Greenbiz's Margaret Morales has identified four critical components of Ponterra's ARC reforestation project in Panama. As early investors in this project, we agree with her conclusions. Take a look.
What does it take to secure finance for nature-based carbon projects? 4 critical components of Microsoft's recent offtake with Ponterra's 10k ha ecosystem restoration project in Panama - 1 - Over 8 months of due diligence Microsoft's team visited the site in person, toured the nursery, spoke to the chief forester, and more. The process involved >50 iterations of the project's financial model. And the 8 months was just the due diligence from term sheet to signature; there was plenty of diligence before the term sheet as well. 2 - A large-scale project Because the due diligence is so thorough and time consuming, projects have to be large enough to deliver a substantial amount of credits. The Ponterra Azuero restoration project is currently 10k hectares, but has the potential to expand to 50k ha . 3 - A committed buyer to crowd in more investment Microsoft not only signed an offtake agreement through 2040 for a portion of the project's carbon credits (agreeing to purchase a set amount of credits on delivery), but also provided some upfront investment into the project. This long-term commitment from a carbon buyer was crucial for bringing two other investors to the table - Rubicon Carbon and Carbon Streaming Corporation. Microsoft’s offtake commitment reduced the price and cash-flow risk for the other two investors, giving them certainty that there would be a purchaser for at least half of the project’s carbon credits in the future. 4 - A long-term mindset that matches nature's timeline Many investment funds have a 5- to 7-year return expectation, and many carbon buyers are looking to secure credits in the near future. Those timelines don’t match the rate of carbon sequestration in nature restoration projects, which can take several years to pick up as saplings grow. The long-term mindset of Microsoft in securing carbon credits for the future, as well as patient capital from the investors was crucial to give this project the capital to scale on a timeline that made sense for the project type. I wrote a few more words about this over on GreenBiz. 🔗 to article in the comments.
