HSBC and Pollination’s natural capital JV – what’s the latest?

The firm is working on two strategies – one for institutional investors that will target farmland and timberland assets, and one that will focus on corporates and their carbon offset needs.

In August 2020, HSBC and Pollination teamed up to launch a natural capital asset manager called HSBC Pollination Climate Asset Management.

The pair came out with some eye-catching plans such as launching a $1 billion fund in 2021 that would invest in areas such as forestry, farmland and natural ecosystems capable of storing carbon, as well as a $2 billion carbon credit vehicle.

Since then, we’ve heard some snippets – such as participation in an African carbon credits programme and some notable hires – but not much else. So, what’s the latest?

Well, for a start, that longwinded name is gone – it’s just Climate Asset Management now. And while CAM’s CIO for nature-based carbon strategy Martin Berg and CIO for natural capital strategy Ben O’Donnell were unable to discuss fundraising, the pair were able to share some useful insights with affiliate title Agri Investor about the status quo at the firm.

As the job titles of Berg and O’Donnell suggest, CAM is continuing to develop its carbon and natural capital strategies.

The natural capital strategy will seek to invest institutional capital into natural assets such as farmland and timberland, while trying to benefit from offsets such as carbon and biodiversity credits where possible.

O’Donnell says the LP investor base is waking up to the need to ensure “capital is being used not just to get exposure to land and that macro farmland story, but also to make sure the outcomes being derived from that landscape are ones that are good for the broader environment”.

As such, the strategy will have certain impact criteria and O’Donnell confirmed a portion of the firm’s carry (he declined to specify the amount) will be linked to those impact goals. Any forfeited carry will be reinvested into the projects and assets the firm is managing.

Other key details are that the strategy will only seek exposure to developed markets, has “specifically excluded livestock ownership and wouldn’t purchase a property that produced a majority of its income from livestock production”, and could end up with a preference for permanent crops but is open to niche row crop markets such as pesticide-free and non-GMO products.

CAM’s carbon strategy, meanwhile, is focused more on corporates with net-zero targets than institutional investors. It will also shun developed markets in favour of emerging markets.

With corporates having grown wary of the potential reputation risks associated with carbon credits traded on the voluntary market, as well as price increases and limited access to projects, Berg says more and more corporates want to get closer to the source assets generating credits so they can establish long-term access and safeguard quality.

“What we’re putting together is not a classical investment product, but more a solutions product. We’re helping these corporates access these type of projects in order to source high quality offsets over a longer time period.

“So it’s really early-stage work, getting the projects off the ground and then ensuring corporates have a stable stream of carbon credits over time,” he added. “And that really fits neatly with their net-zero targets because the time horizon is generally around 2030, some are 2040 and some are looking at 2050.”

The CAM partnership with the Global EverGreening Alliance announced in November, for example, is a $150 million programme that Berg describes as a “blueprint” for the firm. It aims to restore more than 2 million hectares of land across six African countries, with investors in the carbon strategy receiving carbon credits as their return.

Certainly, the team has been busy plugging away and there appears to be little sign of them slowing down.

For some onlookers, however, nothing beats the surety provided by the launch of a sizable vehicle capable of drawing commitments from the largest LPs – over to you, CAM.

This article first appeared in affiliate publication Agri Investor