Kasey Krifka, The Climate Trust
November 23, 2016
David and Lucile Packard Foundation & Orrick, Herrington & Sutcliffe LLP help to establish carbon investment fund for climate change mitigation
In October, The Climate Trust (The Trust) quietly put ink to paper and executed a milestone contract with the David and Lucile Packard Foundation—securing a $5.5M Program-Related Investment (PRI) to seed their first-of-its-kind carbon investment fund. Climate Trust Capital, an independent firm of the long-standing and mission-driven nonprofit, The Climate Trust, will administer Fund I, which is focused on supporting innovative U.S.-based carbon offset projects in the forestry, grassland conservation, and livestock digesters sectors.
Climate Trust Capital’s investment fund was launched earlier this year with backing from the U.S. Department of Agriculture’s NRCS Conservation Innovation Grant (CIG), and an agreement to support the Fund from the David and Lucile Packard Foundation. Climate Trust Capital released a request for proposals in January to begin the process of building a pipeline of qualified projects—aiming to execute contracts with selected project partners by the end of 2016. With the Packard PRI funding secured, Climate Trust Capital is now ready to invest in Fund I projects.
“This partnership between NRCS and The Climate Trust will increase the funding available for conservation on America’s working lands,” said Jason Weller, Chief of USDA’s Natural Resources Conservation Service. “Not only will this partnership deliver innovative conservation finance solutions, but the projects made possible by this new fund will support implementation of USDA’s Building Blocks for Climate Change.”
In a role highlighted by The Climate Trust’s leadership, Orrick, Herrington & Sutcliffe provided pro bono legal support to the Fund I launch.
“Even with access to PRI funding from Packard, the launching of Fund I would not have been possible without the considerable pro bono legal support of Orrick, Herrington & Sutcliffe LLP,” said Sean Penrith, Executive Director for The Climate Trust. “Procuring this caliber of legal expertise was a game-changer for Climate Trust Capital, as the legal costs associated with starting new funds can be a heavy burden. We couldn’t have asked for a more committed legal partner than Orrick, and we look forward to our continued collaboration as investments are deployed, and our fund becomes a reality.”
“Orrick was delighted to be able to assist in a worthwhile and important project,” said Bob Lawrence, Orrick’s Senior Counsel for environmental law. “Climate Trust Capital will help drive the development of innovative technologies that will reduce carbon emissions and expand financing options in the energy sector,” said Lawrence.
“We believe that offset projects can be an important and cost effective contributor to the U.S.’ stated climate reduction targets under the historic Paris Agreement,” added Kristen Kleiman, Director of Investments for Climate Trust Capital. “This significant investment from the Packard Foundation, as well as the valuable legal guidance provided by Orrick, will enable Climate Trust Capital to invest in vital offset projects that collectively make for big climate impacts, while leveraging our existing programs to attract private capital and further amplify our impact.”
Investments in conservation projects from the $5.5M Fund I vehicle are expected to catalyze the development of four anaerobic digesters, three forestry projects and one grassland conservation program, collectively reducing 978,157 mtCO2e over their ten-year life. From a conservation perspective, this will ensure sustainable management on more than 20,000 acres of land, and greatly improve water and air quality domestically. Based upon its success, Climate Trust Capital plans to scale the carbon investment fund to become a $500M fund with the potential to reduce significant emissions both domestically and abroad.
As Climate Trust Capital assembles additional impact investment dollars to scale the investment fund, there are plans to offer further rounds of increased financing for deployment in 2018, allowing for expanded offers of financing to more sectors and developers.
“Lenders heavily or completely discount the future revenue conservation projects can generate by selling carbon offsets, significantly reducing the ability of carbon markets to mobilize capital for conservation projects,” said Peter Weisberg, Senior Investment Manager for Climate Trust Capital. “While the market currently undervalues carbon, Climate Trust Capital’s patient finance model was built with the conviction that carbon prices will continue to increase, and aims to unlock that value over a 10-year investment term—meeting an urgent need in the market for upfront conservation finance,” continued Weisberg.
Fund I was structured to provide upfront capital to projects in return for partial ownership of the resulting carbon credits. The upfront investment can be used by projects for requisite costs such as construction, development or land acquisition.
“The Trust has almost two decades of experience working in domestic carbon markets, and is in a unique position to manage the risks associated with investing in carbon projects through Fund I,” continued Kleiman. “The Trust has structured a portion of their existing $22 million of program funds to guarantee project developers and investors a minimum value for future carbon credits that also caps downside risk. Proceeds from the resale of emission reductions to California compliance and voluntary buyers are anticipated to generate sufficient revenues to provide a market-based rate of return to the fund.”