Bain Capital’s partners invest in carbon credit generation platform

Carbon credit generation presents a new asset class – one that the private funds industry is intent on scaling.

Bain Capital’s partners are the latest to explore the nascent asset class of carbon credit generation. Bain Capital Partnership Strategies, which invests the capital of the buyout firm’s partners, is funding newly launched carbon credits investment company Terra Natural Capital.

Terra finances nature-based carbon sequestration and energy efficiency projects with a view to generating carbon credits that can be sold on compliance and voluntary markets. BCPS is now Terra’s largest shareholder, while Swiss multi-strategy firm Pala Investments is a minority shareholder.

For BCPS, it is an “opportunity to invest in a platform that not only provides potential financial returns, but also plays a pivotal role in contributing to a high impact strategy to combat climate change”, managing director Michael Schor told New Private Markets. BCPS also invests external capital.

Bain Capital Partnership Strategies combines a long-term investment horizon with a flexible capital approach to invest in specialised or niche strategies that are complex or difficult to access. Financing carbon removal and reduction projects that provide institutional quality carbon offsets matches this thesis well.”

There is a gap in the market to provide financing for carbon project developers, Terra co-founder Stephen Gill told New Private Markets on Thursday. Banks and traditional capital providers are often unwilling to meet this gap, given the nascency of the sector and high-profile investigations questioning the legitimacy of carbon credits last year, said Gill.

But the sector presents an attractive investment proposition for investors with the right risk appetite. Terra provides “debt-like facilities” and, based on current carbon credit prices, the business is projecting IRRs “in the double digits”. Returns are likely to increase in coming years as demand grows for voluntary carbon credits, Gill added.

Numerous other private markets players have also recognised the potential of the carbon credits generation sector and created institutional investment products. Manulife Investment Management, Climate Asset Management (the joint venture by HSBC and Pollination) and Stafford Capital Partners have all launched strategies involving carbon sequestration project finance to generate income through credit sales. Folium Capital and Gresham House, meanwhile, are both combining traditional timberland strategies with carbon credit sales.