Investors switch their focus to climate projects without carbon credit revenues
Financiers of nature-based projects that seek to reduce and capture carbon emissions while also enhancing developing nations’ resilience against climate change are focusing on investments that are viable even without carbon credit revenues, according to Hong Kong-based capital providers.
Such projects appealed to more mainstream investors after controversies over the actual environmental benefits of certain forestry protection projects upon which carbon credits were based, said Julien Martin, founder and CEO of Digital Climate Group (DCG).
“Before, people invested in these projects either because they were charities or they were interested in the carbon credits,” said Martin, who previously held senior roles developing offshore yuan, bonds and carbon credit products at financial institutions.
“But now they do it because there are potential financial returns on top of these. The door has been opened to a whole new type of investor.”
Confidence in the quality of carbon credits from naturebased projects took a hit after controversy erupted last year over alleged inflation of the climate mitigation benefits of forest conservation projects through double-counting and misaligned calculation methodologies used to grant carbon credits.
As a result, trading volume has plummeted. Credits traded in the voluntary market – as opposed to the compliance market – fell to 49 million tonnes of carbon-dioxideequivalent greenhouse gas emissions in the first 11 months of last year, compared with 254 million tonnes in 2022, which in turn was just half of 2021’s volume, according to Ecosystem Marketplace.
In particular, trading volume for forestry and land use projects fell by 53 per cent to 113 million tonnes in 2022, while that for agricultural projects, including sustainable farming, animal manure and fertiliser emission management, nearly tripled to 3.8 million tonnes.
Green fintech start-up DCG helps developers of naturebased decarbonisation and lowcarbon energy projects structure transactions to raise funds from investors.
It deploys blockchain and big data technology to meet investors’ demand for data that tracks the environmental and social impact of projects and guard against greenwashing – the act of making unsubstantiated claims about the environmental benefits of a product or practice.
Martin said he was working on seven transactions and was in talks on a few dozen others, mostly nature-based initiatives for decarbonisation and biodiversity enhancement. Examples include bamboo and mangrove planting, biochar production and sustainable fish farming.
For example, one deal arranged by DCG involves growing native bamboo in Africa on marginal land, harvesting the plant and processing it into food and construction materials.
Bamboo’s good mechanical properties, low cost, low carbon, environmental friendliness and thermal insulation mean it can replace polyvinyl chloride and concrete – both carbon-intensive materials – in construction.
The unwanted plant parts are burned in the absence of oxygen in a process called pyrolysis, yielding biogas for electricity generation and biochar as a biofertiliser. The process removes carbon dioxide from the atmosphere and stores it underground.
Lisa Genasci, managing director of sustainable finance at ADM Capital, said her firm recently launched a fund that would provide credit to projects that delivered commercial returns without revenues from carbon credits, while reducing and sequestering carbon emissions, promoting gender equality and improving farmers’ livelihoods and land use management.
“These projects have to stand on their own without revenue from carbon credits,” she said.
The door has been opened to a whole new type of investor JULIEN MARTIN, FOUNDER AND CEO, DIGITAL CLIMATE GROUP