JPMorgan Closes $210 Million Carbon Loan to Draw New Investors
(Bloomberg) -- JPMorgan Chase & Co. has helped structure a first-of-its-kind lending facility for a developer of carbon credits that it hopes will lower the cost of capital and attract institutional investors to a market that’s struggled to grow amid a series of missteps and corporate apathy on climate action. The US bank, together with a syndicate of smaller lenders, closed a $210 million loan deal that will enable carbon developer Chestnut Carbon to meet its obligations under a 25-year agreement to generate credits from forestry projects in Arkansas and Texas, and deliver them to Microsoft Corp. The loan represents the first time traditional project-finance techniques have been applied to a US carbon-credit project and is an important step to help draw investors to the market, Chestnut said in a statement on Tuesday.
The voluntary market for carbon credits, though touted by advocates as an important weapon in the fight against climate change and a critical vehicle for transmitting money from wealthy countries in the northern hemisphere to the global south, remains so small as to be a rounding error in the context of global capital markets. Still, a handful of deep-pocketed corporations are working to help it grow: Microsoft has signed scores of long-term carbon removal contracts, such as the one with Chestnut, while JPMorgan has said it wants to be the “carbon bank of choice.”
“Providing this kind of financing gives developers the runway they need to succeed at an attractive cost of capital, allowing them to focus on delivering significant carbon projects and fulfilling contracts,” said Vijnan Batchu, global head of JPMorgan’s center for carbon transition.
The loan deal is structured as a non-recourse facility, which is typical for project finance. In such deals, the lender is typically repaid from the cash flows of the specific project that the loan is funding, rather than from any of the borrower's other assets. The financing “represents a new benchmark” for the voluntary carbon market and signals growing confidence among lenders to back carbon projects, according to Chestnut.
The carbon market “has really been living on equity or philanthropy for the bulk of its existence,” Chestnut Chief Financial Officer Greg Adams said in an interview. Adding debt to the mix is “essential for scale” because it usually reduces the cost of capital and opens the market to a wider group of financiers, he said.
“You can see a lot of equity in the world of climate tech, but what we really need in this market is debt because that’s how to draw in the infrastructure funds and institutional money,”said JPMorgan’s Batchu.
Chestnut’s goal is that the loan facility its spent months working on with partners, including JPMorgan, creates a model that can be copied by other project developers, Adams said. “If this is one and done and it's not replicable, then we've all failed,” he said.
“While this single deal is far from addressing the broader industry needs, it could be seen as a significant turning point for a sector that has struggled to attract more conventional, lower-cost capital,” said
agreement to provide Microsoft with nature-based carbon removal credits generated from sites in the southern US is one of the largest carbon-removal projects in the country. The company develops new forests on marginal crop and pasture lands and has planted over 17 million trees since 2022.
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