A new report by Re:Common and Counter Balance investigates the Althelia Climate Fund and its investment in a REDD project in Kenya. The report highlights the findings of a July 2016 visit to the Kasigau Corridor REDD+ project area in Kenya.
Re:Common and Counter Balance’s report is titled “The Kasigau Corridor REDD+ Project in Kenya: A crash dive for Althelia Climate Fund”, and is written by Jutta Kill.
The report is particularly critical of the European Investment Bank’s funding to Althelia:
Re:Common and Counter Balance call on the EIB to carry out a comprehensive evaluation and public discussion on the effectiveness and compatibility with its development mandate of the bank’s investment into the fund. Further disbursements to Althelia and new financing commitments to REDD+ and similar initiatives should be halted while an evaluation is carried out.
The European Investment Bank funded the Althelia Climate Fund to the tune of €15 million. In addition, in its 2015 Annual Report, the EIB writes that,
Like in 2014, the EIB has in 2015 purchased the equivalent tonnage of carbon credits from the Kasigau Corridor REDD+ Project to fully offset the corporate carbon footprint of the previous year.
Other investors in Althelia include: FinnFund, the Dutch development bank FMO, AXA Investment Managers, Credit Suisse Group and the Church of Sweden. In 2014, USAID extended a US$133.8 million loan guarantee to the Althelia Climate Fund. The loan guarantee covers 50% of potential losses for Althelia’s projects.
Althelia’s shrinking portfolio
The Althelia Climate Fund aimed to raise €150 million. By June 2014 the Fund had secured investments totalling €101 million.
The Althelia Climate Fund will last eight years. In a September 2013 presentation, Althelia stated that its target portfolio was “20 to 25 investments within 3 years”.
But Althelia’s 2015 Audited Annual Report shows a “gross commitment” of almost €49 million to five projects. The “estimated present value” of the five projects is €25 million. A further €5 million went to “other investments”.
By 31 December 2015, investors had disbursed €18.36 million of the €101 million committed to Althelia.
In September 2016, EIB told Re:Common and Counter Balance that Althelia was scaling down its investment plans:
“with EUR 105m raised instead of EUR 150m initially targeted, the Fund will target 12-14 projects.”
Returns in double digits
Gunnela Hahn is head of responsible investment for the Church of Sweden. In 2013, the Church of Sweden invested €10 million in Althelia. In a 2016 interview with Institutional Investor, Hahn is quoted as saying that, “the return has been in double digits”.
Kill writes that,
[Hahn’s] comment raises questions about how the Althelia Climate Fund has been able to generate such returns given the small published project portfolio, the deflated carbon credit price and the figures shown in its 2015 Audited Annual Report.
Meanwhile, Althelia Climate Fund charges its investors management fees, based on a percentage of the investment. Kill writes that in 2014 and 2015, the fund charged a total of €4.4 million in management fees.
The two men behind Althelia Climate Fund, Sylvain Goupille and Christian del Valle, previously worked at BNP Paribas Corporate and Investment Banking. While at BNP Paribas, del Valle worked on a US$50 million financial package for Wildlife Works Carbon LLC, that led to the creation of the Kasigau Corridor REDD project in Kenya.
Althelia’s first financial deal unravels
In February 2014, Althelia announced its first financial deal: US$10 million to launch Wildlife Works Taita Hills Conservation and Sustainable Land Use Project, adjacent to the Kasigau Corridor project. This was intended to be an investment through an Emission Reductions Purchase Agreement. The Taita Hills project would add another 2,000 square kilometres to Wildlife Works’ carbon project area in Kenya.
But in July 2016, the Emissions Reduction Purchase Agreement between Althelia and Wildlife Works fell through, “reportedly over the details of the financial arrangements and repayment terms”, Kill writes. In November 2016, Althelia Climate Fund told Re:Common and Counter Balance that the financing had been converted to a loan.
IFC to the rescue
In November 2016, the Kasigau Corridor project received a financial lifeline when the World Bank’s International Finance Corporation launched a US$152 “Forest Bond”. Under the deal, investor can choose to receive their returns in either cash or carbon credits from the Kasigau Corridor project.
For those investors that prefer cash, mining giant BHP Billiton has agreed to by up to US$12 million carbon credits from Wildlife Works at a fixed price of US$5 each. IFC’s Alexandra Klopfer told REDD-Monitor that,
BHP Billiton provides a price-support mechanism for the Forests Bond. If investors elect the cash coupon instead of the carbon coupon, BHP Billiton offtakes the carbon credits generated and delivered by the project.
Klopfer did not answer REDD-Monitor’s question about how many investors in IFC’s “Forest Bond” chose to take carbon credits rather than cash. Or why IFC decided to bail out the Kasigau Corridor project. Or what due diligence IFC carried before making its decision.
Conservation International partnered with IFC to set up this deal. Conservation International was one of Althelia’s first funders, providing US$1.35 million. Conservation International sits on Althelia Climate Fund’s Expert Board.
Inequity on the ground
In July 2016, Re:Common and Counter Balance visited the Kasigau Corridor project. They found that,
Pastoralists and local residents without land title documents are hardest hit by restrictions the REDD+ project puts on land access, grazing and collection even of dry branches for firewood. Pastoralists and Taita and Duruma communities without land title documents on the one side and ranch shareholders on the other are both laying claim to land that has become part of the REDD+ project. The conflicts date back to historic injustices over land allocation as recent as the 1970s. The REDD+ project upholds or even exacerbates these injustices. Those most disadvantaged in ‘the community’ also have next to no say in the selection and execution of so-called community projects. The revenue from REDD+ credit sales that is allocated to communities, funds these community projects. Worse, the REDD+ project might have dramatic consequences during periods of severe drought because land access restrictions also close off access to water holes.
One of the villagers in the project area said,
“How is the carbon benefiting me? We hear ‘carbon, carbon’, but to me, this carbon business is a riddle.”
PHOTO Credits: Predominantly savannah and open forest landscape within which the Kasigau Corridor REDD+ project is located. Taita Hills, Kenya, © Jutta Kill.