Folium Capital’s new fund meets “ever rising” demand for healthy foods and timber, as well as environmental, social goals.
US-based Folium Capital’s latest ESG fund makes “tangible improvements” on previous iterations, with the private equity investor set to invest US$500 million in forest and agriculture assets.
The Folium Fund III marks the first time that Folium is combining agriculture, forests, and carbon optionality into a single investment vehicle.
The regenerative natural resources fund targets raising capital from accredited investors, with an investment period of four years and a term of 12 years. Folium currently has more than US$1 billion in AuM across multiple portfolios.
“Our first two funds really proved out our ESG programme with over 75 Global Impact Investing Network-IRIS metrics and our carbon footprint calculator,” Andy Wiltshire, Managing Partner at Folium Capital, told ESG Investor.
Experience gained from the previous two funds will offer “early insight into ways we can deliver on environmental and social goals in Fund III”, he added.
The Regenerative Natural Resources Fund will invest in agriculture and forestry across selected geographies in Asia, Europe, North America and South America. Wiltshire said that “carefully selected and managed forests and farms offer the prospect of good risk adjusted returns and environmental and social dividends”.
“We like the fact that we can offer good jobs and improved economic prospects for employees, lock carbon into terrestrial sinks, and enhance biodiversity, all while generating returns that are not correlated with other assets and with a measure of protection against inflation,” he added.
Rapid changes and growing demand
Regenerative agriculture is an emerging trend through which a range of techniques are used to reduce greenhouse gas emissions, contribute to carbon sequestration/removals, and improve soil health, biodiversity, water availability and quality, as well as resilience to climate change.
A recent assessment by the FAIRR Initiative found that almost 60% of 75 large agri-food companies mention regenerative agriculture as a part of their sustainability strategies. The companies with regenerative agriculture in their sustainability disclosures jointly influence or control approximately US$2.7 trillion of the agri-food sector’s total US$9 trillion revenue.
FAIRR said that holistic strategies like regenerative agriculture are “vital for transforming” the agri-food sector, which is currently responsible for an estimated 30% of greenhouse gas emissions.
On the agriculture side, Wiltshire said the Regenerative Natural Resources Fund will focus on the development of irrigated permanent plantings, primarily orchards producing healthy, nutritious food, while absorbing atmospheric carbon.
Folium said the fund’s agriculture strategy “reflects the growing global demand for healthy, nutritious plant foods”, centring on the development of new orchards and vineyards.
Meanwhile for forestry, it will focus on a range of species that are suitable for producing wood products and fibre, while also sequestering large volumes of greenhouse gases into verifiable terrestrial carbon stocks.
Folium said its forest strategy “reflects a rapidly changing world with dual demands on forests”, with its focus on both wood and carbon “enhanced by its emphasis on developing new plantations that can meet both goals”.
The fund will invest in both greenfield and mature assets, although it will “likely lean toward greenfield investments”.
According to Wiltshire, “ever rising” demand for healthy plant foods, for timber to replace steel, cement, aluminium and fossil fuels as feedstocks and the newer carbon markets driving forests to be conserved or held longer have combined to create higher demand for land and water.
“Combining into a single fund means we can allocate land and water to its best uses – while also preserving or enhancing areas of natural ecosystems in a wider array of properties,” Wiltshire said.
“Opportunity to diversify”
Folium has invested about US$800 million in irrigated orchards and selected forests since its it was founded 2016. Wiltshire said its team had invested more US$4.5 billion in a “broader array” of farms and forest types over a 13-year period while working together at a previous firm.
“After investing together in natural resources for more than 18 years, we are proud to launch our Regenerative Natural Resources Fund and offer investors the opportunity to diversify, hedge inflation, and generate return through the assets our team knows best,” Wiltshire said.
He said that Folium aims to hold a first closing of the fund during the middle part of this year, which will “trigger the start of the investment period, but sets the stage for more fundraising into early 2024”.
Folium’s current forestry and agriculture assets portfolio is diversified across Australia, Brazil, Chile, Panama, Portugal, Spain, the United States, and Uruguay.