Fondaction closes Inlandsis II on C$130m

The greenhouse gas emissions strategy invests in projects aiming to capture and destroy carbon and methane emissions in North America that are able to generate carbon credits.

Canadian asset manager Fondaction Asset Management has closed its Inlandsis II fund on C$130 million ($96 million; €88 million).

The greenhouse gas emissions reduction vehicle held a first close on C$115 million in December 2022 and is being managed alongside partner firm Priori-T Capital.

Inlandsis II invests in small to medium-sized projects in North America that seek to capture and destroy methane and carbon emissions from livestock manure management systems, abandoned coal mines and forest rehabilitation programs.

The firm receives distributions in the form of carbon credits, which it then trades on voluntary and compliance markets to generate a return.

“Very often these projects will generate credits over 15 or 20 years,” principal investment adviser Philippe Crête told Agri Investor at the start of the year following the fund’s first close.

“Our fund has a lifespan of 10 years,” said Crête, “and, depending on which point we’re coming into the equation, generally we’re out of their hair in five to seven years. We get the rights to these credits once they’re registered and we sell them right away. We generally have off takers who are waiting for them or we sell them to the spot market.

“Unlike other funds that invest in forest carbon or ag carbon, we generally don’t own the underlying asset. We don’t invest in land and we don’t invest in timber. We invest in carbon. We mostly own contractual arrangements to future carbon credits.”

The firm pursues project sizes worth a maximum of C$10 million, which are too small for traditional fund managers or potentially too risky for banks. It provides the financing for the projects in full or as one of a small number of backers.

Fondaction’s C$30 million pilot Inlandsis I fund launched in 2017 and has delivered IRRs in the high teens and has already returned its committed capital through the sale of more than 2 million credits.

Inlandsis II also has a 10-year term like its predecessor and an IRR target in the high teens, which the firm hopes to outperform, in part due to the upward pressure on carbon credit prices and buyers’ need to source credits from voluntary markets.

Fondaction executive chairman Stéphan Morency said in a statement: “Our innovative carbon financing model, developed in Quebec and geared to reducing greenhouse gas emissions, is a proactive response to the climate crisis emergency. This key initiative accelerates a far-reaching, sustainable transformation of the economy.”