Unlocking Carbon Finance: a project finance Masterclass by CrossBoundary and Gold Standard

CrossBoundary delivered a masterclass on Project Finance for Project Activities as part of Gold Standard’s Masterclass Series. This presentation, delivered by CrossBoundary’s Natural Capital team (Kate Wharton and Makari Krause), is a comprehensive training module designed to help carbon project developers understand and apply project finance principles to projects that remove or avoid carbon emissions.

The presentation materials for this masterclass can be downloaded on this page and primarily cover seven topics:

Session 1 outlines the process for assessing the financial investability of a carbon project, including:

• Forecasting expenses and revenues, which relies on forward curves for the quantity of carbon credits generated and the market price of those credits
• Determining the upfront investment need for a project
• Conducting project valuations and calculating the return on investment

Session 2 discusses the various financing mechanisms and structures available to carbon projects, including:

• Selecting the organizational level at which to raise capital and deciding whether additional vehicles or entities are necessary
• Selecting the investment instrument that best aligns with project needs

Session 3 consists of an Excel-based exercise that can be downloaded here.

Watch a recording of the session for a live walkthrough of the exercise (time: 1:01-1:21). This exercise includes:

• Understanding financial statements for carbon projects
• Determining the investment need for a project
• Selecting funding instruments
• Calculating free cash flows
• Conducting valuations and calculating returns

Session 4 discusses pricing and trading of risk in financial markets and includes:

• Understanding how financial markets think about risk
• Understanding common risks that carbon project developers may encounter
• Identifying risk mitigation, allocation, and transferring strategies

Session 5 provides an overview of the landscape of investors for carbon projects, including:

• Understanding the types of investors that may be interested in funding projects and their key priorities, investment criteria, and constraints
• Building relationships with investors
• Understanding the investment process from screening to due diligence to transaction close
• Compiling a comprehensive data room
• Understanding green and red flags that investors watch out for when evaluating carbon projects

Session 6 covers negotiation of investment terms, including:

• Understanding the standard terms developers typically encounter when negotiating investments, across both traditional financial instruments and carbon finance instruments
• Understanding how investors protect themselves in downside scenarios and the implications for developers

Session 7 provides an overview of two case studies on financing structures for illustrative carbon projects, including:

• An equity + pre-purchase structure for a mangrove reforestation project
• A debt + carbon stream structure for a biochar project