Just Climate, the climate-focused firm founded by Al Gore’s Generation Investment Management, has launched a natural climate solutions strategy.
The strategy, known as Natural Climate Solutions, will involve growth equity investments to scale companies addressing carbon emissions avoidance and carbon sequestration in agriculture. Most of these will be in the form of corporate equity; the firm will also have some capacity to provide project equity follow-on finance for existing portfolio companies.
It is a global strategy, encompassing both developed and emerging markets. The firm has hired Eduardo Mufarej as co-chief investment officer and head of natural climate solutions. Mufarej is based in Brazil, where Just Climate has opened an office and plans to invest.
Just Climate will be a familiar name for readers of New Private Markets. It was established in 2021, proposing to deploy institutional capital via flexible finance vehicles structured by climate themes rather than asset classes. Its debut fund, focused on industrial decarbonisation, closed at $1.5 billion earlier this year with commitments from California State Teachers’ Retirement System, PSP Investments, AP2, AP4, Harvard Management Company, Microsoft’s Climate Innovation Fund and the IMAS Foundation.
Just Climate is “focused only on the highest climate impact solutions,” senior partner Clara Barby told NPM. “We’re immediately drawn to the hardest-to-abate sectors because that’s where you get the greatest levels of emissions abatement that wouldn’t have happened otherwise.” After the industrials strategy, “food, land and agriculture are the remaining hardest-to-abate sectors. They make up about a quarter of global emissions”.
There are two themes to this strategy: avoidance of emissions in agriculture, forestry and land use; and sequestration of carbon emissions through nature-based solutions such as forestry preservation and the prevention of soil degradation.
On the avoided emissions side, Just Climate will look for companies that are, for example, introducing efficiencies or less carbon-intensive agricultural tools and food production practices. Examples include precision agriculture and regenerative agriculture technologies.
For emissions sequestration, Just Climate hopes this strategy will help scale nature-based solutions: “The opportunities for carbon sequestration that are available for the human race for the next 20 years are [largely] from nature,” said Mufarej. “We’re closest to the biggest moment of land transformation in human history.”
Reforestation projects to support nature-based solutions, for example, are attracting funding, but they cannot scale without infrastructure such as biome measurement and management technologies, Mufarej said. “This is an industry in desperate need of capital, because those are capabilities that haven’t been developed yet. We can be an important enabler [for the sector], providing resources, institutional backing, management capabilities to ensure that the structure for those forestry assets to occur gets into place. We hope our involvement can be catalytic.”
“The industry feels a lot like renewables did 20 years ago,” Barby added. “We see that there could be a [forest] restoration industry like the renewables industry and we can use a lot of the same commercial structures and techniques we’ve used in that industry to succeed.”
Just Climate’s flexible financing strategy is a relatively novel model, but not totally new in impact investing; catalytic and development finance providers have long used blended finance to mobilise capital. But it is a newer concept for institutional investors like pension funds, foundations and insurance companies, which often have siloed investment teams for different asset classes with rigid risk and return thresholds.
“[Having] the flexibility to do company and project equity has been extremely helpful in our industrial strategy, but we had to talk it through with asset owners and explain why this is the trajectory of these assets and this is why you need this kind of financing to back the opportunity. It will be a similar discussion for the NCS [strategy],” Barby said.