The Climate Trust completed its goal of investing its $5.5million pilot carbon fund in January 2019. Pilot funds, by definition, are aimed at forging new investment territory and proving an investment thesis. For us, that thesis is that carbon is undervalued. We invest in offsets seeking market rates of return and for that, Climate Trust’s investment mitigates carbon market risk for project owners. In addition to demonstrating a thesis, a pilot fund is a proving ground for the practical parts of managing a fund: risk assessment, investment processes, contract negotiations, and active management to name a few. In a nutshell, lessons learned.
I won’t go into all of the lessons we learned investing Fund I, but the one I found most surprising is that $5.5 million goes a long way. In economists’ terms, the multiplier effect. Over the next ten years, Fund I’s portfolio, including our partners’ share of the projects, is expected to sequester over 3.5 million tons of greenhouse gases. On the spot market, carbon offsets (CCO’s) have been trading for about $13.60. Multiplying that price by the total amount of tons would equate to almost $48 million, or more than eight times the Fund’s value. Moreover, Fund I’s grassland and forestry investments are on 140,000 acres of land. With mission aligned non-profits as partners we see multiplier effects in conservation co-benefits, including rare and endangered species protection, soil protection, habitat enhancement and water quality improvement. That’s a huge land base of conservation and climate change impact for the dollar, and at market rates of return.
In the impact investment world, there is a lot of talk about scale. As there should be. But too often scale is seen just in terms of dollars. We would argue that small funds focused on doing one thing very well also serve an important purpose. And that’s what we intend to do with our next fund – Fund II. Target a $10-$15 million, 10-year fund focused on land-based carbon offsets with attractive environmental and financial returns. We will again target conservation minded, mission-aligned partners. Eventually, we’d love to manage a $50-$100 million carbon offsets fund, but for now, we think that a second, smaller fund with outsized impact is just what skeptical investors will need to make that all important leap of faith to invest.