Carbon Growth Partners taps investors to raise $300m for carbon credit fund

Carbon Growth Partners taps investors to raise $300m for carbon credit fund

Carbon Growth Partners CEO Rich Gilmore (Provided)

Melbourne-based carbon market investor, Carbon Growth Partners (CGP), has reopened its second fund as it looks to raise an additional USD$200 million ($300 million) by mid-2024 and make the most of growing demand from institutional investors worldwide.

The move represents an extension to the group's Carbon Growth Fund which previously secured USD$30 million ($45 million) in late 2022, and CEO Rich Gilmore is optimistic that current market conditions make it a very opportune time to be deploying more capital.

A former trader and director at non-profit The Nature Conservancy, Gilmore is confident the firm will raise enough to reach its target and potentially exceed it as interest from offshore groups increases. So far, CGP has secured an initial USD$20 million commitment.

The latest raise comes after CGP experienced strong demand in July 2021 for its debut fund, the Carbon Opportunities Growth Fund, which secured USD$100 million across two rounds against an initial target of USD$10 million.

“We're giving ourselves through 2023 to raise but one of the things that has changed in the past 12 months or so is the interest, understanding and willingness of institutional investors to start allocating to carbon markets,” Gilmore told Business News Australia.

“We've got significant interest, so that gives us a lot of confidence we'll get to that initial close and hopefully exceed it.”

Established in 2021, CGP invests in a diversified portfolio of carbon credits and carbon offset projects, which can provide clean cookstoves, renewable energy, nature conservation and restoration, and renewable biogases. 

Carbon credits allow firms to invest in projects that contribute to a reduction in global carbon emissions, as part of their transition to net zero. One carbon credit equates to a one-tonne reduction of carbon dioxide from the atmosphere.  

According to the CEO, the firm allocates around 50 per cent of its funds to nature-based solutions which focus on conservation and restoration, while about 30 per cent is put toward renewable energy and 20 per cent is pumped into projects that aim to address methane production and landfill waste.  

To date, the company has invested in 70-plus projects across 27 countries. CGP has invested more than US$230 million (AUD $344 million) in projects that have collectively resulted in the verified reduction or removal of 37 million tonnes of greenhouse gases.

“The overarching criteria is to invest in high quality, high integrity carbon projects and carbon credits that can be used for both a voluntary and compliance offset purpose. Within that strategy, there is a range of specific project types that we allocate we allocate to nature-based solutions, in particular what's called blue carbon, the protection and restoration of coastal ecosystems, mangroves and seagrasses,” Gilmore explained.

“We are the world's largest investor in the world's two largest blue carbon projects - BlueMX in Mexico and Delta Blue Carbon in Pakistan. Both projects are protecting and restoring mangroves. Mangroves are prodigious carbon stores and are essential for a safe climate.

“They also deliver very significant adaptation benefits to vulnerable communities by addressing sea level rise and sustaining reef health, protecting people from the effects of storm surges and cyclones. They have very strong corporate demand because of those attributes.”

Another project the firm has backed is the Qianbei Afforestation Project in China, which is training local farmers in seed and seedling selection, nursery management, site preparation, planting models and integrated pest management. This led to native species being restored across 50,000 hectares and providing jobs for 16,339 local farmers.

In Africa, financing from CGP is helping distribute 4.5 million fuel-efficient cookstoves to families, replacing inefficient firewood stoves and reducing the burden of respiratory disease in children and deforestation.

Gilmore believes that carbon is one of the most under-priced asset classes, and that demand will accelerate as corporations set out to meet the Paris Climate Accords, which is aiming to keep the planet’s warming below 1.5 degrees.

“We often talk about decarbonisation in percentage terms. To stay on track for 1.5 degrees, we'd have to reduce emissions by 45 per cent by 2030. But that's not a very meaningful number. It's probably more helpful to think about it in absolute. Getting to net zero, achieving 1.5 degrees, means reducing emissions between now and 2030 by 150 billion tonnes.

“If you add up every carbon investment that's ever been made over the past 25 years, we've been able to achieve 2 billion tonnes of reductions. There is this massive need to accelerate climate finance and to accelerate corporate participation in carbon offsetting with a very constrained supply.

“Supply is inelastic. Let's say the price of carbon went from $10 today to $100 tomorrow -that does not make one tree grow any faster. Every month right now, more carbon credits are issued than are used by companies for offsets, so the perception is that it is oversupplied. But in a couple of years, you can see that very quickly, the market becomes acutely and chronically under-supplied and that's the structural formatic that we're investing into.”

When asked if the two funds differ in any way, Gilmore says the initial rounds were primarily funded by Australian investors, while the second is seeing more interest from offshore groups.

“We’re getting a lot of interest and a surprising amount from the UK, family offices in Switzerland, family offices in Asia and some interesting sovereign wealth interests from the Middle East,” he said.

“We think there's an opportunity there to expand the geographic investor base and take advantage of this mispriced opportunity.”

According to the firm, the Carbon Opportunities Growth Fund outperformed major asset classes like cash, stocks, bonds, gold and crypto, generating a 17 per cent return to investors since its inception in July 2021.  

“That equates to outperformance over the carbon market overall by about 60 per cent. The two big drivers of that outperformance have been allocation by project type. For example, we have allocated more capital to carbon removal credits,” Gilmore explained.

“We've allocated more to household devices or clean cookstoves and less to renewable energy compared to the market overall. Those have been the asset types that have outperformed.

“The other part of the outperformance or the attribution has been project differentiation - allocating to the very highest quality projects that have the most corporate demand and least subject to volatility. The common theme is allocating to high-quality, policy-aligned credits that have the most resilient corporate demand.”

CGP’s second investment vehicle will target a 20 per cent annual return.

“This is one of the rare investments where an investor's aspirations to generate financial return - in this case targeting a 20 per cent internal rate of return (IRR) - is perfectly aligned with their aspirations for a safe climate,” Gilmore said.

“The more carbon prices rise, the better the fund performance will be. But also, the more finance will make its way to projects and the bigger incentive there will be to decarbonise. If you want to make an investment that can deliver an attractive rate of return and help the other world achieve its goals for a safe climate risk, investing in carbon markets is one way to do it.”

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