Restore Fund tests timber-focused carbon approach

The $200 million Restore Fund established this year by Goldman Sachs, Apple and Conservation International is designed to test a timber-focused approach to carbon sequestration that could eventually be opened to additional investors.

“When you are trying new things, often it’s most effective to work closely with a small set of great partners than to guess at what you hope the market wants and go and try to market something that may or may not make sense,” John Goldstein, a managing director and head of Goldman’s sustainable finance group, told affiliate title Agri investor.

“Our approach is to partner closely with the clients needed to provide the capital and competency, to get out and actually roll up our sleeves and do the work. From there you can figure out what’s next.”

Apple’s commitment to the Restore Fund was announced in an April statement. It explained that the vehicle aimed to facilitate the sequestration of 1 million metric tonnes of carbon dioxide annually, and thereby demonstrate a viable financial model that could encourage investment into forest restoration.

Goldstein said corporates, pensions, asset managers, sovereign wealth funds and at least one insurance company have since expressed interest in the Restore Fund. There are currently no plans to raise additional capital to further the vehicle’s investments in global forests, wetlands and grasslands that remove carbon while producing a financial return. However, Goldstein added that the Restore Fund could eventually welcome additional LPs.

“If things go well and it looks like this is an effective approach that can take more capital, we will all pick our heads up and think about what comes next,” he said. “If we find great investment opportunities, there is capital in the world that wants great investment opportunities.”

According to his LinkedIn profile, Goldstein joined Goldman Sachs Asset Management in 2015 after 14 years as co-founder and managing director at Imprint Capital Partners, an impact-focused manager investing largely on behalf of family offices and foundations.

The sustainable finance group he leads also houses Goldman’s Horizon Fund. The impact-focused vehicle has identified sustainable food and ag as one of five investment themes and was nearing $1 billion by late June.

Not a carbon-for-income play

The Restore Fund was established after about one-and-a-half years of collaboration between Goldman, non-profit organisation Conservation International and Apple, the last of which wanted to build upon steps it had already taken to reduce emissions in its own supply chain.

“They wanted something where they could almost look at, touch and feel their carbon,” said Goldstein.

He declined to address return expectations, beyond confirming that The Restore Fund would not rely on carbon for income and would instead derive returns from wood products and long-term management of forest assets.

“The goal is to find high-quality timber projects that are adding more carbon stock to the land,” he said. He added that the Restore Fund would be “looking at things like degraded pastureland [and] other properties that were once forests [but] were converted to something else, and now it’s time to turn them back to forests.”

Apple’s statement highlighted its efforts since 2018 to sequester carbon through restoration of a 27,000-acre mangrove forest in Colombia and its partnership with conservationists in Kenya’s Chyulu Hills region, which hosts degraded rangeland and savannas with carbon sequestration potential.

Goldstein declined to disclose other geographies relevant to the Restore Fund. He stressed that much of the work in structuring the vehicle focused on de-linking its return and carbon components.

“This has really been designed to not sell the carbon,” he said. “On the one hand, [the aim is] to create clear sequestration – and partner with Conservation International to kick all the tyres on that – but instead of selling it, actually have it [sequestered carbon] for the investors themselves. This basically says we are going to unbundle the carbon from cash and there is a carbon return and there is a cash return.”

Goldstein added that the Restore Fund is among many initiatives Goldman is undertaking to support both compliance and voluntary carbon markets. He said that although Goldman works under a firm-wide understanding that it will ultimately be important to impose a cost on carbon, there is no consensus in the market about such a tax or at the level of government – US federal, state or even international – at which emissions regulation would be most appropriate.

Regardless of the uncertainty, he said, the Restore Fund demonstrates how the private sector is not waiting for policy to move forward on climate change.

“When we look holistically at markets and what companies and investors are doing, we’re seeing carbon playing a bigger role outside of the actions of government,” Goldstein said. “Sometimes it can be short-sighted of people to be too narrowly focused on the policy front for carbon – which is important, but it’s not the only game in town.”

This article first appeared in affiliate publication Agri Investor