Mirova has closed its UN-backed Land Degradation Neutrality Fund at $208 million, falling short of its $300 million target.
Director of the LDN fund Gautier Queru told Agri Investor the shortfall was due to a combination of the covid-19 pandemic and a lack of de-risked public capital that could seed the blended-finance vehicle.
“This has been really a limiting factor on the fundraising because we didn’t have enough public money or de-risking money, especially in the initial fundraising phase, to then onboard more private investors,” explained Queru.
“It has been challenging to onboard new investors without being able to meet in person, for them to come over for due diligence and for site visits. We were still able to onboard new investors during the crisis, but typically with Asian investors, for example, they were interested but without in-person visits it has been very difficult to get formal approval.”
The $208 million capital raised figure remained a success for Mirova, said Queru, given “the novelty of the asset class.” Despite hinting that the vehicle’s 2017 launch date may have come too early to take advantage of the increased interest in the intervening years in areas such as natural capital, regenerative farming and carbon credits, Queru said the blended-finance structure was not a hinderance for the fund.
“There is still a form of novelty of the underlying assets and limited track record, which makes it hard for investment committees in large institution to make a decision. We really felt that the de-risking approach, the blended finance structure was a way to facilitate that decision otherwise it would have take months or years from a decision to be made, or investors would have said, ‘We’ll come to the next vintage fund, we want to see track record first.’”
The LDN fund was initiated by the UN in 2015 when it put out an international tender for a private fund manager that could design a fund that would “contribute to restoring land through agroforestry and regenerative agriculture,” Quéru previously told Agri Investor.
Mirova, the sustainable investment unit of France’s Natixis, was selected in December 2015 and the vehicle was launched in 2017.
Land degradation neutrality is a UN sustainable development goal and the environmental impact of the fund’s investments will be measured according to the UN’s framework for measuring land degradation.
“There are three indicators that measure land degradation and they are land productivity, land cover and soil carbon,” Quéru said. “For a given land area, if one of these decreases, the land is under degradation.”
The vehicle will target returns in the “high single digits.” Investors into the fund include the European Investment Bank, Canadian pension Fondaction, BNP Paribas Cardiff, French mutual insurer Garance, Natixis and French Development Agency.
The fund has already deployed $80 million, confirmed Queru, and has invested in five investments across Central and South America, Africa and a solve investment in Bhutan. All of the investments have either a forestry or an agroforestry theme, with the underlying commodities including timber, hazelnuts, cocoa and coffee, among others.