Seeds sewn for carbon credit market to flower into CLOs

Sayed Kadiri

Editor

Long-time structured credit specialist Jan Phillip Wassenaar has joined start-up NatureCredits as a senior advisor to support the evolving carbon credit industry. He says the market is similar to project finance, but could develop into a CLO-style product.

“This is all about developing nature-based solutions for storing carbon, and financing that by selling carbon credits to an emitter who needs to meet a reduction target,” says Luxembourg-based Wassenaar.

Given the set-up costs and the time taken to nurture such developments, projects are cashflow negative for the first five or so years. This opens the door for investors familiar with construction project finance, who can handle such a back-ended repayment profile.

However, demand from corporations — which need to reduce emissions by 45% by 2030 — means lucrative returns may be in store. “After 10 years you would enter the exponential growth phase of carbon capture, coinciding with peak demand from corporates,” says Wassenaar.

“It’s not dissimilar to the early days of the securitisation industry”

Jan Phillip Wassenaar, Senior advisor | NatureCredits

He says investors could buy into a diversified pool of projects and a CLO backed by such assets is not far-fetched, especially after the European Energy Exchange announced it would build a voluntary carbon market this year, paving the way for these credits to trade.

Wassenaar, who managed the world’s largest CLO, Newfoundland, while at Barclays, says the carbon credit market can use CLOs as a template.

“The important thing is to have a robust framework,” he says. “The announcement from EEX and similar initiatives are a big step towards that.”

NatureCredits’ carbon sequestration plans include restoring forests, natural grazing and peat lands across Europe.

Share this article:

${prev-page}

${next-page}

Browse more Creditflux newsletters

Global credit funds & CLO's

July 2022 | Issue 247

Published in London & New York.