Ontario Teachers’ Pension Plan will use its investment in carbon project specialist GreenCollar to “explore opportunities to generate value” within its wider agriculture and timber portfolio, after agreeing a deal to acquire KKR’s 49 percent stake in the business.
OTPP first invested in GreenCollar in March 2022, when KKR sold down a portion of its majority ownership stake. The Canadian investor has now acquired the rest of KKR’s ownership interest, with GreenCollar CEO and co-founder James Schultz set to continue leading the business and remain a significant minority shareholder.
The terms of the deal were not disclosed but a source close the deal told Agri Investor that the transaction was valued at around A$600 million ($385 million; €364 million). OTPP declined to comment on the specifics of the deal.
GreenCollar was founded in 2011 and was an early participant in Australia’s Carbon Farming Initiative. The firm works with landowners to identify and develop carbon projects, including forest protection and large-scale land restoration, and then facilitates the sale of the resulting credits from operational projects to both private and public organizations that seek to mitigate their own environmental impact.
It has a portfolio of more than 200 registered projects that together are generating more than 126 million Australian Carbon Credit Units, as well as other types of nature-related credits.
KKR invested in GreenCollar in 2020 through its KKR Global Impact Fund, a $1.3 billion vehicle that closed the same year with a mandate to invest in companies whose core business models provide opportunities to develop commercial solutions to an environmental or social challenge.
GreenCollar was the first investment through that fund to implement a large-scale employee ownership scheme, meaning that GreenCollar’s employees will share in the proceeds of the sale once it completes in Q4 2023. A source suggested GreenCollar’s roughly 120 employees will share upwards of A$60 million given that they held around 10 percent of the firm’s equity through the KKR scheme.
OTPP’s natural resources focus
OTPP has made the investment through its Natural Resources group, part of the fund’s Infrastructure and Natural Resources department.
OTPP senior managing director, natural resources, Christopher Metrakos told Agri Investor that his team was drawn to GreenCollar initially because of its depth of knowledge in carbon and biodiversity markets and because it had a set of values that aligned closely with its own.
“The team [at GreenCollar] is committed to delivering the highest-quality carbon and other environmental credits. The company has an exceptional track record in carbon farming and has been a catalyst in growing the industry to where it is today in Australia,” he said.
“The team has also demonstrated tremendous innovation and entrepreneurship in launching the Reef Credit Scheme which addresses the impact of poor quality of water on the Great Barrier Reef, and has been a leader in the development of a market to support biodiversity in Australia.”
OTPP will seek to lean on synergies between GreenCollar’s work and its own extensive portfolio of farmland and forestry assets, he said: “We have already had several key discussions and are working on initiatives in carbon and biodiversity on some of our platforms. Moving forward, we believe that having detailed insight into value-add opportunities through the monetization of environmental attributes on potential agriculture and timberland investments will give us an edge in Australia and globally.”
Metrakos said that OTPP believes that “reversing the trend of natural capital depletion” and reducing carbon emissions in the land sector are critical to the broader decarbonization of the economy, making environmental markets an attractive place to invest.
“Agriculture and timberland are unique in the sense that they can be net sources of emissions through poor management practices or net sources of sequestration through more sustainable land management practices. We believe that market-based solutions to encourage these sustainable management practices are critical,” he said.
“We strongly believe that companies should follow the mitigation hierarchy and prioritize abatement opportunities within their own operations and supply chains. Having said that, we do see an important role for high-quality carbon credits to bridge the gap to a lower emissions pathway while governments and industry make concerted effort and meaningful investment towards this objective. Over the long term, high-quality carbon credits will be critical to neutralizing residual, hard-to-abate emissions from certain sectors.
“We see other areas within environmental markets – particularly biodiversity and water quality – having similar growth trajectories,” he added.
Australia was a particularly attractive place to invest in these markets, Metrakos said, thanks to the country’s well-established carbon market framework that sees the Australian government issue credits and oversee measurement methodologies. “Australia is unique in that it has a large farming sector and land mass with significant potential to meaningfully contribute to the country’s climate goals,” he said.
KKR declined to comment beyond a statement from managing director head of KKR Global Impact George Aitken, which said: “GreenCollar is a great example of a solutions-oriented business that KKR looks to support through our Global Impact strategy, addressing some of the world’s biggest challenges such as climate change.”
9/26/23: This article has been amended to reflect the value of the deal was A$600 million, not C$600 million.