

released in June 2023 (the “Standards”), and is aware that

the Standards are open for voluntary adoption for annual

reporting periods commencing on or after

1 January 2024, with reporting to commence in 2025.

Itis the view of the Board and the Investment Manager

that the Standards adopt a wider approach to

sustainability and the Company has a strong baseline

to support a move towards the ISSB recommendations.

Therefore, the Company will continue to report against

TCFD for the 2024 ﬁnancial year with a view to moving to

the voluntary adoption of the ISSB Standards for the 2025

ﬁnancial year.

Committee evaluation

An evaluation of the Committee was undertaken as

part of the Board’s annual performance evaluation.

TheCommittee was found to be functioning well and that

its approach to Sustainability and ESG was appropriate

forthe Company.

Josephine Bush

Chair of the Sustainability and ESG Committee

5 December 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

COMPOSITION, SUCCESSION AND EVALUATION

Composition of the Nomination and Remuneration

Committee

The Nomination and Remuneration Committee comprises

the full Board and is chaired by Christopher Sutton.

The Board considers that, given its size, it would be

unnecessarily burdensome to establish a Nomination

and/or Remuneration Committee which did not include

the entire Board and believes that this enables all Directors

to be kept fully informed of any issues that arise on the

Board. The Committee’s terms of reference were reviewed

during the year and these are available on the Company’s

website.

Responsibilities of the Nomination

and Remuneration Committee

The role of the Nomination and Remuneration Committee

is to ensure that there is a rigorous, formal and transparent

procedure for appointments to the Board and to

determine Director remuneration levels. The Committee

assists the Board in ensuring that its composition is

optimal for Board eectiveness and that it is able to

operate in the best interests of Shareholders.

The Committee has various functions, the most important

of which are:

•

To review the structure, size and composition (including

the skills, knowledge, experience and diversity) of the

Board as a whole and make recommendations to the

Board with regard to any changes

•

To give full consideration to succession planning for

Directors in the course of its work, taking into account

the challenges and opportunities facing the Company,

and the skills and expertise needed on the Board in

thefuture

•

To prepare a policy on the tenure of the Chair of the

Board and the Board

•

To keep up to date and fully informed about strategic

issues and commercial changes aecting the Company

and the market in which it operates

•

To be responsible for identifying and nominating for

the approval by the Board, candidates to ﬁll Board

vacancies as and when they arise

•

To prepare and maintain the Company’s equity,

diversity and inclusion policy

•

To review the results of the Board performance

evaluation process that relate to the composition

oftheBoard

•

To review annually the time required from

Non-Executive Directors

•

To review any proposed changes to the remuneration

of the Directors of the Company, in accordance with

thePrinciples and Provisions of the AIC Code

•

To design remuneration policies and practices to

support strategy and promote long-term sustainable

success and review the ongoing appropriateness and

relevance of the remuneration policy

Meetings

The Nomination and Remuneration Committee meets

formally at least once a year. At this meeting, the

Committee discusses succession planning, Board

composition and also reviews the results of the

annual evaluation of the eectiveness of the Board

and its Committees. The Company Secretary attends

the meetings as Secretary to the Committee and

representatives of the Investment Manager are invited

toattend as required.

NOMINATION AND REMUNERATION COMMITTEE REPORT

Christopher Sutton

Chair of the Nomination and Remuneration Committee

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

NOMINATION AND REMUNERATION COMMITTEE REPORT

COMPOSITION, SUCCESSION AND EVALUATION CONTINUED

Activities during the year

Succession planning

The Committee has adopted a policy for succession planning and Board tenure, and this

was reviewed during the year. Each Director has indicated their preference and intentions

with regard to their length of service on the Board, with consideration being given to the

AIC Code’s recommendation of a maximum term of nine years. In acknowledgement of

all Directors having the same appointment date, in the event that all current Directors

are still in place within the next few years, the Board will agree provisional timings for the

recruitment of new Board members. Any new Board members who will replace the Chair

of the Board or the Chair of the Audit and Risk Committee will be appointed prior to the

existing Director’s resignation to ensure an eective handover is delivered. There are no

expected Board changes for the year ending 30 September 2024.

Board composition and diversity

The Board consists solely of Non-Executive Directors under the chairmanship of Richard

Davidson. All the Directors are considered by the Board to be independent of the

Investment Manager.

Richard Davidson was independent on appointment and is still considered to be

independent. The Company is subject to the AIC Code and therefore there is no

requirement to limit the Chair’s tenure. The Directors’ feedback during the 2023 Board

evaluation process showed that the Chair eectively promoted a culture of openness

and debate, facilitated constructive Board dynamics and ensured all Board members

contributed eectively.

The Board supports the recommendations issued by the FTSE Women Leaders Review,

the Parker Review and the Listing Rule requirement introduced in April 2022 for listed

companies to target at least 40% female Board representation and at least one member

of the Board from an ethnic minority background by December 2024. This information is

set out in the tables below.

Number of

Board members

Percentage

of the Board

Number of

senior positions

on the Board

Men 2 50% N/A

Women 2 50% N/A

Other categories None None N/A

Number of

Board members

Percentage

of the Board

Number of

senior positions

on the Board

White British or other White (including

minority white groups)

3 75% N/A

Mixed/multiple ethnic groups None None N/A

Asian/Asian British 1 25% N/A

Black/African/Caribbean/Black British None None N/A

Other ethnic group None None N/A

1. Inapplicable as the Company is externally managed and does not have executive management

functions, including the roles of CEO and CFO.

All current Board members have been drawn from diverse working and social experience

with no prior connections between the individual Board members.

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Board evaluation

During the year, a formal and rigorous evaluation of

the performance of the Board, its Committees and

the individual Directors was carried out through

an assessment process led by the Nomination and

Remuneration Committee Chair and the Company

Secretary. Areas of particular strength included the

balance of skills on the Board and the level of engagement

and commitment shown by all members. The Board’s close

working relationship with the Investment Manager and

detailed knowledge of the Company’s strategy and the

issues the Company faces were also noted.

NOMINATION AND REMUNERATION COMMITTEE REPORT

COMPOSITION, SUCCESSION AND EVALUATION CONTINUED

Potential areas of consideration from the 2023 Board evaluation are as follows:

Key recommendations Actions agreed

Legal and corporate governance

•

Increase the Board’s understanding of the views and desires

of the Company’s Shareholders and stakeholders

•

Increased feedback from the Fund Managers regarding

interactions with Shareholders

•

Encourage all Shareholders to attend the Company’s second

AGM in February 2024

•

All Board members to remain open to discussions with

Shareholders at any time

Meetings and communication

•

Feedback from the Board to the Investment Manager on

timeliness of information and time frames for Board approval

•

The Committee felt that these issues had largely been

resolved during the second half of the year and the upward

trajectory should continue

Training and induction

•

Acknowledgement of the need for continued professional

development on the Board

•

Periodic training, increased attendance at site visits and the

maintenance of a training log to be implemented

Document

preparation

Agree process

and timetable

Board and

Committee observation

Results Reporting Feedback

The Company Secretary

considers the content of the

review questionnaire, ensuring

that this is tailored to suit the

nature of the Company and the

requirements of the AICCode

The Company Secretary

and the Nomination and

Remuneration Committee

Chair agree a timetable for

the review to take place

and the content of the

questionnaire to be sent to

Directors

Each Director provides their

feedback to the Company

Secretary through the

questionnaire

The full responses are

provided to the Nomination

and Remuneration

Committee Chair

An anonymised version

of the consolidated

scores and comments is

included in the Nomination

and Remuneration

Committee meeting

pack and a discussion

lead by the Nomination

and Remuneration

CommitteeChair

Any speciﬁc feedback

relevant to an individual

Director is provided to

them privately by the

Nomination and Remuneration

CommitteeChair

2 3 4 5 6

Our Board evaluation process:

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Board evaluation continued

The Committee acknowledges the AIC Code’s

recommendation for an independent Board evaluation

to be carried out every three years. As the Company

has only been operating for two years and no signiﬁcant

concerns were raised during the Board evaluation process,

it is the Board’s view that an external evaluation is not

currently required. However, this will be kept under review

throughout the upcoming year.

Remuneration policy

The Company’s remuneration policy can be found in

the Directors’ remuneration report on pages 68 to 70.

The remuneration policy was last put to a vote at the

Company’s ﬁrst AGM in February 2023 and will be

re-tabled every three years hereafter.

Board remuneration

A detailed review of Board emolument levels was

undertaken by the Committee during the year. This was

supported by a peer group and fee analysis and taking

into account the general macroeconomic environment

and inﬂation levels. During this evaluation in the 2022

ﬁnancial year, the Board’s fees were found to be c.£10k

below market rate for an investment trust of this size.

Therefore,in addition to the increases implemented

as at 1 October 2022, the Board decided to increase

its base remuneration by a further £3,000 in order to

more accurately reﬂect the current market and time

commitment required of the Directors. Further, an

additional fee of £1,000 per annum was awarded to

SarikaPatel for her new role of Senior Independent

Director. Bothincreases became eective on 1 October

2023. Additional fees for the roles of Chair of the Board

and Committee Chairs remain unchanged. Full Director

salary details can be found in the Directors’ remuneration

report on pages 68 to 70.

Committee evaluation

An evaluation of the Committee was undertaken as

part of the Board’s annual performance evaluation.

TheCommittee was found to be functioning well and the

diversity of skills and experience of its members were

considered appropriate and sucient to ensure informed

debate and constructive challenge.

Christopher Sutton

Chair of the Nomination and Remuneration Committee

5 December 2023



NOMINATION AND REMUNERATION COMMITTEE REPORT

COMPOSITION, SUCCESSION AND EVALUATION CONTINUED

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

REMUNERATION

Directors’ remuneration report

The Board considers annually the level of fees paid to each

Director. Whilst the Board has ﬁnal determination of the

level of Directors’ fees, the Nomination and Remuneration

Committee is responsible for assessing whether the

current fee levels are appropriate. This review takes into

account the individual responsibilities of each Board

member under the Committee structure, anticipated

input required to oversee the Company’s activities in the

future and how Board remuneration is structured for the

Company’s peers.

Board remuneration

Remuneration policy

The Company’s policy is that the remuneration of

Directors should be determined with due regard to the

experience of the Board as a whole, the time commitment

required and to be fair and comparable to that of other

Non-Executive Directors of similar companies. The

Company may also periodically choose to benchmark

Directors’ fees with an independent review to ensure they

remain competitive, fair and reasonable.

The fees for the Directors are determined within the

limits set out in the Company’s Articles of Association

which states that the Directors’ remuneration for their

services in the oce of director shall, in the aggregate,

not exceed £300,000 per annum or such higher ﬁgure

as the Company, by ordinary resolution, determines.

TheDirectors may elect to apply the cash amount equal to

their annual fee to subscribe for or to purchase Ordinary

Shares. Directors’ fees will be reviewed at least annually.

The Directors are entitled only to their annual fee

and to be reimbursed for any expenses properly and

reasonably incurred by them in and about the business

of the Company or in the discharge of his or her duties

asaDirector.

Any Director who performs services which in the opinion

of the Directors are outside the scope of the ordinary

duties of a Director, may be paid such reasonable

additional remuneration to be determined by the Directors

or any committee appointed by the Directors and such

additional remuneration shall be in addition to any

remuneration provided for by way of their annual fee and

their reasonable expenses.

No element of the Directors’ remuneration is performance

related, nor does any Director have any entitlement to

pensions, share options or any long-term incentive plans

from the Company.

The Directors hold their oce in accordance with the

Articles of Association and their appointment letters.

NoDirector has a service contract with the Company,

nor is any such contract proposed. The Directors’

appointments can be terminated in accordance with the

Articles of Association and their appointment letters and

without compensation.

DIRECTORS’ REMUNERATION REPORT

Christopher Sutton

Nomination and Remuneration Committee Chair

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

REMUNERATION CONTINUED

DIRECTORS’ REMUNERATION REPORT

Directors’ emoluments for the year

The Directors who served during the year received the following emoluments (excluding

employers’ National Insurance contributions) in the form of fees:

Taxable

beneﬁts

2023

Basic

fees

2023

Committee

Chair fee

2023

Additional

fees

2023

Total

fees

2023

Richard Davidson

(Chair)

— £48,000 — £2,500 £50,500

Sarika Patel £357 £33,000 £7, 500 £2,500 £43,000

Josephine Bush £1,617 £33,000 £3,000 £2,500 £38,500

Christopher

Sutton

£362 £33,000 £2,500 £2,500 £38,000

Total £2,336 £147,000 £13,000 £10,000 £170,000

1. An additional fee of £2,500 per Director was agreed during the ﬁnancial year ended

30September 2022, but paid in December 2022, in acknowledgement of the time commitment

required of Board members surrounding the placing programme undertaken in June 2022.

Note – members of the Board were reimbursed for travel and accommodation expenses

incurred in connection with their duties for the Company, which in aggregate amounted

to £2,336.

Future Board emoluments

As detailed in the Nomination and Remuneration Committee report, the Board has

elected to increase Directors’ fees by £3,000 per annum, plus an additional fee of

£1,000 for Sarika Patel for her role as Senior Independent Director, eective 1 October

2023. Based on this, and the Directors appointed as at the date of this report, Board

remuneration for the year ending 30 September 2024 is expected to be as follows:

Basic fees

2024

Committee

Chair fee

2024

Additional fees

2024

Total fees

2024

Richard Davidson (Chair) £51,000 — — £51,000

Sarika Patel £36,000 £7, 500 £1,000 £44,500

Josephine Bush £36,000 £3,000 — £39,000

Christopher Sutton £36,000 £2,500 — £38,500

Total £159,000 £13,000 £1,000 £173,000

1. For Senior Independent Director role.

Relative importance of spend on pay

The table below shows the actual expenditure during the year in relation to Directors’

remuneration and Shareholder distributions in the ﬁnancial year:

Total

2023

Aggregate Directors’ remuneration £170,000

Aggregate dividends paid to Shareholders —

Directors’ shareholdings

The Directors who held oce at the year end and their interests in the Ordinary Shares of

the Company as at 6 December 2023 and 30 September 2023 were as follows:

6 December

2023

30 September

2023

Richard Davidson (Chair) 100,000 100,000

Sarika Patel 24,000 24,000

Josephine Bush 19,000 19,000

Christopher Sutton 25,000 25,000

Total 168,000 168,000

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

Management shareholdings

Although not forming part of this report, it is also noted that the senior personnel of

theInvestment Manager held in aggregate 78,804 Ordinary Shares of the Company

asat30 September 2023. As at 6 December 2023, these aggregate holdings were

78,804 Ordinary Shares.

In addition, 51,003,762 (29.64%) of the Company’s shares are held by Blackmead

Infrastructure Limited, an investee company of the Foresight Inheritance Tax Fund,

whichis also managed by the Investment Manager.

Voting at Annual General Meeting

An ordinary resolution for the approval of the Directors’ remuneration policy is proposed

every three years and will therefore be put to Shareholders next at the AGM to be held

in February 2026. An ordinary resolution for the approval of this Directors’ remuneration

report will be put to Shareholders at the forthcoming AGM in February 2024.

On behalf of the Board

Christopher Sutton

Nomination and Remuneration Committee Chair

5 December 2023

REMUNERATION CONTINUED

DIRECTORS’ REMUNERATION REPORT

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

The Directors present their report and ﬁnancial statements

of the Company for the year ended 30 September 2023.

The corporate governance statement on page 86 forms

part of their report.

Information contained

elsewhere in the Annual Report

Information required to be part of this Directors’

report can be found elsewhere in the Annual Report as

indicated below and is incorporated into this report by

reference:

Key performance indicators Pages 11 and 12

Principal risks and risk management Pages 41 to 45

Board of Directors Page 52

Report of the Audit and

Risk Committee Pages 56 to 59

Report of the Nomination

and Remuneration Committee Pages 64 to 67

Report of the Management

Engagement Committee Pages 60 and 61

Report of the Sustainability

and ESG Committee Pages 62 and 63

Remuneration report Pages 68 to 70

Principal activities and status

Foresight Sustainable Forestry Company Plc (the

“Company”) is registered as a public limited company in

terms of the Companies Act 2006 (number: 13594181). It is

an investment company as deﬁned by Section 833 of the

Companies Act 2006.

The Company was incorporated on 31 August 2021 and

listed on the premium segment of the Ocial List for

trading on the London Stock Exchange’s Main Market on

24 November 2021. The Company has a single share class

of Ordinary Shares in issue.

The Company is a member of the Association of

Investment Companies (“AIC”), Timber Development UK

and Scottish Land & Estates.

Dividend policy

The Company invests in forestry assets with cash ﬂow

typically reinvested for further accretive growth.

The Company intends to pay dividends in order to satisfy

the ongoing requirements under the Investment Trust

(Approved Company) (Tax) Regulations 2011 save that, in

the medium term, the Company’s forestry assets may also

generate free cash ﬂow which the Company may decide

not to reinvest. In such case(s), the Company currently

intends to distribute these amounts to Shareholders.

Distributions made by the Company may take either

the form of dividend income or may be designated as

interest distributions for UK tax purposes. The UK tax

treatment of the Company’s distributions may vary for

a Shareholder depending on the classiﬁcation of such

distributions. In accordance with regulation 19 of the

Investment Trust (Approved Company) (Tax) Regulations

2011, the Company will not (except to the extent permitted

by those regulations) retain more than 15% of its income

(as calculated for UK tax purposes) in respect of an

accounting period.

In addition, the Company intends to explore the possible

distribution of carbon credits “in specie” to Shareholders

in the future.

Investors should note that references in this paragraph

to “dividends” and “distributions” are intended to cover

both dividend income and income which is designated as

an interest distribution for UK tax purposes and therefore

subject to the interest streaming regime applicable to

investment trusts.

In accordance with the above policy, there have been no

dividends paid to Shareholders during the year and the

Directors are not recommending a ﬁnal dividend.

Investment objective

The Company will seek to generate an attractive net total

return for Shareholders over the longer term, comprising

capital growth and aperiodic dividends, targeting

sustainable impact through investment predominantly in

sustainably managed forestry assets (including standing

forests and aorestation assets). The Company will

seek to make a direct contribution in the ﬁght against

climate change through forestry and aorestation

carbon sequestration initiatives. The Company will seek

to preserve and proactively enhance natural capital

and biodiversity across its portfolio. It is expected

that the Company will achieve, and aim to exceed, the

requirements of compliance with the EU Green Taxonomy

and Article 9 of the Sustainable Finance Disclosure

Regulation (“SFDR”).

Investment policy

The Company’s investment policy was updated during

the year following approval at a General Meeting of the

members held on 21 December 2022. The amended policy

is set out below.

The Company intends to achieve its investment objective

by predominantly investing in a diversiﬁed portfolio of

sustainable Forestry Assets, predominantly located in

the UK.

DIRECTORS’ REPORT

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

DIRECTORS’ REPORT CONTINUED

Investment policy continued

“Forestry Assets” are land assets where stands of

trees have a canopy cover of at least 20% of land area

(“Standing Forests”), or have the potential to achieve this

through new planting (“Aorestation”) initiatives. These

Forestry Assets may be used for planting, maintaining

and growing trees for commercial production of timber

or other forest products (“Commercial Forestry”) or for

non-commercial purposes (“Non-Commercial Forestry”)

and in both cases may include areas where a community

of naturally occurring tree species regenerate by natural

(i.e. without intervention) means (“native woodland”) and

areas that are left unplanted with trees (“open ground”).

The Group will seek to acquire a mixture of cash ﬂow

generating sustainable Forestry Assets representing

a mixture of Standing Forests (of varying age classes)

together with land suitable for Aorestation projects

(representing both Commercial Forestry projects and

Non-Commercial Forestry projects) to achieve a balanced

portfolio with an optimal harvesting and capital growth

proﬁle.

Diversiﬁcation within the Group’s portfolio will be achieved

by:

(i) Investing in a range of individual underlying Forestry

Assets, each of which will be capable of separate

disposal

(ii) Investing in dierent types of Forestry Assets

(bothStanding Forests and Aorestation projects)

with a range of age classes and harvesting proﬁles

(iii) Where possible, seeking diversiﬁcation in tree

species and a blend of Commercial Forestry and

Non-Commercial Forestry (including native woodland

and open ground) across the overall portfolio

(iv) Engaging with a range of dierent o-takers for the

Group’s harvested timber

(v) Achieving a geographic spread across the underlying

Forestry Assets

Although the Group’s revenues will primarily be generated

by the sale of harvested timber and, in due course, the

sale of carbon credits, where appropriate and practicable,

the Group will also seek to generate ancillary non-core

revenue streams from its Forestry Assets, including, but

not limited to, the leasing or licensing of land to third

parties for agricultural, sporting and tourism activities,

the leasing of land to third parties for renewable energy

and/or energy storage and/or telecommunications

development projects (such as the erection of wind

turbines or mobile telecommunications towers) and, if a

future market develops, the sale of biodiversity credits.

The Company will gain exposure to Forestry Assets

indirectly through its holding of equity interests in

underlying asset holding companies. The Company will

invest via equity or debt interests in such asset holding

companies. The asset holding companies will use the

funds received by the Company to acquire Forestry

Assets directly or indirectly through intermediate holding

companies.

Returns generated by the asset holding companies (either

from the sale of harvested timber, the sale of carbon

credits or from ancillary non-core revenue sources) will

either be retained by the relevant asset holding companies

and reinvested or paid to the Company in the form of

dividends, distributions or the payment of interest on

intra-group debt.

The Group may acquire freehold or leasehold interests

inForestry Assets or may acquire the shares in corporate

entities holding such Forestry Assets.

Investments in Forestry Assets will typically entail 100%

ownership by the Group. The Group may, however,

enter into joint venture arrangements alongside one or

more co-investors where the Investment Manager, in

consultation with the Board, believes it is in the Group’s

best interests to do so (such as where an investment

opportunity is too large for the resources of the Group on

its own, to share risk or where a joint venture arrangement

will optimise returns for the Group). In the case of such

co-investments, the Group will target retaining a control

position, where this is possible, or, where this is not

possible, will have strong minority investor protections

and governance rights.

In addition, as part of a transaction to acquire Forestry

Assets, the Group may end up owning ancillary

non-forestry related assets, including, but not limited

to, residential land and buildings, vehicles, equipment,

agricultural outbuildings and small-scale renewable energy

assets (together “Non-Core Assets”). Where appropriate

and beneﬁcial to the overall strategy, the Group will look

to realise the value of any Non-Core Assets over time for

the beneﬁt of Shareholders.

The Investment Manager will have overall responsibility

for asset managing the Group’s Forestry Assets (including

any ancillary non-core revenue streams) and Non-Core

Assets. The Group will also appoint appropriate specialist

third-party forestry management companies who will be

responsible for the day-to-day physical management of

the Group’s Forestry Assets, including harvesting and

planting activity.

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

DIRECTORS’ REPORT CONTINUED

Investment policy continued

The Group’s Forestry Assets will, where commercially

appropriate, be operated with a view to generating carbon

credits. Save where the sale of carbon credits is required

to meet the working capital needs of the Group, the

Company intends to realise the value of carbon credits for

the direct beneﬁt of Shareholders. Generally, the Company

intends, when appropriate, to sell carbon credits and

make aperiodic distributions to Shareholders of the net

proceeds of such sales. As an alternative to receiving a

cash distribution, the Company intends, where practicable,

to oer Shareholders the option to elect to receive

distributions “in kind” of carbon credits. The method

and process for the distribution of any carbon credits “in

kind” will be determined by the Board from time to time.

The Company currently does not intend to retire carbon

credits on behalf of Shareholders. The Company may, in

the future, if considered appropriate, retire certain carbon

credits generated from the Group’s Forestry Assets for the

purposes of meeting the Group’s own net zero targets.

Investment restrictions

The Company will invest and manage its assets with the

objective of spreading risk and, in doing so, will maintain

the following investment restrictions:

•

No single Forestry Asset will represent more than

15% of Gross Asset Value (with two or more Forestry

Assets which are directly adjacent being treated as

a single asset), save that the Board may approve the

increase of this limit up to 25% of Gross Asset Value

on an exceptional basis where considered appropriate

to cater for a larger-scale strategic Forestry Asset

investment

•

At least 90% of Gross Asset Value shall be invested in

Forestry Assets located in the United Kingdom

•

No more than 10% of Gross Asset Value may be

invested in Forestry Assets located in EEA countries

•

The maximum exposure to Aorestation projects will

not exceed, in aggregate, 50% of Gross Asset Value

•

The maximum exposure to Non-Core Assets will not

exceed, in aggregate, 10% of Gross Asset Value

•

The Company will not invest in other listed investment

companies

In accordance with the requirements of the Listing Rules,

the Company will not undertake any trading activity which

is material in the context of the Company as a whole.

Compliance with the above investment limits is measured

at the time of investment and non-compliance resulting

from changes in the price or value of assets following

investment will not be considered as a breach of the

investment limits.

Financial risk management

Details of the ﬁnancial risk management objectives and

policies followed by the Directors can be found on pages

103 to 104.

Future developments

The likely future developments of the Company are

contained in the strategic report on pages 9 to 50.

Directors

Biographical details of the Directors, all of whom are

non-executive, can be found on page 52.

The Directors do not have service contracts, but each

new Director is provided with a letter of appointment. The

Directors’ letters of appointment are available on request

at the Company’s registered oce during business hours.

The Articles of Association require that each Director

retires by rotation and be re-elected every three years.

The Board has agreed that, in accordance with governance

best practice and the Provisions of the AIC Code, Directors

will stand for election annually at each AGM.

The Directors’ appointment dates are shown below:

Date of original

appointment

Richard Davidson (Chair) 31 August 2021

Sarika Patel 31 August 2021

Josephine Bush 31 August 2021

Christopher Sutton 31 August 2021

The Directors believe that the Board has an appropriate

balance of skills, experience, independence and

knowledge of the Company and the sector in which

it operates to enable it to provide eective strategic

leadership and proper guidance to the Company. The

Board conﬁrms that, following the evaluation process set

out in the report of the Nomination and Remuneration

Committee on pages 66 and 67, the performance of each

Director is and continues to be eective and demonstrates

commitment to the role. The Board believes therefore,

that it is in the interests of Shareholders that each of the

Directors be re-elected.

Conflicts of interest

Under the Companies Act 2006, a Director must avoid a

situation where he or she has, or could have, a direct or

indirect interest that conﬂicts, or possibly may conﬂict,

with the Company’s interests. This could also apply where

a Director becomes a director of another company or

trustee of another organisation. The Companies Act 2006

allows directors of public companies to authorise conﬂicts

and potential conﬂicts, where appropriate, where the

Articles of Association contain a provision to this eect.

The Company’s Articles of Association give the Directors

authority to approve such situations.

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

DIRECTORS’ REPORT CONTINUED

Conflicts of interest continued

The Company maintains a register of Directors’ conﬂicts

of interest which have been disclosed and approved by

the other Directors. This register is kept up to date and

the Directors are required to disclose to the Company

Secretary any changes to conﬂicts or any potential new

conﬂicts.

Investment Manager

The Company’s Investment Manager, Foresight Group LLP,

is responsible for the acquisition and management of the

Company’s assets, including the sourcing and structuring

of new acquisitions and advising on the Company’s

borrowing strategy. Foresight Group is authorised and

regulated by the Financial Conduct Authority.

Foresight Group was founded in 1984 and is a leading

listed infrastructure and private equity investment

manager. With a long-established focus on ESG and

sustainability-led strategies, it aims to provide attractive

returns to its institutional and private investors from

hard-to-access private markets.

Foresight manages over 400 infrastructure assets with

a focus on solar and onshore wind assets, bioenergy and

waste, as well as renewable energy enabling projects,

energy eciency management solutions, social and core

infrastructure projects and sustainable forestry assets.

Its private equity team manages 11 regionally focused

investment funds across the UK and an SME impact fund

supporting Irish SMEs. This team reviews close to 2,500

business plans each year and currently supports more

than 250 SMEs. Foresight Capital Management manages

four listed strategies across seven investment vehicles.

Foresight operates in eight countries across Europe,

Australia and the United States with AUM of £12.1 billion

(unaudited as at 30 September 2023). Foresight Group

Holdings Limited listed on the Main Market of the London

Stock Exchange in February 2021.

Foresight’s Infrastructure team consisted of 160+ full-time

employees as at 30 September 2023. The team is

comprised of:

(a) An investment management team of professionals

responsible for originating, assessing and pricing

assets, managing due diligence and executing

transactions

(b) A portfolio management team with expertise across

electrical and civil engineering, ﬁnance and legal

disciplines

The Foresight Group Infrastructure team has substantial

experience in sourcing and executing all required

elements of the capital structure of an investment across

geographies, including project-level debt ﬁnance and

other required forms of ﬁnance.

The key strengths of the infrastructure investment team

include:

(a) Sourcing and execution of asset acquisitions

(b) Experience of pricing complex revenue streams

(d) Managing construction projects

(e) Finance and structuring, including bank debt and

project ﬁnance

The Foresight portfolio management team consists of

individuals with engineering, accountancy, consulting and

operations backgrounds and is responsible for the process

of “on-boarding”, managing and reporting on the acquired

assets. Members of these teams work closely with the

Investment Manager together throughout the investment

lifecycle.

The portfolio management services provided ensure the

day-to-day operation of the forestry assets is robust, with

commercial and strategic decisions clearly communicated

to the various counterparties involved.

The services also include:

•

Health and safety compliance

•

Oversight of third-party asset managers and forest

managers

•

Portfolio optimisation including negotiation of project

contracts, harvesting, insurance policies, and evaluation

of innovative technologies to enhance forestry assets

•

Accounting and ﬁnancial management from SPV to

Fund level

•

Management of in-house portfolio management

platforms

•

Providing a focus on ESG and upside opportunities

across the forestry assets

•

Contractual compliance of all contracts

Alternative Investment Fund Management

Directive (“AIFMD”)

The AIFMD was implemented across the EU on

22July2013 and aims to harmonise the regulation

of Alternative Investment Fund Managers (“AIFMs”).

It imposes obligations on managers who manage or

distribute Alternative Investment Funds (“AIFs”) in the

EU or who market shares in such funds to EU investors.

Foresight Group LLP acts as AIFM to the Company and

ensures compliance with regulation under the UK AIFMD

and the UK National Private Placement Regime.

Share capital

Information on the Company’s share capital, including

voting rights, as at 30 September 2023 can be found in

note 13 to the ﬁnancial statements.

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

DIRECTORS’ REPORT CONTINUED

Substantial interests in share capital

As at 30 September 2023, the Company had received notiﬁcation of the following

holdings of voting rights (under the Financial Conduct Authority’s Disclosure Guidance

and Transparency Rules):

30 September 2023

Investor

Number

of Ordinary

Shares held Percentage held

Blackmead Infrastructure 51,503,762 29.93

Aviva Investors 14,876,607 8.65

Rathbones 13,382,175 7.78

East Riding of Yorkshire 13,238,318 7.69

Equilibrium Asset Management 11,802,000 6.86

West Yorkshire PF 11,000,000 6.39

Cantor Fitzgerald Ireland 8,852,145 5.14

Privium Fund Management 7,896,299 4.59

Hargreaves Lansdown stockbrokers (EO) 6,105,288 3.55

1. Based on 172,056,075 Ordinary Shares in issue as at 30 September 2023. The Company has only

one class of share.

There have been no changes notiﬁed to the Company in respect of the above holdings,

and no other new holdings notiﬁed, since the year end.

Related party transactions

Related party transactions during the year to 30 September 2023 can be found in note 21

to the ﬁnancial statements.

Directors’ shareholdings

Information on the Directors’ shareholdings as at 30 September 2023 can be found in the

Directors’ remuneration report on page 69.

Directors’ indemnity

The Company has maintained a Directors’ and Ocers’ liability insurance policy on behalf

of the Directors, indemnifying them in respect of certain liabilities that may be incurred

by them in connection with the activities of the Company. This policy does not provide

cover for fraudulent or dishonest actions by the Directors.

Other Companies Act 2006 disclosures

•

There are no signiﬁcant restrictions concerning the transfer of securities in the

Company (other than certain restrictions imposed by laws and regulations such as

insider trading laws); no agreements known to the Company concerning restrictions on

the transfer of securities in the Company or on voting rights; and no special rights with

regard to control attached to securities.

•

There are no signiﬁcant agreements which the Company is a party to that might be

aected by a change of control of the Company following a takeover bid.

•

There are no agreements between the Company and the Directors providing for

compensation for loss of oce that occurs because of a takeover bid or other

corporate events.

Articles of Association

These are available on the Company’s website or by application to the Company

Secretary. Any amendment to the Company’s Articles of Association may only be made

by passing a special resolution of the Shareholders of the Company.

Branches outside the UK

The Company does not have any branches outside the UK.

Political donations

No political donations were made during the year.

Employees

The Company has no employees and therefore no employee share scheme or policies for

the employment of disabled persons or employee engagement.

Additional information

There are no disclosures required in accordance with Listing Rule 9.8.4R.

Relations with stakeholders

The Board recognises the importance of regular and eective communication with the

Company’s stakeholders. Further information on engagement with stakeholders during

the year can be found in the Section 172 statement on pages 13 and 14.

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

DIRECTORS’ REPORT CONTINUED

2024 AGM

Shareholders are invited to attend the Company’s AGM

to be held at The Shard, 32 London Bridge Street,

London SE1 9SG on 21 February 2024. The AGM notice is

contained in the circular dated 6 December 2023 which

was published alongside this Annual Report.

Those Shareholders who are unable to attend the AGM in

person are encouraged to raise any questions in advance

with the Company Secretary at fsfc@foresightgroup. eu

(please include “FSF AGM” in the subject heading).

Questions must be received by 5.30pm on 7 February

2024. Any questions received will be replied to by either

the Investment Manager or the Board via the Company

Secretary before the AGM. A Shareholder presentation

will be made on the day and later made available on

the Company’s website updating Shareholders on the

activities of the year.

Resolutions to be proposed at the AGM

Ordinary Resolutions

Resolution One

To receive the Annual Report and Accounts of the

Company for the year ended 30September 2023.

Resolution Two

To approve the Directors’ Remuneration Report

included in the Annual Report for the year ended

30September2023.

Resolution Three

To re-elect Richard Davidson as a Director of the Company

Resolution Four

To re-elect Sarika Patel as a Director of the Company

Resolution Five

To re-elect Christopher Sutton as a Director of the

Company

Resolution Six

To re-elect Josephine Bush as a Director of the Company

Resolution Seven

To re-elect Ernst & Young LLP as external auditor to the

Company.

Resolution Eight

To authorise the Directors to ﬁx the auditor’s remuneration

until the conclusion of the next Annual General Meeting of

the Company.

Resolution Nine

That, in addition to all existing authorities, the Directors

be generally and unconditionally authorised to allot

shares in the Company. Read more in the Circular dated

6December 2023.

Special Resolutions

Resolution Ten

To adopt the Amended Investment Policy. Read more in

the Circular dated 6 December 2023.

Resolution Eleven

That, in addition to all existing authorities, the Directors

be generally and unconditionally authorised to allot equity

securities in the Company. Read more in the Circular dated

6 December 2023.

Resolution Twelve

To authorise the Company to make market purchases

of itsown shares. Read more in the Circular dated

6December 2023.

Resolution Thirteen

That a general meeting, other than an AGM, may be called

on not less than 14 clear days’notice.

Recommendation on resolutions to

be proposed at the AGM

The Directors consider the passing of the resolutions to

be proposed at the AGM to be in the best interests of the

Company and its Shareholders and likely to promote the

success of the Company for the beneﬁt of its Shareholders

as a whole. Accordingly, the Directors unanimously

recommend that Shareholders should vote in favour of

the resolutions, as they intend to in respect of their own

beneﬁcial shareholdings.

Business ethics

As an investment vehicle the Company does not provide

goods or services in the normal course of business and

does not have customers. Accordingly, the Directors

consider that the Company does not fall within the scope

of the Modern Slavery Act 2015 and is not, therefore,

obliged to make a slavery and human tracking

statement. The Company’s SPVs which hold its assets

have their own policies in place related to modern slavery,

as well as anti-bribery and corruption, sustainability and

ESG, and health and safety. In any event, the Company

considers its supply chains to be low risk for modern

slavery.

In line with the requirements of The Criminal Finances

Act 2017, the Directors conﬁrm that the Company has

a commitment to zero tolerance towards the criminal

facilitation of tax evasion.

In order to ensure compliance with the UK Bribery Act

2010, the Directors conﬁrm that the Company has zero

tolerance towards bribery and a commitment to carry out

business openly, honestly and fairly.

In considering the appointment of Directors, the Company

will continue to show no bias for age, gender, race, sexual

orientation, marital status, religion, nationality, ethnic or

national origins, or disability.

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

DIRECTORS’ REPORT CONTINUED

Going concern

The Directors, in their consideration of going concern,

have reviewed comprehensive cash ﬂow forecasts

prepared by the Company’s Investment Manager,

Foresight Group, which are based on prudent market

data, a reasonable worst case and a stress test scenario

and believe, based on those forecasts and an assessment

of the Company’s subsidiary’s banking facilities, that it

is appropriate to prepare the ﬁnancial statements of the

Company on the going concern basis.

In arriving at their conclusion, the Directors assessed

the current macroeconomic situation, the RCF, liquidity

position and the potential impact of the principal risks

documented in the strategic report. In addition to these

principal risks, the Directors have also considered the

sustainability-related risks covering environmental,

social and governance factors, including climate change

(in line with the recommendations of the Task Force on

Climate-related Financial Disclosures (“TCFD”)), outlined

on page38. The Investment Manager has reviewed the

portfolio’s exposure to these risks in the period under

review and has concluded that it is currently not material

to the Fund, although it continues to monitor the market

attentively.

The Directors have also considered scenario analysis on

the impact of dierent levels of harvesting across the

portfolio, over varying timescales, on the Company’s

ﬁnancial position and the Company’s ability to reduce

outﬂows were liquid resources to be required.

The Directors also considered that the Company has

adequate ﬁnancial resources, and were mindful that

the Group had unrestricted cash of £1.2 million as at

30September 2023 and a revolving credit and accordion

facility (available for investment in new or existing projects

and working capital) of £30 million. As at 30 September

2023, the Company’s wholly owned subsidiary FSFC

Holdings 2 Limited had borrowed £10.4 million under the

facility, leaving £19.6 million available to draw. Allkey

ﬁnancial covenants under this facility are forecast to

continue to be complied with for the duration of the going

concern assessment period.

The Investment Manager and Directors have assessed

the headroom available to meet the revolving credit

covenants. The covenants have been tested on downside

risk scenarios and in all scenarios run, including the

combined downside case, the Company remained

compliant with its key covenants.

The Directors are satisﬁed that the Company has sucient

resources to continue to operate for the foreseeable

future, a period of not less than 12 months from the date of

this report. Accordingly, they continue to adopt the going

concern basis in preparation of these ﬁnancial statements.

Viability statement

In accordance with the UK Corporate Governance Code,

the Board of Directors has assessed the viability of the

Company over a ﬁve-year period to 30 September 2028,

taking account of the Company’s current position, the

long-term nature of the assets in the portfolio and the

potential impact of the principal risks documented on

pages 41 to 45.

In addition to the principal risks, the Directors have

also considered the sustainability-related risks covering

environmental, social and governance factors, including

climate change (in line with the recommendations of

TCFD, outlined on page 38).

Sensitivity analysis has also been undertaken to consider

the potential impact of principal and emerging risks that

could threaten the business model, future performance,

solvency and liquidity over the period. In particular, this

has considered the inability to access sucient funding

in the debt and equity markets and deploy capital to

complete growth expectations, timber price volatility

and a reduction in demand for users of timber, continued

government support for voluntary carbon credits market

and the impact of a proportion of the portfolio not

harvesting due to adverse weather conditions.

The Directors have determined that a ﬁve-year look

forward to September 2028 is an appropriate period over

which to provide its viability statement. This is consistent

with the outlook period used in economic and other

medium-term forecasts regularly prepared for the Board

by the Investment Manager and the discussion of any new

strategies undertaken by the Board in its normal course

of business. These reviews consider both the market

opportunity and the associated risks, principally the ability

to raise third-party funds and invest capital, or mitigating

actions taken, such as sale of forestry assets and utilisation

of additional borrowings available under the RCF.

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

DIRECTORS’ REPORT CONTINUED

Viability statement continued

The Group’s risk management processes outlined on pages

39 to 45 set out the key risks for the next ﬁve years and

beyond. These include rising debt costs and persistently

high inﬂation, ﬁnancing capital risks and timber

market volatility. Risks presented by the current macro

environment also include Russia’s invasion of Ukraine.

Whilst these risks are deemed signiﬁcant to the Group’s

ability to operate its projects, generate revenue and to the

value of the Company’s investments, the Directors believe

that this has had limited impact on the business to date

as it is invested in real assets, principally freeholds of UK

land and forest stock. The forest stock enjoys biological

growth regardless of ﬂuctuations in ﬁnancial markets. UK

freeholds, real assets and commodities like timber have

a track record of good performance during periods of

inﬂation and instability of equity markets. Risk mitigating

activities (as outlined on pages 39 to 45) have also aided

inthe reduction of the impact.

Timber prices can be volatile periodically and demand

over the medium to long term has historically created

real-term price growth. In the context of global

under-supply and increasing demand, this reduces market

risk for FSF’s key revenue streams. Should timber prices be

less attractive at the point of felling, FSF is in a position to

mitigate the impact by postponing parts of its harvesting

programme and delay felling, allowing trees to continue to

grow until the underlying imbalance between supply and

demand begins to be reﬂected in market prices again.

FSF is focused on growing its portfolio as a newly listed

entity and will require additional ﬁnancing to take full

advantage of opportunities in its pipeline. The existing

borrowing policy enables the use of gearing that must

notexceed 30% of Gross Asset Value.

There is a risk that FSF will be unable to access sucient

funding to complete operations. This is mitigated by using

brokers to conduct market research ahead of any future

funding rounds to gauge demand from new and existing

investors. FSF has also set budgets with sucient cash

buers to ensure liquidity.

There is a risk of reputational damage due to negative

PR generated by the resistance to change of land use

by the public. This could in turn negatively impact

investor sentiment and ultimately the ability to raise more

capital. This is mitigated by independent community

risk assessments during the due diligence phase of

aorestation investments. This ensures that aorestation

only takes place in low community risk areas where

the likelihood of community resistance is low. FSF also

actively pursues a co-ordinated programme of community

engagement and recently launched a Forestry Skills

Training Programme.

The risk of changing weather patterns and more extreme

weather events can cause direct damage to the portfolio,

leading to a market ﬂooded with windblow timber and

the subsequent price depreciation. This is mitigated by a

prudent acquisition strategy for sheltered area, silviculture

management and a diverse portfolio to create natural

resilience. Where appropriate, windthrow insurance cover

is taken out.

The Company’s wholly owned subsidiary FSFC Holdings2

Limited has a three-year £30 million RCF (agreed in

July2022) with two one-year extension options, increasing

the liquidity of the Group, of which a proportion can be

deployed as working capital. It also has an accordion

feature that allows for another £30 million. The Company

utilises the investments’ cash ﬂows from operations and

proceeds from equity fundraises to repay the RCF.

In order to repay the RCF at the maturity date (July

2025 or 2027 with extensions), the Company would be

required to renew the RCF and/or perform an equity raise,

under the base case assumptions included in the viability

forecasts. In conjunction with this, the Company could

consider strategic disposals as appropriate.

Based on this assessment, the Directors have a reasonable

expectation that FSF will be able to continue in operation

and meet its liabilities as they fall due over the ﬁve-year

period to September 2028. In making this statement, the

Directors have considered and challenged the reports

of the Investment Manager in relation to the resilience of

the Group, taking into account its current position, the

principal risks facing it in reasonable downside scenarios,

the eectiveness of any mitigating actions and the Group’s

risk appetite.

Requirements of the Listing Rules

Listing Rule 9.8.4 requires the Company to include

speciﬁed information in a single identiﬁable section of the

Annual Report or a cross-reference table indicating where

the information is set out. The Directors conﬁrm that there

are no disclosures required in relation to Listing Rule 9.8.4.

By order of the Board

Foresight Group LLP

Company Secretary

5 December 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

The Directors are responsible for preparing the strategic

report, the Directors’ report, the Directors’ remuneration

report and the ﬁnancial statements in accordance with

applicable laws and regulations.

These ﬁnancial statements have been prepared in

accordance with UK-adopted International Accounting

Standards (“IAS”) in conformity with the requirements

of the Companies Act 2006 and in accordance with

International Financial Reporting Standards (“IFRS”).

Company law in the United Kingdom requires the

Directors to prepare ﬁnancial statements for each ﬁnancial

year. Under this law the Directors must not approve the

ﬁnancial statements unless they are satisﬁed that they

give a true and fair view of the state of aairs and proﬁt

or loss of the Company for that period. In preparing these

ﬁnancial statements, the Directors are required to:

•

Select suitable accounting policies and then apply them

consistently

•

Make judgements and accounting estimates that are

reasonable and prudent

•

State whether applicable IFRSs have been followed,

subject to any material departures disclosed and

explained in the ﬁnancial statements

•

Prepare the ﬁnancial statements on the going concern

basis unless it is inappropriate to presume that the

Company will continue in business

The Directors are responsible for keeping adequate

accounting records that are sucient to show and

explain the Company’s transactions, disclose with

reasonable accuracy at any time the ﬁnancial position

of the Company, and enable the Directors to ensure that

the ﬁnancial statements and the Directors’ remuneration

report comply with the Companies Act 2006 and Article

4 of the IAS Regulation. They are also responsible for

safeguarding the assets of the Company and thus for

taking reasonable steps for the prevention and detection

of fraud and other irregularities.

The Directors are responsible for the maintenance and

integrity of the corporate and ﬁnancial information

included on the Company’s website. Legislation in

the United Kingdom governing the preparation and

dissemination of ﬁnancial statements may dier from

legislation in other jurisdictions.

Directors’ responsibility statement in respect of

the Annual Report and financial statements

The Directors are responsible for preparing the Annual

Report in accordance with applicable law and regulations.

The Directors consider the Annual Report and ﬁnancial

statements, taken as a whole, provide the information

necessary to assess the Company’s performance,

business model and strategy and are fair, balanced and

understandable.

Directors’ responsibility statement under the

Disclosure Guidance and Transparency Rules

To the best of our knowledge:

•

The Company’s ﬁnancial statements have been

prepared in accordance with UK-adopted International

Accounting standards. They give a true and fair view of

the assets, liabilities, ﬁnancial position and proﬁt or loss

of the Company and the undertakings

•

The Annual Report, including the strategic report

and the Directors’ report, includes a fair review of the

development and performance of the business and

the position of the Company and the undertakings

together with a description of the principal risks and

uncertainties theyface

Disclosure of information to the auditor

The Directors conﬁrm that:

•

So far as each Director is aware, there is no relevant

audit information of which the Company’s auditor is

unaware

•

The Directors have taken all the steps that they ought

to have taken as Directors in order to make themselves

aware of any relevant audit information and to establish

that the Company’s auditor is aware of that information

Richard Davidson

Chair

5 December 2023

DIRECTORS’ RESPONSIBILITIES STATEMENT

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

ADDITIONAL

INFORMATION

WHAT’S IN THIS SECTION

OVERVIEW

FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT 81

STATEMENT OF COMPREHENSIVE

INCOME 88

STATEMENT OF FINANCIAL POSITION 89

STATEMENT OF CHANGES IN EQUITY 90

STATEMENT OF CASH FLOWS 91

NOTES TO THE AUDITED

FINANCIALSTATEMENTS 92

COMPANY SUMMARY 107

ADVISERS 108

GLOSSARY OF TERMS 109

APPENDIX 111

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

Opinion

We have audited the ﬁnancial statements of Foresight Sustainable Forestry Company

Plc (‘the Company’) for the year ended 30 September 2023 which comprise Statement

of Comprehensive Income, the Statement of Financial Position, the Statement of

Changes in Equity, the Statement of Cash Flows and the related notes 1 to 22.

The ﬁnancial reporting framework that has been applied in their preparation is

applicable law and UK-adopted International Accounting Standards.

In our opinion, the ﬁnancial statements:

•

give a true and fair view of the Company’s aairs as at 30 September 2023

andofitsloss for the year then ended;

•

have been properly prepared in accordance with UK-adopted International

Accounting Standards; and

•

have been prepared in accordance with the requirements of the Companies

Act2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK)

(ISAs (UK)) and applicable law. Our responsibilities under those standards are further

described in the Auditor’s responsibilities for the audit of the ﬁnancial statements

section of our report. We believe that the audit evidence we have obtained is sucient

and appropriate to provide a basis for our opinion.

Independence

We are independent of the Company in accordance with the ethical requirements that

are relevant to our audit of the ﬁnancial statements in the UK, including the FRC’s

Ethical Standard as applied to listed public interest entities, and we have fulﬁlled our

other ethical responsibilities in accordance with these requirements.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to

the Company and we remain independent of the Company in conducting the audit.

Conclusions relating to going concern

In auditing the ﬁnancial statements, we have concluded that the directors’ use of

the going concern basis of accounting in the preparation of the ﬁnancial statements

is appropriate. Our evaluation of the directors’ assessment of the Company’s ability

tocontinue to adopt the going concern basis of accounting included:

•

Conﬁrmation of our understanding of the Company’s going concern assessment

process and engaged with the Directors and the Company Secretary to determine

ifall key factors were considered in their assessment.

•

Inspection of the Directors’ assessment of going concern, including the cash ﬂow

forecast, for the period to 31 March 2025 which is at least twelve months from the

date these ﬁnancial statements were authorised for issue. In preparing the cash ﬂow

forecast, the Company has concluded that it is able to continue to meet its ongoing

costs as they fall due.

•

Review of the factors and assumptions, including the impact of the current economic

environment and other signiﬁcant events that could give rise to market volatility, as

applied to the cash ﬂow forecast. We considered the appropriateness of the methods

used to calculate the cash ﬂow forecast and determined, through testing of the

methodology and calculations, that the methods, inputs and assumptions utilised

were appropriate to be able to make an assessment for the Company.

•

Consideration of the mitigating factors included in the cash ﬂow forecast that

are within the control of the Company. We reviewed the Company’s assessment

of the liquidity of investments held and evaluated the Company’s ability to sell

those investments in order to cover working capital requirements should revenue

declinesigniﬁcantly.

•

Consideration of the commitments that have been made with respect to the purchase

of unquoted investments and made sure that these have been appropriately taken

account of when preparing the cash ﬂow forecast.

•

In relation to the Company’s borrowing arrangements, our inspection of the

Director’s assessment of the risk of breaching the debt covenants as a result of a

reduction in the value of the Company’s portfolio. We recalculated the Company’s

compliance with debt covenants in the scenarios assessed by the Directors and

reviewed the Director’s reverse stress testing in order to identify what factors would

lead to the Company breaching the ﬁnancial covenants.

•

Review of the Company’s going concern disclosures included in the annual report in

order to assess whether the disclosures were appropriate and in conformity with the

reporting standards.

INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

Climate change

There has been increasing interest from stakeholders as to how climate change will

impact companies. The Company has determined that the impact of climate change

could aect the Company’s investments and their valuations. This is explained in the

principal risk section on page 40 which forms part of the “Other Information” rather

than the audited ﬁnancial statements. Our procedures on these disclosures therefore

consisted solely of considering whether they are materially inconsistent with the

ﬁnancial statements or our knowledge obtained in the course of the audit or otherwise

appear to be materially misstated.

Our audit eort in considering climate change was focused on the adequacy of the

Company’s disclosures in the ﬁnancial statements as set out in note 10 and conclusion

that there was no material impact of climate change on the valuation of investments.

We also challenged the Directors’ considerations of climate change in their assessment

of going concern and viability and associated disclosures.

For the avoidance of doubt the conﬁrmation made in appendix one in respect of the

Company’s continuing obligations as an Eligible Issuer with a Voluntary Carbon market

designation has not been audited and is not considered ‘Other Information’ for the

purposes of this opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most

signiﬁcance in our audit of the ﬁnancial statements of the current period and include

themost signiﬁcant assessed risks of material misstatement (whether or not due to

fraud) that we identiﬁed. These matters included those which had the greatest eect

on: the overall audit strategy, the allocation of resources in the audit; and directing the

eorts of the engagement team. These matters were addressed in the context of our

audit of the ﬁnancial statements as a whole, and in our opinion thereon, and we do not

provide aseparate opinion on these matters.

Conclusions relating to going concern continued

Based on the work we have performed, we have not identiﬁed any material uncertainties

relating to events or conditions that, individually or collectively, may cast signiﬁcant

doubt on the Company’s ability to continue as a going concern for the period covered

by the directors to 31 March 2025.

In relation to the Company’s reporting on how they have applied the UK Corporate

Governance Code, we have nothing material to add or draw attention to in relation

to the directors’ statement in the ﬁnancial statements about whether the directors

considered it appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going

concern are described in the relevant sections of this report. However, because not all

future events or conditions can be predicted, this statement is not a guarantee as to

theCompany’s ability to continue as a going concern.

Overview of our audit approach

Key audit matters

•

Risk of inaccurate valuation of investments held

through proﬁt and loss and the resulting impact on

the Statement of Comprehensive Income

•

Risk of inaccurate valuation of carbon credits

and the resulting impact on the Statement of

Comprehensive Income

Materiality

•

Overall materiality of £1.70m (2022: £1.81m) which

represents 1% (2022: 1%) of net assets.

An overview of the scope of our audit

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of

performance materiality determine our audit scope for the Company. This enables us

to form an opinion on the ﬁnancial statements. We take into account size, risk proﬁle,

the organisation of the Company and eectiveness of controls, the potential impact

of climate change and changes in the business environment when assessing the

levelofwork to be performed.

INDEPENDENT AUDITOR’S REPORT CONTINUED

TO THE MEMBERS OF FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

TO THE MEMBERS OF FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

INDEPENDENT AUDITOR’S REPORT CONTINUED

Key audit matters continued

Risk Our response to the risk Key observations

communicated to the

Audit Committee

Inaccurate valuation of investments held through

proﬁt and loss and the resulting impact on the

Statement of Comprehensive Income Refer to the

Audit Committee Report (page 56 to 59); Accounting

policies (pages 92 to 95); and Notes 1-22 of the

Financial Statements.

The value of the investments held through proﬁt and

losses at 30 September 2023 was £166.04m (2022:

£146.29m) consisting of forestry assets held through

special purpose vehicles (‘SPVs’). The Company has

seven subsidiary undertakings held at fair value under

IFRS 10, which invest into forestry assets.

The valuation of the underlying forestry assets held

through SPVs is the key driver of the Company’s net

asset value and total return. Incorrect valuation of

the forestry assets, or a failure to maintain proper

legal title to the forestry assets held through the

SPVs could have a signiﬁcant impact on the portfolio

valuation and the return generated for shareholders.

The underlying forestry assets are valued at fair value

by the Directors following a detailed review and

appropriate challenge of the valuations proposed

by Savills Advisory Services Limited (“Savills”).

Theinvestment policy applies methodologies

consistent with the Royal Institution of Chartered

Surveyors (“RICS”) Valuation – Global Standards

July2017 (“theRedBook”).

We performed the following procedures:

We obtained an understanding of the processes and controls around the underlying forestry

asset valuations by performing walkthrough procedures.

We obtained and reviewed the Investment Manager’s accounting paper and assessment that the

Company meets the IFRS 10 deﬁnition of an investment entity.

We reconciled the fair value of the SPV at 30 September 2023 to the investment fair value

through proﬁt and loss reported in the ﬁnancial statements of the Company.

We engaged our team of EY valuation specialists to review the valuations of a sample of

underlying forestry assets and this included completing the following procedures:

•

Obtained and reviewed the valuation papers prepared by Savills for the period to

30September 2023 to gain an understanding of the valuation methodologies and

assumptions used;

•

Determined whether the valuations have been performed in line with the general valuation

approaches as set out in IFRS 13 and the Red Book guidelines;

•

Assessed the appropriateness of data inputs and assumptions used to support the valuations

for the selected sample of underlying forestry assets held through the SPVs;

•

Assessed other facts and circumstances, such as other comparative market transactions,

comparative company information, aorestation, carbon credit potential, winter storm

vulnerability, seasonality, geographical location and developmental milestones that may have

an impact on the fair market value of the underlying forestry assets; and

We recalculated the unrealised gains/losses on the unquoted investments as at the year end

using the book-cost reconciliation and reviewing the level 3 fair value hierarchy disclosure

For purchases of all unquoted investments as at year end, we obtained supporting documents

from the Investment Manager such as land registry title deeds and purchase contracts and

agreed these to the purchase cost per the accounting records and to bank statements.

The results of our

procedures identiﬁed no

material misstatements

in relation to the risk

of inaccurate valuation

of carbon credits and

the resulting impact

on the Statement of

Comprehensive Income.

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

TO THE MEMBERS OF FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

INDEPENDENT AUDITOR’S REPORT CONTINUED

Key audit matters continued

Risk continued Our response to the risk continued Key observations

communicated to

the Audit Committee

continued

The valuation of the underlying forestry assets held

through the SPVs, and the resultant impact on the

unrealised gains/(losses), is the area requiring the

most signiﬁcant judgement and estimation in the

preparation of the ﬁnancial statements and has been

classiﬁed as an area of fraud risk as highlighted below

on page 87.

We gained an understanding as to how this risk is considered and managed by the Directors,

the Investment Manager and the Administrator, and an understanding of the processes and

controls surrounding the recognition of realised and unrealised gains/(losses) on investments

by performing a walkthrough

We recalculated the unrealised gain/loss in the ﬁnancial statements based on changes in

investment values, purchases and realisations

Risk of inaccurate valuation of carbon credits

and the resulting impact on the Statement of

Comprehensive Income (refer to the Report of the

Audit Committee set out on pages 56 to 59 and the

accounting policy set out on page 92 to 95)

The value ascribed by management to the progress

towards the creation of carbon credits amounted to

£2.70m (2022: £0.60m). This amount is not included

in the independent valuation of the underlying

forestry assets held through the SPVs performed

bySavills.

We performed the following procedures;

We have gained an understanding of Foresight Group LLP (the ‘Investment Manager’) and the

Directors’ processes and controls surrounding the recognition and valuation of carbon credits,

by performing a walkthrough to evaluate the design and implementation of controls;

We reviewed the Investment Manager’s carbon credit accounting paper and providing

feedback on the accounting assumptions adopted, including additional considerations which

will need to be made going forward;

We obtained an understanding of the Investment Manager’s due diligence process to assess the

index provider and independent validation against other public sources of trade;

Considered provenance of information in meeting relevant audit evidence thresholds;

We obtained evidence for the PIU transactional prices quoted by the Investment Manager in

estimating the fair value at the year end date;

We assessed the appropriateness of data inputs and assumptions used to support the fair value

and searching for contrary evidence;

We reviewed unrealised gain/loss in the ﬁnancial statements based on changes in the values

ascribed to existing carbon credits;

We recalculated the value ascribed towards the creation of carbon credits and reviewing the

reasonability of the discount applied; and

We agreed the number of number of PIUs subject to validation at the year end date to the UK

Land Carbon Registry.

The results of our

procedures identiﬁed no

material misstatements

in relation to the risk

of inaccurate valuation

of carbon credits and

the resulting impact

on the Statement of

Comprehensive Income.

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating

the eect of identiﬁed misstatements on the audit and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate,

could reasonably be expected to inﬂuence the economic decisions of the users of the

ﬁnancial statements. Materiality provides a basis for determining the nature and extent

of our audit procedures.

We determined materiality for the Company to be £1.70 million (2022: £1.81 million),

which is 1% (2022: 1%) of net assets. We believe that net assets provides us with the

most important ﬁnancial metric on which shareholders would judge the performance

ofthe Company.

Performance materiality

The application of materiality at the individual account or balance level. It is set at an

amount to reduce to an appropriately low level the probability that the aggregate of

uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Company’s

overall control environment, our judgement was that performance materiality was 50%

(2022: 50%) of our planning materiality, namely £0.86m (2022: £0.90m). We have set

performance materiality at this percentage due to our past experience of the audit that

indicated that a higher risk of misstatements, both corrected and uncorrected.

Reporting threshold

An amount below which identiﬁed misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected

audit dierences in excess of £0.08m (2022: £0.09m), which is set at 5% of planning

materiality, as well as dierences below that threshold that, in our view, warranted

reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of

materiality discussed above and in light of other relevant qualitative considerations in

forming our opinion.

Other information

The other information comprises the information included in the annual report, other

than the ﬁnancial statements and our auditor’s report thereon. The directors are

responsible for the other information contained within the annual report.

Our opinion on the ﬁnancial statements does not cover the other information and,

except to the extent otherwise explicitly stated in this report, we do not express any

form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether

the other information is materially inconsistent with the ﬁnancial statements or

our knowledge obtained in the course of the audit or otherwise appears to be

materially misstated. If we identify such material inconsistencies or apparent material

misstatements, we are required to determine whether this gives rise to a material

misstatement in the ﬁnancial statements themselves. If, based on the work we have

performed, we conclude that there is a material misstatement of the other information,

we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion the part of the directors’ remuneration report to be audited has been

properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

•

the information given in the strategic report and the directors’ report for the ﬁnancial

year for which the ﬁnancial statements are prepared is consistent with the ﬁnancial

statements; and

•

the strategic report and directors’ report have been prepared in accordance with

applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the Company and its environment

obtained in the course of the audit, we have not identiﬁed material misstatements in

thestrategic report or directors’ report.

INDEPENDENT AUDITOR’S REPORT CONTINUED

TO THE MEMBERS OF FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

Matters on which we are required to report by exception continued

We have nothing to report in respect of the following matters in relation to which the

Companies Act 2006 requires us to report to you if, in our opinion:

•

adequate accounting records have not been kept, or returns adequate for our audit

have not been received from branches not visited by us; or

•

the ﬁnancial statements and the part of the Directors’ Remuneration Report to be

audited are not in agreement with the accounting records and returns; or

•

certain disclosures of directors’ remuneration speciﬁed by law are not made; or

•

we have not received all the information and explanations we require for our audit.

Corporate Governance Statement

We have reviewed the directors’ statement in relation to going concern, longer-

term viability and that part of the Corporate Governance Statement relating to the

Company’s compliance with the provisions of the UK Corporate Governance Code

speciﬁed for our review by the Listing Rules.

Based on the work undertaken as part of our audit, we have concluded that each of the

following elements of the Corporate Governance Statement is materially consistent with

the ﬁnancial statements or our knowledge obtained during the audit:

•

Directors’ statement with regards to the appropriateness of adopting the going

concern basis of accounting and any material uncertainties identiﬁed set out on

page77;

•

Directors’ explanation as to its assessment of the Company’s prospects, the period

this assessment covers and why the period is appropriate set out on page 77;

•

Director’s statement on whether it has a reasonable expectation that the group will

be able to continue in operation and meets its liabilities set out on page 78;

•

Directors’ statement on fair, balanced and understandable set out on page 79;

•

Board’s conﬁrmation that it has carried out a robust assessment of the emerging and

principal risks set out on page 57;

•

The section of the annual report that describes the review of eectiveness of risk

management and internal control systems set out on page 39; and

•

The section describing the work of the Audit Committee set out on page 56.

Responsibilities of Directors

As explained more fully in the directors’ responsibilities statement set out on page 79,

the directors are responsible for the preparation of the ﬁnancial statements and for

being satisﬁed that they give a true and fair view, and for such internal control as the

directors determine is necessary to enable the preparation of ﬁnancial statements that

are free from material misstatement, whether due to fraud or error.

In preparing the ﬁnancial statements, the directors are responsible for assessing the

Company’s ability to continue as a going concern, disclosing, as applicable, matters

related to going concern and using the going concern basis of accounting unless the

directors either intend to liquidate the Company or to cease operations, or have no

realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the ﬁnancial

statements as a whole are free from material misstatement, whether due to fraud or

error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is

a high level of assurance, but is not a guarantee that an audit conducted in accordance

with ISAs (UK) will always detect a material misstatement when it exists. Misstatements

can arise from fraud or error and are considered material if, individually or in the

aggregate, they could reasonably be expected to inﬂuence the economic decisions of

users taken on the basis of these ﬁnancial statements.

INDEPENDENT AUDITOR’S REPORT CONTINUED

TO THE MEMBERS OF FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

Auditor’s responsibilities for the audit of the financial statements continued

Explanation as to what extent the audit was considered capable of

detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and

regulations. We design procedures in line with our responsibilities, outlined above, to

detect irregularities, including fraud. The risk of not detecting a material misstatement

due to fraud is higher than the risk of not detecting one resulting from error, as

fraud may involve deliberate concealment by, for example, forgery or intentional

misrepresentations, or through collusion. The extent to which our procedures are

capable of detecting irregularities, including fraud is detailed below.

However, the primary responsibility for the prevention and detection of fraud rests with

both those charged with governance of the Company and management.

•

We obtained an understanding of the legal and regulatory frameworks that are

applicable to the Company and determined that the most signiﬁcant are those that

relate to the reporting framework (UK-adopted International Accounting Standards,

the Companies Act 2006, the Listing Rules, the Association of Investment

Companies Code of Corporate Governance, The Association of Investment

Companies Statement of Recommended Practice, the Companies (Miscellaneous

Reporting) Regulations 2018) and Section 1158 of the Corporation Tax Act 2010.

•

We understood how the Company is complying with those frameworks through

discussions with the Audit Committee and Company Secretary, review of board

minutes and the Company’s documented policies and procedures.

•

We assessed the susceptibility of the Company’s ﬁnancial statements to material

misstatement, including how fraud might occur by considering the key risks

impacting the ﬁnancial statements. We identiﬁed a fraud risk with respect to

inaccurate valuation of investments held through proﬁt and loss and the resulting

impact on the Statement of Comprehensive income and the inaccurate valuation of

carbon credits and the resulting impact on the Statement of Comprehensive Income.

Further discussion of our approach is set out in the key audit matter above.

•

Based on this understanding we designed our audit procedures to identify non-

compliance with such laws and regulations. Our procedures involved review of the

Company Secretary’s reporting to the Directors with respect to the application of

the documented policies and procedures and review of the ﬁnancial statements to

ensure compliance with the reporting requirements of the Company.

A further description of our responsibilities for the audit of the ﬁnancial statements is

located on the Financial Reporting Council’s website at

https://www.frc.org.uk/auditorsresponsibilities.

Thisdescriptionformspartofourauditor’s report.

Other matters we are required to address

•

Following the recommendation from the Audit Committee, we were appointed by the

Company on 24 November 2021 to audit the ﬁnancial statements for the year ending

30 September 2022 and subsequent ﬁnancial periods.

•

The period of total uninterrupted engagement including previous renewals and

reappointments is two years, covering the years ending 30 September 2022 to

30September 2023.

•

The audit opinion is consistent with the additional report to the Audit Committee.

Use of our report

This report is made solely to the Company’s members, as a body, in accordance with

Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken

so that we might state to the Company’s members those matters we are required to

state to them in an auditor’s report and for no other purpose. To the fullest extent

permitted by law, we do not accept or assume responsibility to anyone other than the

Company and the Company’s members as a body, for our audit work, for this report,

orfor the opinions we have formed.

Mike Gaylor

(Senior statutory auditor)

for and on behalf of

Ernst & Young LLP, Statutory Auditor

London

5 December 2023

INDEPENDENT AUDITOR’S REPORT CONTINUED

TO THE MEMBERS OF FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

Notes

Revenue

£’000

Capital

£’000

Year ended

30 September

2023

(Audited)

£’000

Period from

31 August 2021

to 30 September

2022

(Audited)

£’000

Return on investment 4 2,605 (11,279) (8,674) 11,042

Total income 2,605 (11,279) (8,674) 11,042

Investment management fees 5 (1,562) — (1,562) (1,071)

Operating expenses 6 (1,102) — (1,101) (1,166)

Total expenses (2,664) — (2,663) (2,237)

(Loss)/proﬁt before tax (59) (11,279) (11,338) 8,787

Tax 8 — — — —

(Loss)/proﬁt for the period (59) (11,279) (11,338) 8,787

Earnings per share (pence) 9 — (6.6) (6.6) 6.2

All results are derived from continuing operations.

The supplementary revenue and capital columns are presented for information purposes in accordance with the Statement of Recommended Practice issue by the

AssociationofInvestment Companies (“AIC”).

There are no items of other comprehensive income in the current period, other than the proﬁt for the period, and therefore no separate statement of comprehensive income has

beenpresented.

The accompanying notes on pages 92 to 106 form an integral part of the ﬁnancial statements.

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

Notes

30 September

2023

(Audited)

£’000

30 September

2022

(Audited)

£’000

Non-current assets

Investments at fair value through proﬁt or loss 10 166,039 146,291

Total non-current assets 166,039 146,291

Current assets

Trade and other receivables 11 2,796 852

Cash and cash equivalents 16 1,217 34,326

Total current assets 4,013 35,178

Total assets 170,052 181,469

Current liabilities

Trade and other payables 12 (803) (886)

Total current liabilities (803) (886)

Total liabilities (803) (886)

Net assets 169,249 180,583

Equity

Called up share capital 13 1,721 1,721

Share premium 13 43,820 170,075

Revenue reserve (2,550) (1,333)

Capital reserve 14 126,258 10,120

Shareholders’ funds 14 169,249 180,583

Net assets per share (pence per share) 15 98.4 105.0

The accompanying notes form an integral part of the ﬁnancial statements.

The ﬁnancial statements were approved by the Board of Directors and authorised for issue on 5 December 2023.

They were signed on its behalf by:

Richard Davidson

Chair

STATEMENT OF FINANCIAL POSITION

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

Notes

Called up share

capital

£’000

premium

£’000

Capital

reserve

£’000

Revenue

reserve

£’000

Total

£’000

Balance at 31 August 2021 — — — — —

Gross proceeds from share issue 1,721 173,279 — — 175,000

Share issue costs 13 — (3,204) — — (3,204)

Dividends 7 — — — — —

Total comprehensive income for the period 14 — — 10,120 (1,333) 8,787

Net assets attributable to Shareholders at 30 September 2022 1,721 170,075 10,120 (1,333) 180,583

Notes

Called up share

capital

£’000

premium

£’000

Capital

reserve

£’000

Revenue

reserve

£’000

Total

£’000

Balance at 1 October 2022 1,721 170,075 10,120 (1,333) 180,583

Gross proceeds from share issue — — — — —

Share issue costs 13 — 3 — — 3

Dividends 7 — — — — —

Share premium cancellation 13 — (126,258) 126,258 — —

Total comprehensive income for the period 14 — — (11,279) (58) (11,338)

Net assets attributable to Shareholders at 30 September 2023 1,721 43,820 125,099 (1,391) 169,249

The Company’s reserves consist of the capital reserve attributable to fair value unrealised gains on the Fund portfolio’s valuation.

There have been no realised gains or losses at the reporting date.

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

Year ended

30 September

2023

(Audited)

£’000

Period from

31 August 2021 to

30 September

2022

(Audited)

£’000

(Loss)/proﬁt for the period from continuing operations (11,338) 8,787

Adjustments for:

Net (loss)/proﬁt on investments at fair value through proﬁt and loss 11,279 (10,120)

Operating cash ﬂows before movements in working capital (59) (1,333)

Cash ﬂows from operating activities

Increase in trade and other receivables (1,944) (852)

(Decrease)/increase in trade and other payables (83) 886

Net cash outﬂow from operating activities (2,086) (1,299)

Cash ﬂows from investing activities

Investing activities

Purchase of investments (15,513) (114,350)

Loans to subsidiaries (15,513) (21,821)

Net cash used in investing activities (31,026) (136,171)

Cash ﬂows from ﬁnancing activities

Financing activities

Gross proceeds from share issue — 175,000

Share issue costs 3 (3,204)

Net cash inﬂow from ﬁnancing activities 3 171,796

Net (decrease)/increase in cash and cash equivalents (33,109) 34,326

Cash and cash equivalents at beginning of period 34,326 —

Cash and cash equivalents at end of period 1,217 34,326

The accompanying notes form an integral part of the ﬁnancial statements.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

1. Company information

(a) Statutory information

Foresight Sustainable Forestry Company Plc (the “Company” or “FSF”) is a public

limited company limited by shares and was incorporated and registered in England and

Wales on 31 August 2021 with registered number 13594181 pursuant to the Companies

Act 2006. The Company’s registered address is The Shard, 32 London Bridge Street,

London, United Kingdom, SE1 9SG.

(b) Corporate structure

The Company has one investment, FSFC Holdings Limited, and FSFC Holdings Limited

in turn has one investment, FSFC Holdings 2 Limited; together this is the “Group”.

FSFC Holdings 2 Limited has three investments: FSFC Company 1 Limited, Blackmead

Forestry Limited and Blackmead Forestry II Limited. Blackmead Forestry Limited has

two investments: Coull Forestry Limited and Fordie Estates Limited. These ﬁve entities

together are the special purpose vehicles or “SPVs”.

The Group’s principal activity is investing in UK forestry, aorestation and natural

capital assets.

The ﬁnancial statements of the Company are for the year to 30 September 2023 and

have been prepared on the basis of the accounting policies set out below. The ﬁnancial

statements comprise only the results of the Company, as its direct investments in

FSFCHoldings Limited, FSFC Holdings 2 Limited, and all underlying SPVs thereafter,

aremeasured at fair value as detailed in the signiﬁcant accounting policies below.

2. Significant accounting policies

(a) Basis of preparation

This set of ﬁnancial statements has been prepared in accordance with UK adopted

International Accounting Standards. The ﬁnancial statements have been prepared under

the historical cost convention as modiﬁed by the revaluation of certain assets and on

a going concern basis. The accounting policies set out below have, unless otherwise

stated, been applied consistently to the period presented in these ﬁnancial statements.

These annual ﬁnancial statements have also been prepared in accordance with

the Statement of Recommended Practice: Financial Statements of Investment

Trust Companies and Venture Capital Trusts (“SORP”) issued in April 2021 by the

Associationof Investment Companies (“AIC”).

The same accounting policies and standards have been observed in these annual

ﬁnancial statements as were applied in the last annual ﬁnancial statements, with no

change to the nature or eect of these standards’ application.

These ﬁnancial statements are presented in sterling (£) and rounded to the nearest

thousand unless otherwise stated. They have been prepared on accounting policies,

signiﬁcant judgements, key assumptions and estimates set out below.

These ﬁnancial statements intend to constitute statutory accounts as deﬁned in

Section434(3) of the Companies Act 2006. As such, these statutory accounts in

respect of the year to 30 September 2023 have been audited and reported on by

the Company’s auditors and delivered to the Registrar of Companies and included

theReport of Auditors.

No statutory accounts in respect of any period after 30 September 2023 have been

reported on by the Company’s auditors or delivered to the Registrar of Companies.

Any estimates and underlying assumptions are reviewed on a regular basis and revisions

to accounting estimates are recognised in the period when they occur and in any future

period aected. The signiﬁcant estimates, judgements or assumptions are set out in

note 10.

These annual ﬁnancial statements comprise the results for the year to 30September2023

as well as comparatives to the audited period ended 30 September 2022.

NOTES TO THE AUDITED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 SEPTEMBER 2023

Foresight Sustainable

Forestry Company PIc

FSFC Holdings Limited

FSFC Holdings 2 Limited

FSFC Company 1

Limited

Blackmead

Forestry II Limited

Fordie Estates

Limited

Coull Forestry

Limited

Blackmead

Forestry Limited

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

2. Significant accounting policies continued

(b) Going concern

The Directors have adopted the going concern basis in preparing the ﬁnancial statements.

In their assessment of going concern they have reviewed comprehensive cash ﬂow

forecasts prepared by the Investment Manager and believe, based on the forecasts and

an assessment of the Company’s cash position and liquidity of the investment portfolio,

that the Company will continue in operational existence for at least 12 months from the

date of approval of the ﬁnancial statements and therefore consider it appropriate to

prepare the ﬁnancial statements on a going concern basis. As at 30 September 2023, the

Company had net current assets of £3.2 million, including £1.2 million of cash; it also had

access to £19.6 million that remained undrawn on the Revolving Credit Facility, held by its

indirect subsidiary, which can be utilised for the Company’s working capital requirements.

As such, with all factors mentioned above, the Company’s cash position isconsidered

sucient to meet all current obligations as they fall due.

The Directors have also assessed the impact of signiﬁcant potential risks to the

operations of the Company since incorporation and the principal risks in the UK forestry

and aorestation markets including the various risk mitigation measures in place and

do not consider this to have a material impact on the assessment of the Company as a

going concern.

Market risk

The Company has assessed its potential exposure to being negatively impacted by a

sudden loss of revenue stream. The relevance of this risk has been signiﬁcant given the

recent impacts of the Ukraine-Russia conﬂict on the forestry industry.

The Company has assessed these risks alongside the potential risk of similar events

having a negative impact on revenue recoverability. The potential impacts of such

market risks include, but are not limited to:

i. Material reductions in timber prices recoverable from the SPVs

ii. Material reductions in demand for timber in the United Kingdom

iii. Material reductions in forecasted revenues earned from the sale of carbon credits

iv. Change to the UK Woodlands Grant scheme

Each of the above potential impacts could have a direct inﬂuence on the amount that

can be distributed to the Company by its subsidiaries. Foresight has reviewed the

portfolio’s exposure to these risks and has concluded that if, even in the unlikely case,

these adverse impacts on revenue recoverability are material, the Company should still

have sucient funds to continue operations for the foreseeable future. If such impacts

were to continue on a long-term basis, continued monitoring processes would need to

be actioned.

Liquidity risk

Due to the nature of the Company’s operation and deployment strategy, there could

be potential exposure to liquidity risk, whereby the entity would encounter diculties

in paying its ﬁnancial liabilities. The Directors have considered this risk and are

satisﬁed that FSF has adequate ﬁnancial resources to settle its recurring expenses for

the foreseeable future, based on evidence provided from cash ﬂow forecasting and

sensitivity testing to satisfy both the Investment Manager and the Directors that the

Company has sucient funds available.

The Directors are satisﬁed that FSF has sucient resources to continue to operate

for the foreseeable future, a period of no less than 12 months from the date of this

report. Accordingly, they have adopted the going concern basis in preparation of these

ﬁnancial statements.

The Directors are of the opinion that the Company is engaged in a single segment of

business, being an investor in UK forestry and aorestation assets, to generate real

returns for investors as well as capital appreciation. The ﬁnancial information used by

the Board to allocate resources and manage the Company presents the business as a

single segment comprising a homogeneous portfolio.

(d) Key estimates and judgements

Key judgements

Investment entity status

The Company conducts a judgement in relation to its status as an investment entity by

satisfying the three criteria below:

i. It must obtain funds from multiple investors for the purpose of providing its

investment management services to those investors

ii. It must commit to its investors that its business purpose is to invest funds solely

for returns from capital appreciation, investment income, or both. Similarly, the

entity must ensure there is also an exit strategy for such investments

iii. It must measure and evaluate the performance of its investments on a fair

valuebasis

The Company assesses its compliance with the requirements of being an investment

entity in note 3 in more detail.

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

2. Significant accounting policies continued

(d) Key estimates and judgements continued

Key accounting estimates

Fair valuation of investment assets – Red Book valuation

The market value of the Company’s underlying investment portfolio held through its

SPVs consisting of forestry, aorestation and non-core assets (investment portfolio/

properties) is determined by an external valuer (see note 10) to be the estimated

amount for which an asset should exchange on the date of the valuation in an

arm’s-length transaction. Properties have been valued on an individual basis. The

external valuer prepares their valuations in accordance with the RICS Valuation –

GlobalStandards July 2017 (the “Red Book”). Factors reﬂected comprise current

market conditions, including the comparable market value of similar freehold forestry

assets, the potential uplift in land value above current in-use value (relevant to planting

land), the location and situation of individual assets, potential vulnerability to winter

storms and the developmental status of properties (if aorestation). The market

conditions stated are assessed on a bi-annual basis. These are also subject to an

accounting estimate that the Directors are satisﬁed with. The signiﬁcant methods and

assumptions used by the external valuers in estimating the fair value of investment

assets are set out in note 10.

Fair value of investment assets – carbon credit valuation

The carbon credit valuations are not determined by an external valuer but are currently

based on the Ecosystem Marketplace collected trade data from UK Woodland Carbon

Code and Peatland Code market participants who are project developers and resellers

through the Ecosystem Marketplace Global Carbon Markets Hub. These are also subject

to an accounting estimate that the Directors are satisﬁed with.

(e) Taxation

Income taxes

Income taxes represent the sum of the tax currently payable, withholding taxes suered

and deferred tax. Tax is charged or credited in the statement of comprehensive income,

except where it relates to items charged or credited directly to equity, in which case the

tax is also dealt with in equity.

The tax currently payable is based on the taxable proﬁt for the year. This may dier

from the proﬁt included in the statement of comprehensive income because it excludes

items of income or expense that are taxable or deductible in other years and it further

excludes items that are never taxable or deductible. To enable the tax charge to be

based on the proﬁt for the year, deferred tax is provided in full on temporary timing

dierences, at the rates of tax expected to apply when these dierences crystallise.

Deferred tax assets are recognised only to the extent that it is probable that sucient

taxable proﬁts will be available against which temporary dierences can be set o. In

practice, some assets that are likely to give rise to timing dierences will be treated as

capital for tax purposes. Given capital items are exempt from tax under the Investment

Trust Company rules, deferred tax is not expected to be recognised on these balances.

All deferred tax liabilities are oset against deferred tax assets, where appropriate, in

accordance with the provisions of IAS 12. The carrying amount of deferred tax assets

is reviewed at each balance sheet date and reduced to the extent that it is no longer

probable that sucient taxable proﬁts will be available to allow all or part of the asset

to be recovered.

(f) New, revised and amended standards applicable to future

reporting periods

There were no new standards, amendments or interpretations eective for the ﬁrst

time for periods beginning on or after incorporation that had a material eect on the

Company’s ﬁnancial statements. The Company has explored to what extent these new

standards have an immaterial impact on the ﬁnancial statements, as below.

IFRS 17 Insurance Contracts

The standard requires an entity to reasonably identify and recognise any contract in

which an entity accepts signiﬁcant insurance risk from another party as a combination

of a ﬁnancial instrument and a service contract, in order to help users of the ﬁnancial

statements to assess the eect on the Company’s ﬁnancial position. The Company

does not deem this standard to have a material eect on its ﬁnancial statements as the

Company is not party to any such contract in which it accepts any insurance risk from or

for another party.

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

2. Significant accounting policies continued

(f) New, revised and amended standards applicable to future

reporting periods continued

Amendments to definition of accounting estimates – Amendments to IAS 8

The standard now deﬁnes an accounting estimate as “monetary amounts in ﬁnancial

statements that are subject to measurement uncertainty”. Despite the Company using

accounting estimates (see note 2(d) Key judgements and estimates) in its assessment

of carbon credit validation and Red Book valuation, the Directors would not deem this

amendment to have any material eect on the Company’s results for the current or prior

period(s). The Company maintains that, at each reporting date, the latest available and

reliable information was used to arrive at its accounting estimates, with no instances

requiring a restatement of information due to error.

The Disclosure Initiative – amendments to the accounting policy disclosure

The IASB issued amendments to IAS 1 Presentation of Financial Statements in

which they require disclosure of “material” accounting policies, instead of what

was “signiﬁcant” accounting policies. The aim of this amendment is to enhance the

usefulness of ﬁnancial statements for users and in turn to enhance their eectiveness

overall. The Company has not chosen to apply an early adoption of this standard as the

threshold of materiality needs to be considered in more depth. The Company, however,

plans to adopt this standard in its next reporting cycle.

3. Basis of consolidation

The Company’s objective is to invest in UK forestry and aorestation assets through

its holding companies, which will typically issue equity and loans to ﬁnance the

investments.

Assessment as an investment entity

IFRS 10 Consolidated Financial Statements sets out the following essential criteria,

necessary for a company to be considered as an investment entity.

Deﬁnition of an investment entity/trust:

i. It must obtain funds from multiple investors for the purpose of providing its

investment management services to those investors

ii. It must commit to its investors that its business purpose is to invest funds solely for

returns from capital appreciation, investment income, or both. Similarly, the entity

must ensure there is also an exit strategy for such investments

iii. It must measure and evaluate the performance of its investments on a fair

valuebasis

In assessing whether the Company meets the deﬁnition of an investment entity set out

in IFRS 10, the Directors note that:

i. The Company is an investment company that invests funds obtained from multiple

investors in a diversiﬁed portfolio of UK forestry and aorestation assets and has

appointed Foresight Group as the Investment Manager to manage the Company’s

investments

ii. The Company’s purpose is to invest funds with the intention of providing real

returns to investors and capital appreciation driven by global demand for timber.

The Company’s exit strategy will depend on factors of portfolio balance and/or

proﬁt

iii. The Board evaluates the performance of the Company’s investments on a fair value

basis as part of the quarterly management accounts review and the Company

values its investments on a fair value basis driven by a RICS Red Book valuation

provided by Savills (the “external valuer”) using various assumptions to reﬂect

current market conditions. This includes, amongst other factors, the comparable

market value of similar freehold forestry assets. These fair value assessments

happen on a bi-annual basis and are included in the Company’s annual and interim

ﬁnancial statements, with the movement in the valuations taken to the statement of

comprehensive income and is therefore measured within its earnings

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

3. Basis of consolidation continued

Assessment as an investment entity continued

The Directors have concluded that the Company meets the deﬁnition of an investment

entity in accordance with IFRS 10 after evaluation of the relevant criteria.

The Directors continue to consider the Company demonstrates the characteristics and

meets the requirements to be considered an investment entity.

IFRS 10 states that investment entities are required to hold subsidiaries at fair value

through proﬁt or loss rather than consolidation on a line-by-line basis; this means that

the Group’s cash, debt and working capital balances are included in the fair value of

the investment instead of in the Company’s assets and liabilities. The Company has one

investee, namely FSFC Holdings Limited, which invests the funds of the FSF investors on

its behalf and is eectively performing investment management services on behalf of

several unrelated beneﬁciary investors.

4. Return on investment and interest income

Year ended

30 September

2023

(Audited)

£’000

Period from

31 August 2021

to 30 September

2022

(Audited)

£’000

Unrealised fair value movement of investments (11,279) 10,120

Interest income – Loans to direct subsidiary 2,364 852

Interest income – Bank 241 52

Total (8,674) 11,024

5. Investment management fee

Year ended

30 September

2023

(Audited)

£’000

Period from

31 August 2021

to 30 September

2022

(Audited)

£’000

Investment management fee 1,562 1,071

Total 1,562 1,071

Foresight Group LLP was appointed as the Investment Manager for the Company

under an Investment Management Agreement. Under the terms of the agreement,

the Investment Manager is entitled to a management fee from the Company, which

is calculated quarterly in arrears at 0.85% per annum of NAV up to £500 million and

0.75%per annum of NAV in excess of £500 million.

The Company paid £1.2 million during the period. A further £0.4 million investment

management fees were accrued and remained unpaid at the year end.

6. Operating expenses

Year ended

30 September

2023

(Audited)

£’000

Period from

31 August 2021 to

30 September

2022

(Audited)

£’000

Administration services fee 129 104

Directors’ fees 191 140

Other expenses 782 922

Total 1,102 1,166

1. Other expenses include adviser fees, independent valuer fees, audit fees, broker fees, depositary fees and

other Fund-related costs.

Details of Directors’ fees are set out in note 21.

7. Dividends

The Company did not pay any dividend in the year to 30 September 2023

(30September 2022: £nil).

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

8. Taxation

The Company received notice on 11 November 2021 conﬁrming it is an approved

investment trust for accounting periods commencing on or after 23 November

2021. The approval is subject to the Company continuing to meet the eligibility

conditions of Section 1158 Corporation Taxes Act 2010. Furthermore, there are also

ongoing requirements for approved companies in Chapter 3 of Part 2 Investment

Trust (Approved Company) (Tax) Regulations 2011 (Statutory Instrument 2011/2999).

To maintain its ITC status, the Company must adhere to the following conditions

throughout an accounting period:

i. The Company must not be a closed company at any time in an accounting period

ii. An investment trust must not retain in respect of an accounting period an amount

which is greater than 15% of its income for the accounting period, and the relevant

distribution must be distributed before the ﬁling date for the investment trust’s

company tax return for the period

iii. An investment trust must notify HMRC of a revised investment policy before the

ﬁling date for its tax return for the accounting period in which the investment policy

was revised

iv. An investment trust must notify HMRC in writing of a breach of any of the

conditions in Section 1158 or any of the requirements in the regulations as soon as

possible after the investment trust becomes aware of the breach

The Company regularly monitors the conditions required to maintain ITC status.

30 September

2023

£’000

30 September

2022

£’000

Income taxes — —

30 September

2023

£’000

30 September

2022

£’000

(Loss)/proﬁt before tax (11,338) 8,787

(Loss)/proﬁt before tax multiplied by the rate of

corporation tax in the UK of 19.0% (2,154) 1,670

Eects of:

Non-taxable capital proﬁts due to UK approved

investment trust company status 2,143 (1,923)

Non-taxable dividend income — —

Dividend designated as interest distributions — —

Prior period deferred tax — —

Temporary dierences on which deferred tax is not

recognised 11 253

Total income tax charge in the statement of

comprehensive income — —

Reconciliation of income taxes in the statement of comprehensive income

The tax charge for the period is dierent from the standard rate of corporation tax in

the UK, currently 19.0% (2022: 19.0%), and the dierence is explained below:

The Company’s aairs are directed so as to allow it to meet the requisite conditions to

continue to operate as an approved investment trust company for UK tax purposes.

Theapproved investment trust status allows certain capital proﬁts of the Company to

be exempt from tax in the UK and also permits the Company to designate the dividends

it pays, wholly or partly, as interest distributions. These features enable approved

investment trust companies to ensure that their investors do not ultimately suer

double taxation of their investment returns, i.e. once at the level of the investment fund

vehicle and then again in the hands of the investors.

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

8. Taxation continued

Analysis of tax expense

There was no corporation tax payable during the year to 30 September 2023. As a

result, the tax charge for the period is £nil. Investment gains are exempt from tax owing

to the Company’s status as an investment trust.

Factors that may affect future total tax charges

Under the UK Finance Act 2021, the UK corporation tax rate increased for large

companies from the current rate of 19.0% to 25.0% with eect from 1 April 2023.

Should the Company recognise any deferred tax assets and liabilities, a rate of 19.0%

or 25.0% would be used depending on when the assets and liabilities are expected to

be crystallised. The Company is recognised as a UK investment trust and is taxed at the

main rate of 19.0%, prevalent at the reporting period end.

At the period end, there is a potential deferred tax asset of £264,320 carried forward

(30 September 2022: £253,194). The deferred tax asset is unrecognised at the period

end in line with the Company’s stated accounting policy.

9. Earnings per share

Capital reserve

£’000

Revenue reserve

£’000

Total

£’000

Revenue and capital proﬁt

attributable to equity holders of

theCompany (11,279) (59) (11,338)

Average number of Ordinary Shares 172,056 172,056 172,056

Earnings per share at 30 September

2023 (pence) (6.6) 0.0 (6.6)

Capital reserve

£’000

Revenue reserve

£’000

Total

£’000

Revenue and capital proﬁt

attributable to equity holders of

theCompany 10,120 (1,333) 8,787

Average number of Ordinary Shares 142,847 142,847 142,847

Earnings per share at 30 September

2022 (pence) 7.1 (0.9) 6.2

10. Investments at fair value through profit and loss

30 September

2023

£’000

30 September

2022

£’000

Fair value at start of the period 146,291 —

Loans to intermediate holding companies 15,513 21,821

Equity investment in holding companies 15,513 114,350

Unrealised gain on investments at fair value (11,278) 10,120

Total 166,039 146,291

As at 30 September 2023, there was a loan between Foresight Sustainable Forestry

Company Plc and FSFC Holdings Limited for £37,334,413. The loan is repayable on

demand. The rate of interest on the loan has been set at 7% per annum. Interest accrued

at the year end was £2,796,336.

The Company owns 12,986,337,835 shares in FSFC Holdings Limited at a nominal value

of £0.01 each.

Fair value investments

The Investment Manager has carried out fair value market valuations of the underlying

SPV investments as at 30 September 2023 independently administered by Savills.

The Directors have approved the methodology used, as well as conﬁrming their

understanding of all underlying key assumptions applicable. All SPV investments are

at fair value through proﬁt or loss and are valued using the IFRS 13 framework for fair

valuemeasurement.

Savills includes all investments under ownership by FSF in their portfolio valuation,

for both aorestation and forestry properties. The valuations have been prepared in

accordance with the RICS Valuation – Global Standards July 2017 (the “Red Book”) and

incorporate the recommendations of the International Valuation Standards which are

consistent with the principles set out in IFRS 13.

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

10. Investments at fair value through profit and loss continued

Savills, in forming its opinion, makes various assumptions on the basis of current market

conditions; the following are the key assumptions made:

Fair value of assets

•

Savills employs a “comparable approach” by analysing comparable market value(s)

of similar freehold forestry and aorestation assets from recent transactions, when

assessing what fair value is reasonable to attribute to assets with similar features,

held by subsidiaries of FSF.

Planting land value

•

Savills includes a reasonable view of the potential for aorestation sites’ value uplift

over time, rather than viewing the current value of these sites as only attributable to

their current use as grazing land.

•

Savills takes account of the relevant stage each site is currently at of the forestry

grant application process when reaching a judgement.

Location and situation

•

Due to the assets under ownership being located across the UK (Scotland, Northern

England and Wales), Savills accounts for the potential dierences in market interest

associated in dierent locations.

Winter storm vulnerability

•

Savills makes assessments on the basis of the extent of damage suered by sites due

to extreme windblow incidents. Where damage is extensive, Savills will make prudent

adjustments to the value of the site, if it is evident that some of the aected timber

may be challenging to recover.

Developmental status of afforestation sites

•

Due to the nature of operations for the aorestation assets, Savills applies

reassessments as to the value of an asset when a new developmental

milestoneoccurs.

The value associated with the carbon credits attached with the Establishment Stage

Aorestation properties is excluded from the RICS Red Book valuation of these

properties. As previously mentioned in the report, value recognition for carbon credits

is ascribed using the Investment Manager’s assessment. For further detail, please see an

explanation of the methodology on page 32.

Fair value hierarchy

The Group considers that all of its investments fall within Level 3 of the fair value

hierarchy as deﬁned by IFRS 13. There have been no transfers between Level 1 and

Level2 during any of the periods, nor have there been any transfers between Level 2

and Level 3 during any of the periods.

The valuations have been prepared on the basis of market value (“MV”), which is

deﬁned in the RICS Valuation Standards as: “The estimated amount for which an asset

should exchange on the date of valuation between a willing buyer and a willing seller in

an arm’s-length transaction after proper marketing wherein the parties had each acted

knowledgeably, prudently and without compulsion.”

Market value as deﬁned in the RICS Valuation Standards meets the requirements of fair

value deﬁned under IFRS.

11. Trade and other receivables

30 September

2023

£’000

30 September

2022

£’000

Interest receivable from subsidiaries 2,796 852

Total 2,796 852

12. Trade and other payables

30 September

2023

£’000

30 September

2022

£’000

Creditors 455 477

Accruals 348 385

Intercompany account — 24

Total 803 886

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

13. Called up share capital

Allotted share capital, issued and fully paid Number of shares

Opening balance at 1 October 2022 172,056,075

Allotted/redeemed (since 1 October 2022)

Ordinary Shares issued —

Total number of Ordinary Shares at 30 September 2023 172,056,075

Share capital

£’000

Share premium

£’000

30 September

2023

£’000

30 September

2022

£’000

Opening balance 1,721 170,075 171,796 —

Shares issued — — — 175,000

Costs associated

with share issuance — 3 3 3,204

Cancellation of

share premium — (126,258) (126,258) —

Total 1,721 43,820 45,541 171,796

At the beginning of the period, the total number of Ordinary Shares in issue was

172,056,075. Each Ordinary Share has equal rights to dividends and has equal rights to

participate in a distribution arising from a winding up of the Company. The Company

has not issued any further Ordinary Shares.

On 28 February 2023, there was a special resolution to cancel the share premium

account which was conﬁrmed by court order and registered by Companies House.

The amount cancelled was £126,258,589, with the objective of creating distributable

reserves.

14. Retained earnings

Revenue

£’000

Capital

£’000

30 September

2023

£’000

30 September

2022

£’000

Opening balance (1,333) 10,120 8,787 —

(Loss)/proﬁt for

the period (58) (11,279) (11,337) 8,787

Dividends paid — — — —

Closing balance (1,391) (1,159) (2,550) 8,787

The nature and purpose of each of the reserves within the Retained Earnings as at

30September 2023 are as follows:

•

Capital reserve: This is a non-distributable reserve of the cumulative net gains and/ or

losses recognised in the Statement of Comprehensive Income.

•

Revenue reserve: This represents a distributable reserve of all proﬁt and loss

recognised in the revenue account of the Statement of Comprehensive Income.

15. Net Asset Value per Ordinary Share

The total Net Asset Value per Ordinary Share is based on the net assets attributable to

equity Shareholders as at 30 September 2023 of £169.2 million and Ordinary Shares in

issue of 172,056,075.

30 September

2023

30 September

2022

NAV (£m) 169.2 180.6

Number of Ordinary Shares issued (million) 172.1 172.1

Net Asset Value per Ordinary Share (pence) 98.4 105.0

16. Cash and cash equivalents

At the period end, the Company held cash and cash equivalents of £1.2 million.

Thisbalancewas held by HSBC Bank plc.

30 September

2023

30 September

2022

Cash and cash equivalents:

HSBC Bank plc – current account 855 4,283

HSBC Bank plc – liquidity fund 362 30,043

Total cash and cash equivalents 1,217 34,326

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

100

STRATEGIC REPORTOVERVIEW GOVERNANCE

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Strategy Performance

ADDITIONAL

INFORMATION

17. Financial instruments

Financial instruments by category

The Company held the following ﬁnancial instruments at 30 September 2023. There have been no transfers of ﬁnancial instruments between levels of the fair value hierarchy.

Thereareno non-recurring fair value measurements.

Cash and

bank

balances

£’000

Financial assets

held at

amortised cost

£’000

Financial assets

at fair value

through proﬁt

or loss

£’000

Financial

liabilities at

amortised cost

£’000

Total

£’000

Non-current assets

Investments at fair value through proﬁt or loss (Level 3) — — 166,039 — 166,039

Current assets

Trade and other receivables — 2,796 — — 2,796

Cash and cash equivalents 1,217 — — — 1,217

Total ﬁnancial assets 1,217 2,796 166,039 — 172,052

Current liabilities

Trade and other payables — — — (803) (803)

Total ﬁnancial liabilities — — — (803) (803)

Net ﬁnancial instruments 1,217 2,796 166,039 (803) 169,249

The Company holds its portfolio of assets at fair value. These assets are held through the Company’s underlying subsidiaries/intermediate holding companies (the “Group”).

Theassets in the Group are valued in accordance with RICS Valuation – Global Standards July 2017 (the “Red Book”) methodology, with inspections conducted by an independent

valuer (“Savills”) at the end of the period.

Savills’ fair value assessment of the assets has been completed on a comparable basis by looking at recent transactions of similar assets, to assess current market value, outlined in

note 10. As a management review control, the Investment Manager applies a discounted cash ﬂow approach (“DCF”) to value the assets and provide a precision level for validation

of the fair value presented by Savills. Whilst the two methodologies dier, the Investment Manager has recorded an immaterial dierence between the respective portfolio valuation

results in both the interim period and the year-end period.

The Directors consider the DCF methodology used by the Investment Manager to validate the Red Book valuation to be appropriate. The Board and Investment Manager annually

review the valuation inputs and, where possible, make use of observable market data to ensure valuations reﬂect fair value of the assets. A broad range of assumptions are used in

thevaluation, which are based on long-term forecasts and are not aected by short-term ﬂuctuations in inputs, be it economic or operational.

For management control purposes of comparing the two valuations on a like-for-like basis, neither the DCF valuation nor RICS valuation conducted by Savills include explicit

recognition of Veriﬁed Carbon (“VC”) value. The Manager has therefore calculated an estimated value on the progress made on obtaining the rights to PIUs. To date, no PIUs have

been authorised by the Woodland Carbon Code.

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

101

STRATEGIC REPORTOVERVIEW GOVERNANCE

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ADDITIONAL

INFORMATION

17. Financial instruments continued

Sensitivity analysis of the portfolio

The sensitivity of the portfolio to changes in mature forestry asset valuation is

asfollows:

The portfolio valuation of mature forestry and aorestation assets is based on the RICS

Red Book valuation approach. The Directors consider the Red Book market value of

the assets, which is a combination of several factors, including timber growth rates,

weighted age distribution and yield class, to be the most important unobservable input

underpinning the valuation methodology described on page 32. The Directors believe

that the provision of market value sensitivity analysis of mature forestry, aorestation

and mixed forestry and aorestation assets is appropriate to align with the Company’s

portfolio composition.

Mature forestry asset valuation

The sensitivity of the portfolio to changes in mature forestry asset valuation is

asfollows:

The independent valuer conducts inspections of all mature forestry assets on a

semi-annual basis, then provides a valuation based on RICS methodology. The base

case used for forestry asset value as at 30 September 2023 was £75.5 million. Due to

this asset class forming signiﬁcantly more than 10% of the current portfolio valuation,

this was deemed an appropriate sensitivity to sample.

Forestry assets sensitivity

Changes in

portfolio

valuation

Changes in

NAV

per share

Forestry assets value increases by 10% +£7.53m/+4.3% +4.4p

Forestry assets value decreases by 10% -£7.53m/-4.3% -4.4p

Afforestation asset valuation

The sensitivity of the portfolio to changes in aorestation asset valuation is as follows:

The independent valuer conducts inspections of all aorestation assets on a

semi-annual basis, then provides a valuation based on RICS methodology. The base

case used for aorestation asset value as at 30 September 2023 was £67.1 million.

Dueto this asset class forming more than 10% of the current portfolio valuation, this was

deemed an appropriate sensitivity to sample.

Aorestation assets sensitivity

Changes in

portfolio

valuation

Changes in

NAV

per share

Aorestation assets value increases by 10% +£6.71m/+3.8% +3.9p

Aorestation assets value decreases by 10% -£6.71m/-3.8% -3.9p

Mixed forestry and afforestation asset valuation

The sensitivity of the portfolio to changes in mixed forestry and aorestation asset

valuation is as follows:

The independent valuer conducts inspections of all mixed assets on a semi-annual

basis, then provides a valuation based on RICS methodology. The base case used for

the asset value of mixed forestry and aorestation assets as at 30 September 2023 was

£23.9million. Due to this asset class forming more than 10% of the current portfolio

valuation, this was deemed an appropriate sensitivity to sample.

Mixed forestry and aorestation assets sensitivity

Changes in

portfolio

valuation

Changes in

NAV

per share

Mixed assets value increases by 10% +£2.39m/+1.4% +1.4p

Mixed assets value decreases by 10% -£2.39m/-1.4% +1.4p

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

102

STRATEGIC REPORTOVERVIEW GOVERNANCE

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Strategy Performance

ADDITIONAL

INFORMATION

17. Financial instruments continued

Sensitivity analysis of the portfolio continued

Non-core asset valuation

Due to the relatively small size of the non-core assets in the Company’s valuation,

the sensitivity to movement in this part of the portfolio is deemed immaterial, so no

sensitivity analysis has been conducted.

Capital management

The Group, which comprises the Company and its non-consolidated subsidiaries,

manages its capital to ensure that it will be able to continue as a going concern while

maximising the return to Shareholders through the optimisation of the debt and equity

balances. The capital structure of the Group principally consists of the share capital

account and retained earnings as detailed in notes 13 and 14. The Group aims to deliver

its objective by investing available cash and using leverage whilst maintaining sucient

liquidity to meet ongoing expenses.

Gearing ratio

The Company’s Investment Manager reviews the capital structure of the Company

and the Group on a semi-annual basis. The Company and its subsidiaries intend to

make prudent use of leverage for ﬁnancing acquisitions of investments and working

capital purposes. Under the Company’s Articles, and in accordance with the Company’s

borrowing policy, the Company’s outstanding borrowings, excluding the debts of

underlying assets, will be limited to 30% of the Company’s Gross Asset Value.

As at 30 September 2023, the Company had no outstanding debt. The Company’s

subsidiary FSFC Holdings 2 Limited has a £30 million Revolving Credit Facility, of which

£10.4 million had been drawn at 30 September 2023.

Financial risk management

The Group’s activities expose it to a variety of ﬁnancial risks: capital risk, liquidity risk,

market risk (including interest rate risk, inﬂation risk and power price risk) and credit

risk. The Group’s overall risk management programme focuses on the unpredictability

of ﬁnancial markets and seeks to minimise potential adverse eects on the Group’s

ﬁnancial performance.

For the Company and the intermediate holding companies, ﬁnancial risks are managed

by the Investment Manager, which operates within the Board-approved policies. All risks

continue to be managed by the Investment Manager. The various types of ﬁnancial risk

are managed as follows:

Financial risk management – Company only

The Company accounts for its investments in its subsidiaries at fair value; to the extent

there are changes as a result of the risks set out below, these may impact the fair value

of the Company’s investments.

Capital risk

The Company has implemented an ecient ﬁnancing structure that enables it to

manage its capital eectively. The Company’s capital structure comprises equity only

(refer to the statement of changes in equity). As at 30 September 2023, the Company

had no recourse to debt, although as set out in the Company structure chart, the

Company’s subsidiary FSFC Holdings Limited is a guarantor for the Revolving Credit

Facility of FSFCHoldings2Limited.

Liquidity risk

The Directors monitor the Company’s liquidity requirements to ensure there is sucient

cash to meet the Company’s operating needs. The Company’s liquidity management

policy involves projecting cash ﬂows and forecasting the level of liquid assets necessary

to meet these. Due to the nature of its investments, the timing of cash outﬂows is

reasonably predictable and, therefore, is not a major risk to the Company. The Company

was in a net cash position and had no outstanding debt at the balance sheet date.

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

103

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

17. Financial instruments continued

Financial risk management continued

Market risk – foreign currency exchange rate risk

All the cash ﬂows and investments are denominated in pounds sterling.

Financial risk management – Company and non-consolidated subsidiaries

The following risks impact the Company’s subsidiaries and in turn may impact the

fairvalue of investments held by the Company.

Market risk – interest rate risk

Interest rate risk arises in the Company’s subsidiaries on the Revolving Credit Facility

borrowings and ﬂoating rate deposits. Borrowings issued at variable rates expose

those entities to variability of interest payment cash ﬂows. Interest rate hedging may

be carried out to seek to provide protection against increasing costs of servicing debt

drawn down by the holding company as part of its Revolving Credit Facility. This may

involve the use of interest rate derivatives and similar derivative instruments.

Each investment hedges their interest rate risk at the inception of a project. This will

either be done by issuing ﬁxed rate debt or variable rate debt which will be swapped

into ﬁxed rate by the use of interest rate swaps.

Market risk – inflation risk

Some of the Company’s investments will have part of their revenue and some of their

costs linked to a speciﬁc inﬂation index at inception of the project. In most cases this

creates a natural hedge, meaning a derivative does not need to be entered into in order

to mitigate inﬂation risk.

Market risk – timber price risk

Timber revenue forms a signiﬁcant majority of forecasted revenues for the Company’s

investments. Whilst projections suggest a steady income ﬂow through the sale of

timber, there is a risk that timber prices will drop due to market forces and minimise the

revenues the Fund will receive. This risk is mitigated by the ability of the Company and

underlying investments to sustain its liquidity, even in the event of withholding from

timber sales, given sub-optimal pricing.

Credit risk

Credit risk is the risk that a counterparty of the Company or its subsidiaries will default

on its contractual obligations it entered into with the Company or its subsidiaries. Credit

risk arises from cash and cash equivalents, derivative ﬁnancial instruments and deposits

with banks and ﬁnancial institutions, as well as credit exposures to customers.

The Company and its subsidiaries place cash in authorised deposit takers and are

therefore potentially at risk from the failure of such institutions. In respect of credit risk

arising from other ﬁnancial assets and liabilities, which mainly comprise of cash and

cash equivalents, exposure to credit risk arises from default of the counterparty with

a maximum exposure equal to the carrying amounts of these instruments. In order to

mitigate such risks, cash is maintained with major international ﬁnancial institutions.

During the period and at the reporting date, the Company maintained relationships with

HSBC Bank plc.

Moody’s

credit

rating

30 September

2023

£’000

30 September

2022

£’000

HSBC Bank plc P1 1,217 34,326

Total cash and cash equivalents 1,217 34,326

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

104

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

18. Subsidiaries

The following subsidiaries have not been consolidated in these ﬁnancial statements as a result of applying the requirements of “Investment Entities: Applying the Consolidation

Exception (Amendments to IFRS 10)”. The Company is not contractually obligated to provide ﬁnancial support to the subsidiaries and there are no restrictions in place in passing

monies up the structure.

Name

Direct or

indirect

holding

Country of

incorporation

Registered

address

Principal

activity

Proportion

of shares

and voting

rights held

FSFC Holdings Limited Direct UK C/O Foresight Group LLP, Holding company 100%

The Shard, 32 London Bridge Street, London,

England, SE1 9SG

FSFC Holdings 2 Limited Indirect UK C/O Foresight Group LLP, Holding company 100%

The Shard, 32 London Bridge Street, London,

England, SE1 9SG

FSFC Company 1 Limited Indirect UK C/O Foresight Group LLP, SPV 100%

The Shard, 32 London Bridge Street, London,

England, SE1 9SG

Blackmead Forestry Limited Indirect UK C/O Foresight Group LLP,

The Shard, 32 London Bridge Street, London,

England, SE1 9SG

SPV 100%

Blackmead Forestry II Limited Indirect UK C/O Foresight Group LLP, SPV 100%

The Shard, 32 London Bridge Street, London,

England, SE1 9SG

Coull Forestry Limited Indirect UK C/O Foresight Group LLP, SPV 100%

The Shard, 32 London Bridge Street, London,

England, SE1 9SG

Fordie Estates Limited Indirect UK C/O Foresight Group LLP, Clarence House, 133

George Street, Edinburgh, Scotland, EH2 4JS

SPV 100%

19. Employees and Directors

The Company is governed by an independent and non-executive Board of Directors. There are four Non-Executive Directors. Please refer to the Directors’ remuneration report for

details of the Directors’ emoluments.

20. Contingencies and commitments

The Company has no guarantees or signiﬁcant capital commitments as at 30September2023.

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

105

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

21. Related party transactions

Following admission of the Ordinary Shares (refer to note 13), the Company and the

Directors are not aware of any person who, directly or indirectly, jointly, or severally,

exercises or could exercise control over the Company. As per the Director’s report on

pages 71 to 78, it is however noted that Blackmead Infrastructure Limited’s substantial

interest in share capital (29.93%) constitutes a party with signiﬁcant inﬂuence on the

Company. The Company does not have an ultimate controlling party.

The transactions between the Company and its subsidiaries, which are related parties of

the Company, and fair values, are disclosed in note 10. Details of transactions between

the Company and related parties are disclosed below

This note also details the terms of the Company’s engagement with Foresight Group

LLP, the Investment Manager.

Transactions with the Investment Manager

The Investment Manager, Foresight Group LLP, is entitled to a base fee on the

followingbasis:

(a) 0.85% per annum of the Net Asset Value of the Fund up to and including

£500.0million

(b) 0.75% per annum of the Net Asset Value of the Fund in excess of £500.0 million

The investment management fees incurred during the year to 30 September 2023 were

£1,561,930, of which £399,781 remained unpaid as at 30 September 2023.

Additionally, the Company incurred fees during the year to 30 September 2023 of

£128,623, which related to administration services provided by the Investment Manager,

in its capacity as Administrator for the Company. £32,564 of the fees incurred remained

unpaid as at 30 September 2023.

Other transactions with related parties

The amount incurred in respect of Directors’ fees during the year to 30 September 2023

was £160,000. The Directors also received £2,336 in relation to miscellaneous Director

expenses. These amounts had been fully paid as at 30 September 2023. The amounts

paid to individual Directors were as follows:

Director

Taxable

beneﬁts

Basic and

Committee fees

Total

Richard Davidson (Chair) — 48,000 48,000

Sarika Patel 357 40,500 40,857

Christopher Sutton 1,617 35,500 37,117

Josephine Bush 362 36,000 36,362

Total 2,336 160,000 162,336

The Directors held the following shares in the Company:

Director

Number of

Ordinary Shares

% of issued

Ordinary Share

capital

Richard Davidson (Chair) 100,000 0.06

Sarika Patel 24,000 0.01

Christopher Sutton 25,000 0.01

Josephine Bush 19,000 0.01

The above transactions were undertaken on an arm’s-length basis.

22. Events after the balance sheet date

The Directors have evaluated the need for disclosures and/or adjustments resulting

from post balance sheet events through the ﬁnancial statements were available to

beissued.

On 19 October 2023, one of the Company’s SPVs, FSFC Company 1 Limited, completed

the acquisition of a site in Scotland for £0.7million.

On 1 December 2023, one of the Company’s SPVs, Fordie Estates Limited, completed

the acquisition of a site in Scotland for £0.5million.

There are no other signiﬁcant events since period end which would require to be disclosed.

There were no adjusting post balance sheet events and, as such, no adjustments have been

made to the valuation of assets and liabilities as at 30 September 2023.

NOTES TO THE AUDITED FINANCIAL STATEMENTS CONTINUED

FOR THE YEAR ENDED 30 SEPTEMBER 2023

FORESIGHT SUSTAINABLE FORESTRY COMPANY PLC

Annual Report and Financial Statements 2023

106

STRATEGIC REPORTOVERVIEW GOVERNANCE

FINANCIAL

STATEMENTS

Strategy Performance

ADDITIONAL

INFORMATION

COMPANY SUMMARY

Below are the Company key facts, advisers and other information (which have not

beenaudited).