ERM, Chestnut Carbon & the Value of Green Finance Consulting

The road to net zero will have to be paved with more than just good intentions. In reality, global sustainability is going to require all the whirring gears and entrepreneurial spirit of a new industrial revolution.

Since climate action became a planetary mission, those behind decarbonisation projects have had to navigate the labyrinthine world of institutional finance to get their ideas off the ground.

Consultancies can play an important role in this game, whether with their financial advice or technical assistance.

ERM is one such consulting firm. The London-based company is recognised as the world’s largest sustainability consultant, employing 8,000 people across 40 countries, all of whom are tasked with guiding the execution of climate projects.

One of the projects ERM has been working on recently is with Chestnut Carbon, a firm that provides nature-based carbon credits through a programme of afforestation across the US.

ERM has acted as an advisor to Chestnut Carbon’s lenders, who recently decided to funnel US$210m into the project, marking a first-of-its-kind investment in a voluntary carbon credit initiative.

The rise of climate finance

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

Nevertheless, green finance has often lagged behind these kinds of projects, partly because of risk verification. 

Investors and lenders have historically been wary of nature-based projects because of questions around their permanence, measurement and the long timelines required for returns.

This is where technical advice – the kind that ERM provides – is becoming so important. 

For the Chestnut Carbon project, ERM has provided the lenders – which include JPMorgan – with rigorous due diligence, ensuring that the project is not only environmentally sound, but commercially viable.

ERM has been operating at this intersection of sustainability and business strategy for a long time, which gives the firm the credibility and trustworthiness that financers are after.

ERM’s work on this case could, in fact, pave the way for investments of this size in carbon credit infrastructure going forward.

ERM’s process of due diligence

ERM’s assessment of Chestnut Carbon covered the entire lifecycle of the project. This included evaluating the procurement of seedlings for the afforestation work, as well as land acquisition.

This was all to ensure that the supply chain was robust enough to support the project's ambitious scale across North America. 

Crucially, the firm also assessed the Chestnut Carbon’s alignment with the Core Carbon Principles set out by the Integrity Council for the Voluntary Carbon Market (ICVCM), meaning 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.

"We are proud to have played a role in supporting a scalable afforestation project that is designed to deliver positive biodiversity and climate impacts."

Could Chestnut Carbon be a catalyst for the carbon market?

To be clear, US$210m is a lot of money when it comes to carbon credit projects like this.

The reason that so much capital is being invested in Carbon Chestnut is that the US-based firm has struck a long-term carbon removal deal with Microsoft. ERM describes the deal as “one of the largest carbon removal agreements in the US to date”.

The involvement of a tech giant as an offtaker provides revenue certainty, which is often the final piece of the puzzle for project finance.

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

For Chestnut Carbon, this financing is 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.

"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’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 go stratospheric in the years to come.