AXA IM Alts will announce today the latest deal for its natural capital strategy: an investment in Pantheon Regeneration PBC, a new company that will restore pocosin peatlands through carbon credit projects across a 14,500-acre site in the Southeastern United States.
AXA Group announced its intention to deploy €1.5 billion to support sustainable forest management in 2021. As part of this plan, the group allocated €500 million to its investment management business to invest in natural capital.
Pantheon is the latest in a diverse list of projects. These include a $49 million allocation to reforestation projects in the Brazilian Amazon rainforest and participation in a funding round for tech company Chloris Geospatial.
One benefit of building a diverse portfolio is that it allows the firm to ensure not all projects require a long time to deliver credits. The longer lifespan of natural capital strategies is one reason institutional investments are hesitant to allocate to them, Mercer head of impact solutions Angelika Delen told New Private Markets earlier this year.
“It [the time horizon] varies project by project,” AXA IM Alts’ head of natural capital and impact Alexandre Martin-Min told NPM. “For projects like the one we have in North Carolina [Pantheon], this is pretty quick. We build the dam, we have about six months and we’ll start to see. We’re going to have the rain seasons, so we’re going to see where the water level ends up and we’re going to be able to issue the first credits”.
Other types of projects, such as afforestation, have a “longer J-curve”, meaning that the first carbon credits are unlikely to be issued until “six or seven years after the first seed is planted”.
In such circumstances, AXA IM Alts has lined up offtakers in advance. In the case of the project in the Amazon rainforest, the firm already has “an engagement by a tech company to buy a portion of the credits at a given price”, Martin-Min said.
“Of course, we don’t sell everything on a forward basis. We’re going to sell some of it on the spot market,” he added, as the price of carbon credits is expected to rise.
Third-party capital
More recently, AXA IM Alts has begun raising capital from third party investors. The International Finance Corporation is considering a $25 million commitment to AXA IM Alts’ Natural Capital Opportunities Fund, which has a $150 million fundraising target, according to a filing on the IFC website earlier this month.
Unlike the broader strategy, the fund will make all its investments in emerging markets, particularly Asia and Latin America, as well as Africa, according to IFC’s filing. Martin-Min declined to comment.
Off limits
While the firm is building a broad portfolio, some areas have become less appealing.
“We’ve basically stayed away from REDD+ investments. We were expecting that, maybe we could resume some investments in the REDD+ space, but, given what we see on methodology and the progress of Verra, it’s pretty unlikely that in the short term we would do more investments.”
The merit of REDD+ credits – those generated by projects that prevent deforestation – has been called into question. An investigation into the value of such credits generated using the Verra standard, carried out by newspapers The Guardian and Die Zeit and investigative non-profit SourceMaterial, found that more than 90 percent of avoided rainforest deforestation credits – which in turn make up 40 percent of all credits verified by Verra – have a “fundamental failing”.
The validity of these criticisms is up for debate, but it is clear that the controversy has undermined faith in avoidance credits. “Among managers we’ve seen so far, there’s very little REDD+,” Bfinance ESG director Sarita Gosrani told NPM last year. “They don’t touch it because there’s so much controversy around it.”
