A new frontier in corporate responsibility

At its core, the concept of carbon credits is one filled with promise. Companies balance their carbon emissions by investing in projects that remove carbon from the atmosphere and replenish forests. When done well, this corporate responsibility measure reduces the company’s carbon footprint and helps strengthen consumer trust by demonstrating environmental stewardship.

But as demand for carbon credits has grown, so has the need for transparency and accountability. There are countless variables that make proving the value and efficacy of carbon credits a complex science. Measuring carbon reductions can be subjective or completely opaque. In addition, there have been bad actors in the space that exaggerate or misrepresent the true impact of their carbon capture. Today, companies are actively seeking solutions that deliver measurable impact. The message is clear: integrity is essential.

Chestnut Carbon was founded in 2022 to inject greater certainty and accessibility into the market. The company supplies organizations with rigorously established carbon credits created through nature-based solutions including improved forest management and afforestation—essentially reestablishing forests where they once stood decades before. Chestnut Carbon has developed scalable and cost-effective ways to protect existing forests and restore lower performing farmland that was once forested to its natural state, a model companies can invest in to meet their net-zero goals. The approach is designed not only to sequester carbon, but to support the growth and preservation of communities across the country for generations to come. To-date, the company has restored more than 50,000 acres to native, biodiverse forests and conserved another  200,000 acres of existing forest land.

Chestnut Carbon’s commitment to forest restoration while creating long-term economic value shows that environmentally responsible decisions can also be business savvy. “We believe this will be transformative for Chestnut Carbon and the industry as a whole,” says Greg Adams, chief financial officer for Chestnut Carbon. “We are doing well by doing good.” 

A Revolutionary Deal

As Chestnut Carbon was developing the infrastructure for large-scale afforestation, it began working with Microsoft to help mitigate the tech giant’s carbon footprint. For its pilot program, Chestnut Carbon planted around 7.5 million trees through 2024. Microsoft purchased more than 787,000 of the associated credits. In 2025, Chestnut Carbon inked another deal with Microsoft to remove roughly 7.4 million tons of carbon for the tech giant over 25-plus years. 

This expanded partnership raised the stakes in terms of both opportunity and execution. To meet Microsoft’s increased demand, Chestnut aligned the scale of the project with a simultaneous infusion of outside capital from institutional investors, securing the industry’s largest common-equity round of the year with $250 million in Series B funding. With that momentum, Chestnut pursued a  lower cost of capital through true bank project finance.

“One of the pieces that we looked at when structuring this deal was making the banks more comfortable by bringing structures they’ve seen before in traditional asset classes,” says Jaclyn Winkels, Chestnut Carbon's director of finance. “One way we accomplished this was creating a long-term offtake agreement similar to a power purchase agreement. That way, we would have robust contracted cash flow from Microsoft, an investment grade buyer.” 

The offtake agreement had a discrete delivery schedule that outlined how much Microsoft would pay each year for their carbon offsets and how many credits Chestnut Carbon would deliver.

However, the dependence on carbon credit revenue to service the loan and the newness of the asset class at this scale required rigorous due diligence in order to get banks comfortable with the risks. While trees sequestering carbon is not a new “technology,” forests can be vulnerable to insects, disease, wildfires, wind, too much water, not enough water, the list goes on. Lenders needed more certainty that they would get a return on their Investment.

To assure the banks that this was a wise investment, Chestnut diversified its land holdings, so no single event could eradicate carbon capture. They planted several species of trees, which can reduce the risks posed by disease, drought, and insects. In addition, Chestnut hired a technical advisor on behalf of the lenders to deliver a comprehensive risk assessment.

But even then, Chestnut needed insurance to defray the banks’ risks. Marsh McLennan Agency (MMA), Chestnut Carbon’s existing business insurance advisor, was tapped to identify an appropriate route forward.

While different types of forest insurance have been offered for over 100 years, these policies were never designed to backstop carbon credits. Timber policies generally insure forests based on their value in board feet, the unit of volume for lumber. Since these land parcels would never be harvested in that way, this approach wouldn’t work. The same was true of parametric insurance, which pays based on a specific event, such as wildfire.

To create the Microsoft credits, Chestnut was purchasing more than 100 land parcels across several states, and planting around 30 different tree species (including softwood species with no inherent lumber value). Traditional policies couldn’t stretch to cover these needs.

“Timber insurance pays a cash value per species,” explains Casey Nepper, an insurance risk consultant at MMA who played an integral role in the first-of-its-kind solution. “We would end up having an unmanageable number of standing timber policies for all the different project locations, spread out across the Southeast, for different species with different wood values.”

In addition, the saplings do not generate revenue until five years post-planting, when the aggregate tree growth is enough to sequester meaningful tons of carbon and issue the first credits. Chestnut needed to find a policy (or policies) that would insure their ability to sequester carbon and provide credits during the loan period. Rather than paying for the market value of the wood, the policy  would cover the cost of carbon credits if Chestnut Carbon could not deliver.

“The banks’ concern was whether we could cover the debt service,” says Winkels. “But given the relative novelty of afforestation, they needed to be reassured. Another way we helped them get comfortable was having the appropriate insurance.”

“The insurance advisors did a great job demystifying the issues we needed to worry about and how to manage them,” she adds.

A New Type of Insurance

The various organizations in the deal—Chestnut Carbon, Microsoft, MMA, its parent company Marsh, banks, and insurance carriers—spent hundreds of hours negotiating solutions that would be equitable for all sides. Eventually, they found a policy that would protect the banks and ensure Chestnut Carbon’s carbon credits would be delivered.

“The way this policy works is that if a project fails due to any type of natural catastrophe, the carbon insurer will pay up to the policy limit for the carbon credits that are not delivered,” says Nepper.

Prior to this deal, nobody had valued carbon sequestration over time, particularly the insurance industry. Carbon credit insurance, underwritten by London-based insurer CFC, hadn’t even existed two years before.

“The market capacity for this type of policy has increased dramatically,” says Nepper. “It’s grown threefold since this deal closed. This also puts MMA in a unique position to have conversations with our clients that no one else in the market is having.” 

This expanding insurance market has enormous implications for the carbon credit sector. Up to this point, companies had to rely on private equity to fund their investments, a limited and expensive financing source. Now, they will have access to bank financing, which could take the brakes off growth.

Now, Chestnut Carbon is seeing increased interest from new sectors, such as technology companies, financial institutions, retail, and other corporate carbon emitters. Companies that might previously have bought short-term spot credits are now looking at longer-term deals, like the deal struck by Microsoft.

“We’ve demonstrated a model that’s scalable and incentivizes investors,” says Adams. “Now they know they won’t be the only ones in a deal. Their investments will be partnered with low-cost conventional financing, which gives people more comfort that the market is moving in the right direction.”

A Satisfying Outcome

Ultimately, the project was greenlit due to the innovative agreement with J.P. Morgan and other banks approving a loan to Chestnut Carbon for $210 million to buy the land and plant forests. MMA’s Nepper was integral to finalizing the deal by brokering the insurance that gave the banks the peace of mind that the project was set up for success.

With this financing, Chestnut Carbon is set to restore over 50,000 acres in the southern United States, and plant nearly 35 million trees in the process. The current planting season is underway and is on track to reach these goals this spring.

Without the insurance protection, Chestnut would not have been able to bring in a lower cost of capital to plant the forests and deliver Microsoft’s credits. Meanwhile, combining afforestation and bank financing with a new kind of insurance is having profound impacts on the carbon credit market.

This was the first time an afforestation project had been backed by a financing deal of this scale, providing much-needed capital for Chestnut Carbon and potentially revolutionizing how carbon is remediated.

“This financing agreement both accelerates our carbon removal initiatives and establishes a replicable model to finance the voluntary carbon sector,” says Adams. “We believe this will be transformative for Chestnut Carbon and the carbon capture industry as a whole.” 

The Quality of Life Dividend

Looking beyond sequestered carbon, this deal means new forests will replace  marginal farmland. This could have a positive impact across the country, particularly in rural communities in Arkansas, Alabama, Mississippi, and other southeastern states.

Converting farmland reduces the amount of manure, fertilizer, and pesticides that run into local streams, improving water quality in nearby communities. In addition, afforestation improves over-farmed soil and sets the stage for wildlife to return to lands that previously had little to no agricultural value. For example, in Louisiana, some properties are now seeing black bears as the species has recovered after decades of decline, a direct indicator of a rebalancing of the local ecosystem.

“Every year, these trees are growing and more wildlife is coming back,” said  Gabrielle Donchez, Chestnut Carbon’s marketing director. “The water is getting cleaner, the air quality is improving. We’re giving people new opportunities to hunt, fish, hike, birdwatch, and communities are enjoying land that was once private. We believe other companies will see how these benefits augment the carbon sequestration and that will give us opportunities to buy more land and do this again and again.”