AXA SA, a French Insurance and Financial Services company, based in Paris, and Engie SA, an energy company, is co-investing US$500m over the next six years in The Shared Wood, a French Agro-forestry startup that will produce sustainable Cocoa and Coffee under the Tagline ‘We Protect and Restore Nature’.
Over the last year in particular, green investments have become a hot area for financiers, but a few things about this deal caught my attention.
First among them was the fact that an insurance company was partnering with an energy company to get into Cocoa and Coffee production.
The second peculiarity was the nature of the investment. Instead of a straightforward cash for equity deal, the two principle investors are able to secure in advance, profitable carbon credit offtake agreements
The founders estimate that The Shared Wood will generate 40 million tons of these high quality carbon credits over the next 20 years. The certification process will be carried out by a number of firms including TUV Rheinland AG, ERM, DNV GL Ltd. and EY.
This is where it gets clever. Bankers have higher demand for carbon credits than they can supply, so effectively, what they are doing is getting into the business to create a supply for the demand that they already have.
The founders of the Shared Wood company, have the job to run the project and keep the process compliant so the carbon credits will meet, what will likely be more stringent, emerging criteria. The founders refer to the company as a Nature Based Solutions (NBS) project developer, whose mission is to design, build and operate NBS real assets. The company scales their management expertise via partnerships or buyouts, but always with an eye to ensuring they have control over the quality of the operations. This control of quality is key to reducing a risk of a failed certification audit which would prevent them from realising the value of carbon credits in the project.
The three founders behind the company have conservation at the heart of the project, one of them, Juan Carlos Gonzalez Aybar, spoke to Bloomberg and explained,
It’s not the jaguars or the elephants that deforest, it’s people, and mainly it’s because of rural poverty, ”It’s a strategy where you have protection and production.
The company plans to create as many as eight projects in Africa and Latin America. Each project will comprise elements of reforestation, conservation and build sustainable agricultural practices.
Any Cocoa or Coffee produced, will be purchased at an agreed price by the company from the farmers, giving them security and a living income.