EFM expects Microsoft and Meta to be the largest recipients of carbon credits produced by the 68,000-acre Washington State forestland it acquired as part of a consortium earlier this year.
The Portland-headquartered timberland management and investment firm struck an agreement with Microsoft earlier in May that included a fund commitment and a multiyear carbon credit offtake agreement that calls for delivery of up to 3 million credits. Financial details were undisclosed.
Managing director Amrita Vatsal told Agri Investor the first 700,000 of credits to be provided to Microsoft through 2035 are to be generated by the same Olympic Peninsula property that is also designated to produce carbon credits for Meta.
“They are receiving a lion’s share of all the removals we expect the project to produce,” she said of the two tech giants.
Vatsal explained that EFM relies on internal analysis that she declined to share in determining its expectations for overall carbon credit production from any particular property. These internal expectations, she added, inform complex negotiations with buyers that generally take place over time periods more often measured in “months not weeks,” and can stretch into as long as a year.
“We have 20 years of experience evaluating acquisitions in forestland and in developing carbon projects, so we have a pretty good sense of what we think a particular forests’ capacity is to produce carbon [credits],” she said.
Credible signals
Microsoft drew from its $300 million Climate Innovation Fund to support its investment into EFM’s Fund IV, which marked the first US forestry investment for the vehicle, which has also backed Farmland LP and Just Climate, amid a range of other sustainability focused manager and direct investments.
Vatsal said because Microsoft is known to deploy significant resources for a thorough due diligence process that involves third-party assessments and ratings agencies, EFM hopes the fund commitment will help de-risk the firm’s strategy for other LPs.
“We’re hopeful that a commitment from an organization like Microsoft is a signal that there is a credible investment thesis and strategy here,” she added
Vatsal said Microsoft’s investment in EFM should be seen in part as an endorsement of the firm’s approach to dynamic baselining, which attempts to calculate the likely environmental outcome to a specific property under a scenario where a proposed carbon project has not been carried out.
Whereas project developers currently set a static baseline at the start of the project that stays the same throughout its duration, she explained, EFM has endorsed a new methodology developed by the American Carbon Registry that requires developers to revisit and more vigorously test key assumptions that feed into projections that underlie the credits they issue.
“These are definitely projections, but they are projections based on real measurements of forest productivity, site class and specific to a region that we’ve acquired a particular property in,” Vatsal said. “It’s a science and an art, but it is an exercise that is very key to setting and achieving a high quality of credit.”
Vatsal declined to discuss current or future carbon credit prices, potential price scenarios or any specific analysis of the carbon credit market.
Last month, EFM partnered with Japanese conglomerate Sojitz Corporation to launch a vehicle seeking $250 million from Japanese investors for US forestry investments. The firm is currently seeking $300 million for Fund IV.
