TPG readies $1bn platform to ‘reduce friction’ in voluntary carbon market

As is often the case with investment initiatives in the rapidly evolving climate action space, the deal involves a wide cast of characters and a relatively unusual structure.

TPG has injected $300 million into a newly founded company, Rubicon Carbon, which it hopes will address “pain points” in the market for voluntary carbon credits. The firm expects additional investors to take the company to $1 billion in funding by the end of the year.

Organisations that want to offset part of their carbon emissions as they chart a course to net zero buy credits in the voluntary carbon market, an unregulated, disparate and rapidly growing marketplace. The increase in demand for voluntary carbon credits has “exposed weaknesses and imbalances in in the market”, according to TPG’s launch press release for the company.

“The addition of new carbon credit brokers, marketplaces, exchanges, and ratings agencies has not fully resolved persistent issues of limited supply, insufficient project financing, variable quality, and lack of accessibility,” the release states. Rubicon Carbon will draw on various different stakeholders to offer “proprietary curation and portfolio construction, enhanced monitoring and analytics”, as well as other services, it continued.

“The growing carbon market will need new tools and financing solutions in order to reduce friction, democratise access and improve quality,” said Jim Coulter, TPG founder and managing partner of the TPG Rise Climate.

Rubicon will start with a focus on two areas. Its initial product will be the Rubicon Carbon Tonne (RCT), a carbon credit available to enterprise clients along with its range of monitoring and analytics services. It is also working on the supply side with the launch of Rubicon Carbon Capital, “to partner directly with carbon credit project developers to catalyse the implementation of new carbon projects”.

As is often the case with investment initiatives in the rapidly evolving climate action space, the deal involves a wide cast of characters and a relatively unusual structure.

TPG is investing into the business from both its Rise Climate and Rise Fund vehicles. It expects Bank of America, airline JetBlue’s venture capital arm and NGP Capital’s energy transition fund to join the initial round and take the company to the $1 billion mark.

Beyond the investor group, the company will work with a number of existing businesses, including Anew Climate, a TPG and NGP portfolio company. Anew, formed this summer through a merger, will be Rubicon’s “supply partner”, sourcing and procuring carbon credits for its inventory.

The firm has also assembled a group of 16 corporate partners from various industries to “guide its platform and development”; these include the likes of Aon, General Electric, JPMorgan and Kirkland & Ellis.

Corporate partners

As private markets firms raise and deploy capital into climate solutions, they are working increasingly with corporate partners. Climate tech firms such as Energy Impact Partners, OGCI Climate Investments and Fifth Wall are substantially backed by industrial businesses looking to have sight of, and often use of, emerging technology. TPG itself counts a number of corporates among the LPs in its Rise Climate Fund, such as Nike, General Motors, Honeywell and TD Bank. The firm lists 21 companies in its investor base as members of its “climate coalition”.

In terms of the deal itself, Rubicon is a TPG-incubated business; the $300 million initial investment has been used to build up the company’s initial inventory of carbon credits, which amounts at launch to 20 million tonnes of carbon dioxide equivalent, the firm said.

The management team for Rubicon is led by Tom Montag, former COO of Bank of America and previous member of the management committee at Goldman Sachs. Rubicon is chaired by Anne Finucane, former vice chair at Bank of America and an influential figure in sustainable finance. Jennifer Jenkins, who was awarded the Nobel Peace Prize alongside Al Gore in 2007, is the chief sustainability officer.

It is unusual to see a private equity firm seeding a platform on this scale. It is not, however, unknown for TPG’s Rise to start a business from scratch: in 2019 it partnered with Arizona State University to launch education business Instride.