JPMorgan and Microsoft team up to fund a novel financial system intended for boosting carbon absorption projects linked to nature.
Chestnut Carbon Secures $210 Million Financing for U.S. Afforestation Project
Nature-based carbon removal startup Chestnut Carbon has secured a groundbreaking $210 million project finance credit facility, led by J.P. Morgan and backed by tech giant Microsoft's long-term forest-focused carbon removal offtake agreement. This marks the first U.S. voluntary carbon removal afforestation project to be financed in this manner, applying traditional infrastructure project finance models to nature-based carbon removal.
The facility is designed to fund Chestnut’s large-scale afforestation and carbon removal initiatives by planting forests on marginal crop and pasture lands across several U.S. states such as Arkansas, Texas, and Louisiana, focusing on biodiverse, native ecosystems with community benefits.
The credit facility is non-recourse project financing, meaning repayment depends on project-generated revenue rather than other assets, which is unusual for voluntary carbon projects. This structure adapts frameworks from sectors like renewable energy, incorporating milestone-based financing, independent measurement, reporting, verification, and clear risk allocation, enhancing credit discipline and scalability of carbon removal projects.
Microsoft has signed a 25-year offtake agreement to purchase the carbon credits from these projects, providing revenue certainty that underpins the financing. The financing was supported by a syndicate including CoBank, Bank of Montreal, and East West Bank, with technical and risk due diligence performed by advisors such as ERM, Marsh, and legal teams.
This transaction is viewed as transformative and a replicable model for sustainable finance in the voluntary carbon sector, potentially unlocking much-needed institutional capital and setting a standard to scale nature-based carbon removal projects nationwide.
The deal signals a maturation of the voluntary carbon market by applying proven infrastructure finance methods, reducing risks, and attracting mainstream investors who require robust structures and creditworthiness. It could catalyze growth and capital flow into nature-based climate solutions, enabling these projects to expand significantly and meet corporate carbon removal commitments like Microsoft’s.
By creating a scalable, bankable asset class for carbon removal, it may also encourage similar financing models globally, advancing nature-based contributions to climate mitigation efforts. Vijnan Batchu, Global Head of Center for Carbon Transition at J.P. Morgan, states that the financing gives developers the runway they need to succeed at an attractive cost of capital.
Brian Marrs, Senior Director of Energy & Carbon Removal at Microsoft, states that this transaction marks a meaningful step forward in demonstrating how nature-based carbon removal can scale through structured, high-integrity financing. Microsoft has a 25-year offtake agreement with Chestnut Carbon, providing the tech giant with over 7 million tons of nature-based carbon removal credits.
J.P. Morgan is proud to be a part of this significant deal and contribute to the growth of the carbon markets at large. This financing will help Chestnut Carbon expand its afforestation footprint and carbon removal capacity, moving closer to its goal of achieving more than 100,000 acres of restored forest by 2030 and removing 100 million tonnes of carbon from the atmosphere.
- This financing of $210 million for Chestnut Carbon's afforestation project marks a significant step in sustainable finance, as it uses traditional infrastructure project finance models to fund nature-based carbon removal.
- The non-recourse project financing for this voluntary carbon removal afforestation project is unusual, with repayment depending on project-generated revenue instead of other assets, which enhances credit discipline and scalability.
- Microsoft's 25-year offtake agreement to purchase carbon credits from these projects provides revenue certainty, underpinning the financing and signaling an attractive cost of capital for developers like Chestnut Carbon.
- By creating a scalable, bankable asset class for carbon removal, this financing deal could encourage similar models globally, thereby advancing nature-based solutions in the fight against climate-change and contributing to environmental-science.
