French firm announces €200m ARR fund dedicated to Europe

Quantum Commodity Intelligence – Paris-based company France Valley is setting up a €200 million ($214 million) fund dedicated to investments in afforestation, reforestation and revegetation (ARR) projects in Europe, chief executive Arnaud Filhol told Quantum.

The announcement comes as a large amount of money has been ploughed into ARR since 2022 as investors increasingly favour carbon removals, even if the boom has largely focused on tropical countries in Asia, Africa and Latin America.

Filhol argues that, while biomass growth rates are slower in Europe, the game is more than worth it for investors because of secure land rights and increased interest in biodiversity, while the region's carbon prices in the long term are expected to be high enough to incentivise afforestation.

The EU is finalising its Carbon Removals and Carbon Farming legislation, which may eventually result in the inclusion of ARR projects in the continent's mandatory carbon market, the EU Emissions Trading Scheme.

"When we look at operations carried out by forest carbon funds in the southern hemisphere, they often have issues in terms of relocating populations or finding other types of activities local inhabitants can do, such as agroforestry," Filhol said.

"Generally, we do not have this problem in Europe because we will be on land which is hardly used as it is generally not optimal in terms of soil capacity for agriculture," he said.

The company said it is targetting established ARR projects registering under US-based registry Verra's Verified Carbon Standard, the world's largest voluntary carbon market programme, as well as Switzerland-based registry Gold Standard and France's dedicated carbon scheme, Label Bas Carbone.

It already has active partnerships with foresters in Estonia, France, Ireland, Latvia, Lithuania and Spain, among other countries.

The strategy is to buy plots of unused lands, plant trees and add the areas in question to existing carbon projects.

"One can buy 100,000 hectares in Ivory Coast, but that's not possible in Europe. So you have to be able to buy small areas everywhere to aggregate a global carbon impact," said Filhol, who adds that France Valley's expertise lies in selecting the right land plots where trees can thrive over the long term.

The financier said the fund follows local regulations that often limit the types of trees that can be planted, while projects are optimised to yield as many carbon removals as possible after 15 years while preserving a mix of species that will be able to better resist climate change.

"Over the long term, monocultures are simply not the most profitable investment... planting beech at low altitudes in France is a lost cause," Filhol said.

Investors are able to buy a share of the fund and the value of the stake will be assessed every year by a mix of forestry and finance auditors.

The fund is targetting institutional investors and intermediaries betting on a rise in carbon removal prices as well as corporate clients keen to offset their emissions footprint, and says it aims for a "double digit" internal rate of return.

France Valley is one of the largest funds dedicated to natural assets in Europe with €4.3 billion ($4.6 billion) of assets under management.

To date, its investments have focused largely on timber and real estate.

In the forestry sector, it made its first investment outside France a little over two years ago and is present in nine countries.

European ARR prices are currently trading between €30 and €45 a tonne of carbon dioxide equivalent, depending on the project location and carbon scheme it is registering under.