Manulife Investment Management‘s Forest Climate Fund – a strategy that involves generating carbon credits through natural sequestration – has reached an initial close on $224.5 million. The Article 9 fund launched in 2022 and has a $500 million target.
Around 70 percent of Manulife IM’s FCF will be invested in carbon projects, primarily involving the acquisition of timberland assets and enhancing their sustainability and capacity for sequestration. The excess sequestered carbon from these projects is registered as carbon credits. As an auxiliary strategy, Manulife “establish[es] new forests through afforestation or reforestation to generate high-quality carbon credits and long-term sustainable timber value”, the firm’s announcement stated.
The profitability of such carbon projects “is tied to future expectations of carbon prices. And most forecasts are pretty bullish about those,” Eric Cooperstrom, managing director for impact investing and natural climate solutions, told New Private Markets last year. “Historically [in forest-generated carbon credits], there has been quite a bit of volatility in pricing, especially in the voluntary market, and historically, generally low prices. But with the influx of net-zero commitments that companies and investors are making, and the view of natural climate solutions as high value, there are certainly some tailwinds in terms of carbon pricing.”
Manulife will distribute the credits to investors “through direct in-kind transfers” to redeem in pursuit of their own climate goals “or for purposes such as monetising in the carbon markets via offset sales to realise financial value”, the announcement stated. The firm may also distribute financial returns through, for example, “conservation easements, non-timber income generation strategies, and limited timber harvests”.
Natural capital strategies that generate carbon credits have proliferated in recent years, but their distribution forms to LPs have varied. Folium Capital and Gresham House are both combining traditional timberland strategies with carbon credit sales. Climate Asset Management, the joint venture by HSBC and Pollination, has two strategies: one, mainly targeting corporate LPs, that will distribute credits directly to corporate LPs to sell or use for offsets at their discretion. CAM’s other strategy, like that of Stafford Capital Partners, involves selling credits to distribute income to LPs.