How farmland funds offer ESG solution and fertile returns

Carbon credits market gaining traction in Canada

How farmland funds offer ESG solution and fertile returns

Veripath Partners of Alberta, celebrating its 15th anniversary, is developing carbon credits for its Canadian prairie farmland funds.

“As the price of carbon credits has gone up in Europe, it’s making carbon credit buyers really search around the world for credits,” Stephen Johnston, Veripath’s Managing Partner, told Wealth Professional. “We don’t have a regulated market in Canada for zero till carbon credits, but there’s a voluntary market that’s starting to develop quite quickly.”

Veripath manages more than 90,000 acres of Canadian prairie farmland and has $200 million of assets under management and $400 million of private equity. It has two farmland investment funds. Veripath Farmland LP has Saskatchewan and Manitoba farmland while Veripath Farmland LP holds the rest. Johnston said it’s all zero-till land, so Veripath’s portfolio captures carbon.

In fact, in 2021, Johnston estimates that Veripath captured 13,621 tons of carbon, the equivalent of 2,951 vehicles, with a $681,050 implied value. It also has the satellite monitoring and farmer reporting to verify that the land is zero-tilled, so it can start to sell the carbon credits.

“We have people reaching out to us and asking about it,” he said, noting that farmland also provides very consistent returns and is not correlated to traditional financial assets, so it’s a good portfolio diversifier, especially in volatile markets, and it provides a very good inflation hedge. Canada also have very deeply discounted prices when adjusted for productivity.

“But in addition, now, there’s this extra return that’s developing in Canada with the Canadian farmland portfolios. The prairies have very high usage of zero till – much higher than virtually any other part of the world – and zero till captures carbon,” he said.

Johnston said Canadian prairie farmers are world leaders in how much land they zero till and the fact they’ve been doing it for decades. Zero till means they no longer plow the fields to prepare the soil for planting. They seed directly through the previous crop’s stubble, which is an environmentally friendly practice that retains moisture and captures carbon.

Veripath, which has about 1,000 investors, is working to develop the carbon credit market and is raising capital via an Offering Memorandum. Up to now, its funds have primarily focused on acquiring farmland, renting it to farmers, and harvesting the returns. That’s primarily been on the land appreciation, which has generated about a 12% annual rate of return for 15 years without using any leverage. Now, besides the land appreciation and rents, the carbon credits will offer an extra source of return and Johnston estimated that could amount to another .5% in returns.

“It’s a promising development for agriculture in Canada,” said Johnston, “particularly in western Canada and the prairies, by virtue of the fact that we are leaders in the use of zero till.”