Stafford holds $242m first close on $1bn carbon fund

The Carbon Offset Opportunity Fund has been backed by three British local government pensions and is an Article 9 impact vehicle.

Stafford Capital Partners has held a $242 million first close on its Carbon Offset Opportunity Fund, with commitments coming from three British pension funds.

Essex Pension Fund, which is a longstanding investor in Stafford’s timberland vehicles, anchored the fund with a £100 million ($114 million; €113 million) commitment in November and has now been joined by the local government pension schemes of Leicestershire and the City and County of Swansea.

The Article 9 impact fund has a $1 billion target. It has a 20-year term and has been structured as a closed-end vehicle.

The carbon offset fund will invest in afforestation, natural forest restoration and improved forest management projects across global markets.

It will seek to generate 30 million carbon credits, invest in around 200,000ha and plant roughly 150,000ha of new forestry.

Stafford’s long line of forestry vehicles – of which the firm closed the ninth iteration in 2021 on $695 million – have almost exclusively pursued secondaries deals but roughly 40 percent of the carbon offset fund will be deployed in greenfield assets due to a lack of a mature carbon market.

“Carbon funds by their nature are still immature, they’re only just starting to be raised,” Stafford timberland co-managing partner Stephen Addicott told Agri Investor in November. “And so that means of accessing the market by secondaries is not possible.”

The vehicle will aim to deliver cashflow by its fifth year through carbon credit sales, the majority of which will be marketed on voluntary markets.

Stafford is aiming to deliver returns in the high single digits or low double-digits, confirmed Addicott. He added that, since there is significant upside yet to be realized in the price of carbon credits, the vehicle could outperform its predecessors given that it will also deliver returns from forestry products.

“Returns coming from carbon credits is something that is very difficult to put a finger on exactly what that will be,” said Addicott. “But I’d say given the way the market has developed over the past couple of years, we’ve seen that there’s more upside on this fund than our traditional funds because of those carbon credits.

Stafford Capital Partners CEO Angus Whiteley said in a statement: “We believe this fund will deliver the important combination of potential financial returns and environmental benefit that is so needed today. We are very grateful to the investors who have enabled us to achieve this milestone and look forward to making a meaningful contribution to their decarbonization agenda.”