ERM Brokers Landmark US$210m Carbon Credit Financing Deal

Achieving net zero will demand far more than aspirational commitments. In practice, global sustainability is going to need all the innovation and commercial drive of a new industrial revolution to succeed.

Since climate action emerged as a global imperative, those developing decarbonisation initiatives have had to find their way through the complex world of institutional finance to secure funding for their ventures.

Consultancies can provide crucial support in this landscape, whether through their financial guidance or technical expertise.

ERM is one such consulting firm. The London-based ERM is recognised as the world's largest sustainability consultant, employing 8,000 people across 40 countries, all of whom are focused on supporting the delivery of climate initiatives.

One of the initiatives ERM has been involved with recently is Chestnut Carbon, a firm that offers nature-based carbon credits through an afforestation programme across the US.

ERM has served as an adviser to Chestnut Carbon's lenders, who recently committed US$210m to the initiative, representing a first-of-its-kind investment in a voluntary carbon credit programme.

Climate finance gains momentum

With organisations working to meet their 2030 and 2050 climate targets, the demand for high-quality carbon credits has increased substantially in the past decade.

However, green finance has often struggled to keep pace with these types of initiatives, partly because of risk verification.

Investors and lenders have historically been cautious about nature-based initiatives because of questions around their permanence, measurement and the extended timelines required for returns.

This is where technical guidance – the kind that ERM offers – is becoming increasingly relevant.

For the Chestnut Carbon initiative, ERM has provided the lenders – which include JPMorgan – with thorough due diligence, confirming that the initiative is both environmentally credible and commercially viable.

ERM has been working at this intersection of sustainability and business strategy for a considerable period, which could give the firm the credibility and trustworthiness that financiers are seeking.

ERM's involvement in this case could pave the way for investments of this scale in carbon credit infrastructure going forward.

ERM's due diligence approach

ERM's assessment of Chestnut Carbon examined the entire lifecycle of the initiative. This included evaluating the procurement of seedlings for the afforestation work, as well as land acquisition.

This was all to confirm that the supply chain was sufficiently robust to support the initiative's ambitious scale across North America.

Crucially, the firm also assessed Chestnut Carbon's alignment with the Core Carbon Principles set out by the Integrity Council for the Voluntary Carbon Market (ICVCM), indicating that the initiative has the credibility that buyers of carbon credits are looking for.

"This transaction sets a new precedent for sustainable finance in the voluntary carbon market," says Rayna Stern, who is a Partner at ERM.

Stern adds that the firm is "proud to have played a role in supporting a scalable afforestation project that is designed to deliver positive biodiversity and climate impacts."

A potential carbon market catalyst

To be clear, US$210m represents substantial capital when it comes to carbon credit initiatives like this.

The reason that significant funding is being directed towards Chestnut Carbon is that Chestnut Carbon has secured a long-term carbon removal agreement with Microsoft. According to ERM, the deal is "one of the largest carbon removal agreements in the US to date".

The participation of a technology giant as an offtaker provides revenue certainty, which is often the final piece required for project finance.

The agreement will focus on afforestation – planting trees where there were none previously – which offers genuine carbon removal, rather than just avoidance.

For Chestnut Carbon, this financing represents a watershed moment. It moves the company beyond venture capital and into the realm of traditional project finance, a necessary evolution for any sector looking to scale.

"This project's first-of-its-kind structure aims to create a bankable new asset class which leverages conventional frameworks to catalyse mainstream financing for nature-based climate solutions nationwide," says Greg Adams, Chief Financial Officer at Chestnut Carbon.

Adams explains that "it's been a pleasure to work with ERM, a diligent, fair and constructive partner who will continue to play an important role in our work as we continue to scale."

By validating the technical viability of Chestnut Carbon's operations, ERM has helped establish a replicable model in the world of climate finance.

If banks can confidently lend against trees and the carbon they sequester, the flow of capital into global reforestation efforts could increase dramatically in the years to come.