Two platform launches this week look set to break down barriers.
Earlier this week we brought you news of Just Climate’s nature-based strategy. It will invest primarily in the businesses and technologies that enable both the sequestration of carbon through nature and the avoidance of emissions in agricultural and forestry activities (less so in the underlying natural assets). The firm has not disclosed any specific fundraising plans for the strategy. It closed its debut fund – focused on industrial decarbonisation – earlier this year on $1.5 billion.
On Thursday, Ardian unveiled its nature-based solutions strategy. Housed within its infrastructure team, Averrhoa Nature-Based Solutions has been launched in concert with a French forestry and biodiversity group called aDryada. It aims to deploy €1.5 billion-worth “of projects and capital worldwide, mainly in emerging and developing economies, as well as local populations”, the firm said in a press release.
While the firm has not set out a timeframe for this deployment, it said it expects to sequester around 150 million tonnes of carbon and use this to generate third-party verified carbon credits. If the firm succeeds in raising €1.5 billion, it would be among the larger investors in this budding market.
Increased investment in natural capital assets is now recognised as a large, essential component in the overall plan to tackle the climate crisis. The Forest Investor Club, a group convened by the US State Department to accelerate investment in nature, notes in a report this month that nature-based solutions could account for 37 percent of the cost-effective climate change mitigation efforts needed by 2030 to meet Paris Agreement goals, citing data from the World Business Council for Sustainable Development.
The FIC report also notes that in order to realise the full potential of nature to limit climate change – to get to that 37 percent contribution – annual investment into nature-based solutions needs to double by 2025 to around $384 billion. In total, by 2050, there needs to be $11 trillion invested “to meet ambitious climate change, biodiversity and land degradation targets”.
There are 11 barriers to mobilising capital at this scale, the report continues. While these two fund launches won’t fell them all, they will certainly put dents in some of them.
One such barrier is the size of opportunities on offer: there is a lack of “large-scale” investments that can accommodate a $50 million ticket from an institutional investor, the report notes. The arrival of Ardian and Just Climate adds much needed capacity to the field, at least at the fund product level (which is not to take away from the firms that have already made moves in this space, of course).
The barriers also include a lack of know-how. This is perhaps unsurprising given that the frameworks for this type of investment are still in early stages of evolution; the opacity of voluntary carbon markets is a good example of this.
Investors are convinced of the need to invest in nature, but “often cite a lack of knowledge, data and institutional experience” to do so, the report notes. Similarly, project developers in this nascent area may be unable to “communicate their business models to investors, demonstrate bankability and identify and address risks”.
Adding two more high-profile private markets names to this landscape will only help with this. More are needed.