Alternative investor AXA IM Alts has launched a €500m Natural Capital Strategy impact fund that will support reforestation and conservation projects in emerging markets and issue voluntary carbon credits.
The fund will focus on financing activities that protect vulnerable or valuable areas from deforestation and will provide financing to address the causes of deforestation and improve forest conservation.
The portfolio will consist of strategic equity stakes in key natural capital players, including project developers with local market access, as well as direct project financing.
These investments will generate voluntary carbon credits that will be sold in the market as carbon offsets to repay the financing, which produces a return that increases the appeal of natural capital projects for more investors.
“Forestation has moved from a conservation strategy, which is often not accessible for asset managers, to something that makes viable returns and therefore can unlock institutional capital,” said Jonathan Dean, head of impact investing at AXA IM Alts.
Generating an income through originating voluntary carbon credits and selling them in the market through spot or forward prices can help to derisk projects by lining up offtakers to buy the credits, which is making more projects feasible, along with higher carbon prices.
“As carbon prices stabilise at a higher level to where they were five years ago, which is how the markets have performed recently, then the viability of projects increases hugely,” Dean said.
Next phase
The new fund is the next stage of development of AXA IM Alts’ portfolio of nature-based solutions that target climate change and preserving biodiversity, and the firm has also hired a team of natural capital professionals to support and deploy the fund.
Appointments include Adam Gibbon, a climate change and biodiversity loss specialist; Edoardo Cavallo, who specialises in emerging markets; and Camila Alva Estabridis, who has worked in public policy for a decade.
The Natural Capital Strategy fund is reserved for AXA Group investors, who have provided an initial €500m commitment, and is part of the group’s €1.5bn commitment to support sustainable forest management and will contribute to its target to remove or avoid up to 25 megatons of CO2 as part of its net-zero target.
AXA IM Alts has a track record in biodiversity and climate change. The firm launched the AXA Impact Climate and Biodiversity Strategy in 2019, which has invested about €350m in projects and companies that are helping to restore degraded ecosystems and support carbon avoidance or sequestration.
It had invested more than €100m by the end of June in equities, carbon-backed bonds and a project debt facility.
Investments include FUNDAECO, a company focused on conservation in protected Central American forests, Forest Carbon, which specialises in conserving and restoring degraded peatland, tropical forest and wetland in Indonesia, and a minority stake in French nature-based project development company, The Shared Wood Company.
In July 2021, AXA IM Alts also announced the acquisition of ClimateSeed, a voluntary carbon offsetting platform that connects businesses seeking to offset carbon emissions with project developers offering carbon reduction projects with social benefits.
ClimateSeed is helping AXA IM Alts to sell the carbon credits that its Natural Capital Strategy fund is originating.
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