Carbon credits: Forestry fund managers juggle corporate and investor objectives

Corporate investors, led by tech giants, have joined other heavy emitters, including oil majors, to put money in the tree-and-land sector as part of their strategy to derisk their carbon footprints and future liabilities.

The use of carbon credits to offset carbon emissions has been the subject of some criticism, but in 2024 Meta and Microsoft signed contracts with BTG Pactual Timberland Investment Group (TIG) to provide more than 10m tonnes of nature-based carbon-removal credits from its forests.

Mark Rogers, chief executive of New Forests, says: “The critical thing for corporate investors is to build a carbon bank, so they understand how the global carbon markets – whether regulated or voluntary – work. The carbon markets are complex. They have as many as 50 different methodologies. It is complex. All we need is four or five, not 50 methodologies.”

Rogers sees corporate investment in forestry as a way of diversifying balance sheets. Corporates understand that a carbon liability is looming, which they will need to cover off. Those already in the market have chosen to get in early, he says.

Investment in carbon is, to a varying degree, a corporate derisking strategy, says Rogers, adding, however, that it is not as simple as saying it is a financial risk. Some companies are looking to the future as new generations of climate-aware consumers emerge. Apple, for example, has flagged a future with carbon-free or carbon-neutral iPhones.

Recently, New Forests hosted a group of Japanese bankers on a fact-finding field trip to its forest plantations in New Zealand. It is part of the Japanese banks’ ‘save the planet’ initiative. 

“They were trying to get a better understanding of where the investment universe will shift as we continue to narrow down carbon solutions and as the nature repair market evolves to be a substantial economic force,” Rogers says. “They are trying to understand how and where they will play a role in that natural capital space.”

He adds that the banks have many corporate clients who have questions around decarbonisation, offsets and nature repair.

BTG Pactual TIG has undertaken to supply Microsoft with up to 8m nature-based carbon removal credits through to 2043, while Meta has invested with BTG Pactual TIG to deliver 1.3m carbon credits – with options for delivery of an additional 2.6m credits through to 2038. 

Mark Wishnie, BTG Pactual TIG’s chief sustainability officer, says: “Meta and Microsoft are relying on the delivery of these carbon credits. They need to feel confident that their counterparties can deliver.” He declines to comment on the size of the investments, except to say the credits will be delivered from BTG Pactual TIG’s US$1bn (€.97bn) reforestation and restoration strategy in Latin America.

While he does not presume to speak on behalf of the large carbon buyers, Wishnie’s impression is that corporate investors seek to acquire carbon credits from forestry managers to ascertain the source and quality of the credits. “They want those credits to come from forests which are delivering real benefits to the environment and the local community.” 

The commitments from Meta and Microsoft now underpin BGT Pactual TIG’s reforestation and restoration strategy in Latin America. Virginia-based non-profit Conservational International is acting as BGT Pactual’s impact adviser to ensure the strategy enhances biodiversity and supports inclusive and equitable community development.

“We launched the strategy in 2021 and cumulatively we have crossed a milestone – we have mobilised US$500m and we are now halfway to our target,” Wishnie says. The vehicle is aiming to restore approximately 133,000 hectares of natural forest while establishing sustainable commercial tree farms of another 133,000 hectares on deforested landscapes.

Before Meta and Microsoft, Apple was already an investor in BTG Pactual TIG’s Latin American Forest Restoration Fund through a special investment vehicle known as The Restore Fund. Launched in 2021 with up to US$200m in commitments with Conservation International and Goldman Sachs, The Restore Fund is managed by BGT Pactual TIG and two other firms, Symbiosis and Arbaro Advisors.

The Restore Fund is looking to Arbaro Advisors to build a portfolio of forestry projects across Latin America to develop sustainably managed eucalyptus farms. The social aspect of its investment is to strengthen the livelihood of the local communities and to protect natural ecosystems in the project areas. Symbiosis is developing native seedlings to grow working forests of native tropical hardwoods and to protect natural forests in Brazil’s Atlantic Forest.

In 2023, Apple expanded the fund with an additional US$200m commitment. This mandate went to the London-based Climate Asset Management. As with its earlier mandate, Apple aims to remove 1m tonnes of carbon dioxide per year at its peak with the portfolio. It also expects the investment to generate a financial return.

Apple has since brought in two suppliers – Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chipmaker, and Japan’s Murata Manufacturing – to co-invest with the second phase of The Restore Fund, managed by Climate Asset Management. TSMC and Murata have committed up to US$50m and US$30m, respectively, bringing the total equity to US$280m. Meanwhile, Apple is having ongoing conversations with forestry managers in other parts of the world to expand the role of the fund. 

Martin Berg, chief executive of Climate Asset Management, says: “Corporate investors sign up essentially to help meet their net-zero targets. Often, we find their needs are different – some are looking for carbon credits by 2035, others by 2040 – and we work collaboratively to create forward-looking carbon programmes.

“These investors want to purchase high-quality carbon offsets. They want to know the source of those credits. And by investing directly with forest managers in specific projects they are able to follow the development of the forests from when planting begins.”

Berg adds: “As managers, we help them source the assets to generate the offsets. We create a pool of carbon buyers that are agreed on the same criteria to purchase the credit.”

Climate Asset Management has also brought corporate investors into its Nature Based Carbon Fund. “We have 13 investors, including GSK, the global pharmaceutical firm, energy firm Tokyo Gas and Carrier Global [a manufacturer of air conditioners] in our carbon fund.”

Enough room for corporates and investors? Large Japanese corporates have been active. Industrial conglomerate Sumitomo Corporation has a 15-year, closed-ended forestry fund with US$420m raised from 10 Japanese companies, including various arms of the Sumitomo Group, Japan Post Holdings, Nippon Yusen, Tokyo Century Corporation, Osaka Gas and ENEOS Corporation. Launched in 2023, the fund invests in decarbonisation and biodiversity conservation projects through Eastwood Forests, a US-based forestry asset management company. The aim is to build a portfolio of 130,000 hectares of forestry, mainly in North America by 2027. 

Mitsui and Nomura took a step further in 2022 by becoming the majority owners of Sydney-based New Forests, one of the world’s largest forestry managers. Mitsui has been an investor in New Forests since 2016 and just over two years ago Mitsui and New Forests jointly established a A$50m carbon-credit platform, with 1m trees planted across 1,000 hectares of land in Tasmania. Mitsui sees the fund as a way of helping it reach net-zero emissions by 2050.

One of New Forests’ early investors is French energy company TotalEnergies, which has invested US$50m in the manager’s Tropical Asia Forest Fund 2 (TAFF2). The fund invests in certified plantations and native forest conservation projects in Southeast Asia.

A company spokesperson says TotalEnergies established a nature-based solutions unit in June 2019 and has allocated US$100m annually for these projects. In 2023, it committed more than US$100m over 15 years to the projects of the Nature Based Carbon fund managed by Climate Asset Management. In 2023, TotalEnergies invested US$100m in a forest-based carbon project with Anew Climate, and US forestry-focused carbon removal platform Aurora Sustainable Lands. The money will be used in forestry operations to preserve carbon sinks and to help the French company achieve its climate goals.

The French energy group also has a joint project with Campagnie des Bois du Gabon to develop sustainable forestry management in Gabon.

The spokesperson says: “The joint project in Gabon is designed to foster a forest management model that will make it possible to develop a new balance between the harvesting and local processing of sustainable wood, combined with carbon storage and the production of related carbon credits. We want to achieve this through reduced impact of forest operations, reforestation, agroforestry and conservation of natural forests.”

TotalEnergies says it is paying close attention to the emissions reductions and sequestration achieved by its investments. “At the end of 2023, our stock of carbon credits stood at just under 11m, out of which almost all are voluntary credits,” the spokesperson says. “The cumulative budget pledged for these campaigns amounts to nearly US$725m over their cumulated lifespan. They are expected to deliver total accumulated credits of 44m and 71m in 2030 and 2050, respectively.

“The final tally of credits obtained will be determined once the projects have been completed. If such a stock of 44m credits is built up in 2030 and based on a consumption of 10% of the stock per year from 2030, then TotalEnergies would use around 5m credits per year from 2030 onwards.”

UK oil and gas company BP has owned a majority stake in the largest US forest carbon offset developer, Finite Carbon, since 2020. Finite Carbon identifies and develops projects that enable landowners to generate revenue from the protection, restoration and sustainable management of forests to increase carbon stored in forests and to generate carbon offsets that are verified against industry-recognised standards and can be traded on markets.

Shell, another UK oil and gas company, has ongoing forestry regeneration projects which began in 2019 in the Netherlands and Spain under a US$300m programme. It plans to reach net-zero emissions by 2050 and will have to offset 120m tonnes of carbon dioxide by planting forests from afforestation and reforestation. Shell is understood to be in constant discussions with forestry managers to increase investment in forestry.

Some managers have expressed concerns that some corporate investments may lead to forests being “locked up” just to supply carbon credits. This would be a negative for the timberland industry, an increasingly important fibre source of carbon-neutral and carbon-positive products.

However, managers working with corporate investors say they run dual-track strategies that would still make trees available for logging. BGT Pactual TIG runs a combined strategy of conservation and commercial operations. Areas allocated to conservation will be restored to their natural state and protected permanently. 

Wishnie says: “We will also have commercial tree farms where we will be planting trees essentially for harvesting. So long as we replant and maintain the tree farms, the stock of carbon is maintained over time.”

Manulife Investment Management in 2022 launched a Forest Climate Fund which closed in December 2024 with US$480m in commitments. Around 70% of the capital is being directed to carbon projects.

Eric Cooperström, managing director, impact investing and natural capital solutions, says Manulife IM is scaling up its carbon projects portfolio to support investors’ climate goals. The forest climate strategy has attracted a wider pool of investors than its traditional institutional base. Cooperström sees the potential to attract operating companies – rather than their pension schemes – which require durable high-quality carbon credits.

Rogers says that, ideally, corporates should invest with managers and take the carbon offtakes rather than investing directly into land and trees. The manager has sold US$250m in carbon credits to the California carbon market over the past 10 years, and newer assets in the US are poised to receive accreditation to trade in carbon credits.

Despite the arrival of corporate investors, however, the main source of allocation to natural capital still comes from pension funds or sovereign wealth funds and financial institutions. Of the almost A$12bn of assets managed by New Forests, 90-95% of the capital is derived from traditional institutional investors, Rogers says.