The Althelia Climate Fund was launched last year by fund management platform Althelia Ecosphere. Mission driven to demonstrate that financial performance can be fully aligned with sound environmental stewardship and social development, they are aiming high with the Althelia Climate Fund a transformational funding mechanism designed to scale up financing for sustainable land use, ecosystems conservation and REDD+. Now, managing partners Sylvain Goupille and Christian del Valle share their vision behind the Althelia Climate Fund with us.
Last year the Althelia Climate Fund was launched. Can you explain more about this fund and its objective?
Sylvain Goupille: ‘Althelia is focussing on financing the transition towards sustainable land-use in developing countries by creating linkages between sources of capital with activities on the ground that deliver outcomes that unify economic, social and environmental improvements. We aim to achieve this by providing capital, technical resources and long-term off-take commitments to establish and scale-up land-use initiatives such as improved forest management, ecosystem conservation and sustainable agriculture. Our financial commitments catalyse benefits that otherwise would not have been possible, by opening up routes to new markets for producers on the ground whilst at the same time giving investors access to financial returns that are based upon solid Environmental, Social and Governance (ESG) performance. Investor returns are based on the value of the environmental assets created on the ground, which can include carbon emission reduction credits, certified commodities and products (such as soy or coffee) or payment-for-ecosystem service credits (such a water or biodiversity).’
What was your driving motivation for setting up this fund in the first place?
Christian del Valle: ‘The past ten years have seen a wide array of funds that, with varying degrees of success, sought returns based upon the expansion of market-based approaches to climate change mitigation and specifically carbon markets. The United Nations Framework Convention on Climate Change (UNFCCC) and the EU’s Emission Trading Scheme held the promise of a unified framework through which carbon finance could be deployed at scale. Due to the lack of political will and sense of purpose held by a few key countries, however, it is now clear that the international community will probably not be able to come together to put in place a successor to the Kyoto Protocol, that can create any sort of homogenous global price for emissions reductions before 2020. In order to act during this challenging period, where environmental and social risks and opportunities are often presented as two sides of the same coin, we felt it was necessary to design a new platform capable of innovation and lateral thinking— but also with a firm grasp that economic viability must remain at the heart of successful approaches to delivering social and environmental outcomes. That is why Althelia applies a model that strives for a total economic valuation (TEV) of environmental assets.’
Can you tell us more about yourselves and your track record in climate financing?
Sylvain Goupille: ‘Christian del Valle and I are the managing partners. Together we have years of experience in transaction structuring, trading, deal management and project finance, all with a focus on commodities and environmental markets. This is backed up with credentials in emerging countries, climate change policy and natural resource conservation. Most recently, we built BNP Paribas’ carbon trading and finance business, helping establish the bank as a leader in origination, pricing and structuring. We also led the way for the bank in the forest carbon sector, executing one of the first and largest private sector interventions aimed at conserving natural forests through carbon payments. Working with Wildlife Works Carbon LLC (WWC), we structured a financing solution to deliver the necessary capital to expand an innovative forest conservation project in Kenya seven-fold, to an area exceeding 200 thousand hectares, also providing an off-take arrangement for carbon credits that will help meet the project’s running costs for at least five years.
Christian and I are backed up by a qualified and well-recognised team of professionals with excellent credentials in ESG, forestry, developing country dealing experience, and specialised marketing— all of which are important keys for our success.’
In what way is this fund different from other climate funds?
Christian del Valle: ‘We, along with our implementation partners, have recognised that the economic model for the use of natural ecosystems, particularly forests, has unfortunately been based almost entirely upon extraction of saleable resources such as timber and conversion of the land to other forms of use. Whilst offering short-term benefits to those actors controlling the extraction and conversion, this model generally has been characterised by social exclusion and environmental damage. This dynamic has persisted, despite these well-known ‘externalities’, because the components of natural ecosystems that it has been possible to valorise have generally represented a comparatively small portion of the overall resource.
Our aim in launching Althelia has been to develop a dedicated platform through which ‘knowledgeable’ capital and technical resources could be deployed to give power to the emerging, innovative new models for land management— scaling them up, replicating them, and making them economically viable. Together with the LP’s of Althelia, we share the view that this is an endeavour for which the time has now come, serving as a new template for responsible investing that delivers IRR for investors, combined with improved livelihoods and healthier landscapes.’
Althelia Climate fund is to deliver multiple benefit greenhouse gas reductions. Can you tell us more about how you go to work to achieve this?
Sylvain Goupille: ‘Our proprietary Environmental and Social Management System (ESMS) is built upon the International Finance Corporation’s Performance Standards on Social & Environmental Sustainability. It guides our investment approach into climate change mitigation efforts that have positive impacts on local economies and natural ecosystems and biodiversity. Through targeted investment, screening and project evaluation, and a team that brings hands-on experience of enabling good project management, the Fund aims to improve the livelihoods of project stakeholders, support the capacity of local actors in sustainable management of their natural resources. It will also enable activities that will help communities that are most affected by climate change to become more resilient.
Key to our approach is the view that strong ESG performance corresponds with sound risk management and improved project outcomes. In this context, the Fund seeks to ensure the active participation and explicit support from project stakeholders. These include government agencies, communities and credible NGOs, to improve project performance and reduce the risk that project activities are improperly designed, face social or political opposition, or fail. These efforts are supported by assurance protocols that engage stakeholders at all levels, establish rigorous social, environmental and governance baselines, formulate transparent technical carbon accounting practices, test and improve field and management practices and provide measurement, reporting and verification (MRV) for technical carbon and certification elements of all projects.’
How will you select your (potential) investments?
Christian del Valle: ‘We have continued to develop our pipeline of investments in the first half of 2012, which now has more than 50 investment opportunities that have been originated directly by the team through its network, via our partnerships (for example Conservation International and Wildlife Works) and through increased interactions with donor agencies and forest country ministries or regional government authorities. We focus on Latin America, Africa and to some extent, SE Asia and Oceania, in countries where deforestation and unsustainable natural resource utilization is acute, and where changing practices to achieve auditable positive results is assessed as feasible. The Fund follows a six-step Investment and Risk Management Process from early screening to exit, which integrates ESG, performance and financial criteria so that investments selected are those most likely have attractive risk-return profiles combined with local social and environmental outcomes.’
In which areas can the Althelia Climate Fund deliver a meaningful contribution to the REDD+ framework?
Sylvain Goupille: ‘Thus far, the UNFCCC REDD+ framework has mostly focussed on environmental performance (carbon monitoring and reporting, scope of activities, etc.) without taking enough into account the need to maintain sustainable economical development in and around the forest, which in our view is critical to achieve long term sustainability of these programmes. Althelia is established to demonstrate that economical development and the conservation of natural capital are fully compatible and can be implemented at a large scale. Investments made by Althelia will be case studies for decision makers, and hopefully these will be very meaningful contributions to enhancing the REDD+ framework.’
With a growing population the demand for raw materials, like crude palm oil and mining products is still increasing. Aren’t you afraid that even if one forest gets protection under REDD-mechanism they will just simply move over to the next forest?
Christian del Valle: ‘This is what we refer to as ‘leakage’. Without doubt, this is always going to be something that has to be managed from the very start. On a methodological level, this is dealt with through buffer accounts (meaning that not all credits generated can be sold) and buffer zones around activities where carbon accounting is carried out, but where no crediting is granted. If ‘leakage’ (i.e. increased emissions) is identified in these areas, then it is subtracted from the crediting totals. More fundamentally, it is precisely why our model is focussed on the drivers of deforestation and degradation, rather than simply seeking to address symptoms.
Althelia and its partners are now reviewing and considering many examples where livelihoods improvements can be augmented with benefits (e.g. resource access) and revenues, and which decrease pressure on forests. Many involve agricultural intensification: irrigation, improved seed stock, inter-planting, agroforestry, and organic certification of produce for improved sale price. There are opportunities that promote certified sustainable timber harvesting and also some good examples of silvo-pastoral systems where sustainable grazing and timber are combined. At a more scalable level, employing a mixture of sustainable high quality timber planting with food crops as well as energy plantations can lead to significant returns whilst meeting resource demand and conserving the natural ecosystems by which they are underpinned.’
More information: http://www.ecospherecapital.com/