Fund of the year - Multi-asset/other: Althelia Biodiversity Fund Brazil

Channels: IMPACT

Companies: Mirova Natural Capital

Mirova Natural Capital confirmed the first close of the Althelia Biodiversity Fund Brazil just months after Norway followed Germany in suspending donations to the Amazon Fund.

The move by the European countries was sparked by a surge in deforestation in the South American rainforest, as the Brazilian government sought to increase the extent to which the Amazon contributes to the country's GDP in the face of mounting economic troubles.

Mirova says the hostile political background shows why private capital – and its fund in particular – is urgently needed to curb deforestation in the Amazon.

The rainforest absorbs about a quarter of all the carbon taken up by forests around the world every year.

Over the last 50 years, about 20% of the Amazon has been deforested. Researchers have suggested that the world risks reaching a "tipping point" should deforestation continue in line with current trends – triggering shifts in rain patterns and increased forest fires, that would in turn drive further forest loss.

With its fund, Mirova Natural Capital eventually aims to deploy $100 million of blended finance into sustainable activities that protect, restore or otherwise improve biodiversity and community livelihoods in the nine Brazilian states located in the Amazon basin. It raised $15 million at first close, with investment from the International Center for Tropical Agriculture (CIAT).

Mirova says that, through the fund, it aims to overcome several risks and challenges of working in the Amazon that have to date precluded most impact investors from expanding into the region, and specifically into sustainably managed agroforestry, farming, protected areas and biodiversity-friendly service providers.

The 11-year, closed-ended fund uses equity, convertible debt, loans, structured- and profit- participating-debt. It targets four areas: 1) Conservation and Community Livelihoods; 2) Smallholder Production Systems; 3) Land & Forest Restoration; and 4) Innovation in Biodiversity Services, Finance and Technology.

It will invest in two "investment windows".

  1. The first, "venture" window, targets enterprises with a revenue stream, and proven products and services, where feasibility has been demonstrated. Investments target management capacity, operating expenses and smaller-scale production capacity. The fund prioritises those where there is opportunity for rapid scaling and clear potential for follow-on funding within five years.
  2. The second, "growth" window will target more mature businesses with a strong management team, track record and positive cashflow. The fund aims to provide follow-on funding for high-performing businesses already funded under the venture window.

The fund structure also incorporates what Mirova claims is a first-of-its-kind, "double-lock" risk mitigation feature. It has a credit guarantee from the Development Credit Authority, backed by the US Agency for International Development (USAID), which will provide a guarantee for 50% of any losses of the debt allocation of the portfolio, up to a limit of $100 million. It is also structured as a layered fund, with junior and senior share classes. The junior provides first-loss protection to senior shareholders. CIAT's $15 million commitment is in the form of junior shares.

Mirova claims this feature "gives us an attractive risk proposition, with low development costs and a structure that can be replicated in other regions or countries once we prove success in Brazil".

The fund managers have already structured three deals, and 10 more are in development.