Deal focus: Rethinking Australia’s biggest resource

Almost one-fifth of global greenhouse gas emissions come from agriculture, forestry, and land use. In Australia, where 77% of the country is classified as rangelands or pastoral, these industries do more damage than the notoriously under-electrified transportation sector.

Logically, the land sector is the driving force behind Australia’s globally leading carbon credits market, where polluting companies seek to offset their impact by effectively investing in carbon avoidance projects. Land use plays a unique role here because rather than just helping reduce emissions, an array of soil maintenance and vegetation management techniques can lower the concentration of CO2 in the atmosphere by storing carbon in the ground.

“There is good runway for growth in both existing and new technologies, and the projects themselves have long-term viability,” says Georgina Varley, a director at local PE firm Adamantem Capital. “A project with a life of 25 years will have relatively predictable carbon credit generation profile through long-term contracts with the government and corporates. That provides reliable supplementary income from the point of view of farmers and traditional custodians while also underpinning the sustainability of the market from the investor perspective.”

The discipline, known as carbon farming, has made significant strides in Australia since the Carbon Farming Initiative Act of 2011 was introduced with a view to reaching net-zero emissions by 2050. With carbon farming players now beginning to achieve meaningful scale and professionalization, last week Adamantem acquired a controlling stake in Climate Friendly for an undisclosed sum. Local media estimated the deal valued the company at around A$150 million ($115 million).

Adamantem spent 18 months studying the carbon farming industry and six months building a relationship with Climate Friendly. Varley describes the company as one of the leading operators in this space with 120 projects under management, a 25% market share, a strong track record, and a technically skilled team. Climate Friendly currently employs about 45 people and plans to expand the staff by 2-3x in the next five years. Adamantem expects to support a fivefold increase in carbon abatement capacity to 100 million tons by 2025.

“They really got to know the sector very well, which means we thought they were well placed to understand our growth opportunities,” says Skye Glenday, CEO of Climate Friendly. “They were willing to back the existing management plan, so we saw this as a chance to accelerate delivery. It’s also important that they’re locally based and have nimble decision making because the Australian carbon market is quite dynamic and fast-paced. Culturally, we’re both in the profit-for-purpose space, so that alignment of values was really valuable to us as a team.”

Climate Friendly positions itself as an end-to-end service provider. The company helps landowners run the necessary analytics to determine the most suitable locations for carbon storage and get the related technology in place, as well as support all the monitoring, auditing, and reporting requirements related to the government carbon offset program. Finally, it also helps land projects trade their carbon credits in the corporate sector after they’ve been issued.

All this involves a diversity of skillsets that is far beyond the scope of the average farmer. Indeed, Climate Friendly must mobilize about different 12 professionals from Climate Friendly per project. The company plans to deepen the offering further with new methods of data management, remote sensing technology deployment, and a more comprehensive approach to carbon sinks that exploits the absorption properties of biomass and above-ground vegetation.

“The way landscapes are managed in Australia, there are typically multiple things happening on one property,” Glenday explains. “If we can package those activities up together, it will be quite an innovation because it will allow carbon farming projects to occur in a lot more regions of the country. Smaller land parcels that might have multi-farming practices will be able to get involved in carbon farming, which they can’t currently do in a commercially viable way.”

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• Topics
• Australasia
• Cleantech
• Buyouts
• Industrials
• Australia
• Adamantem Capital
• Agriculture
• ESG