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Activating Sustainability | Ep 56: Nature and Carbon Credits · Activating Sustainability

• 0:00
  Speaker A: Foreign.
• 0:08
  Speaker B: Hello and welcome to Activating Sustainability, the Anthesis Podcast. I'm your host Chris Peterson. Today we're exploring the intersection and dual value co benefits of nature and carbon credits, how they can work together and why it's a key part of an effective strategy. As always, to help us unpack, understand and act on these opportunities, I'm joined by some of my Anthesis group colleagues on this episode. We're speaking with Bianca Nijoff, Global Lead for Nature and Chris Hates, Associate Director, Carbon Products and Services. Welcome to the podcast. Thanks so much for joining us.
• 0:38
  Speaker A: Thank you for having us.
• 0:39
  Speaker C: It's a pleasure to join. Yeah, thanks Chris.
• 0:41
  Speaker B: Wonderful. Well, maybe to start us off, nature is such a broad term, I wonder if maybe, Bianca, you could kind of help us think about like how do you actually define nature and some of the key elements that we'll be talking about today?
• 0:55
  Speaker A: So thanks that he asked Chris and it's really good to get those definitions right. So nature is actually all the living things around us. In some definitions it also includes water and it also includes soil. But in general I would say it's all the living things which you would see. The term nature is usually mixed up with the term biodiversity, whereas biodiversity is really referring to the diversity of species, the diversity in genes within those species, but it's much more a quality thing within nature. So whenever the biodiversity is aligned with what you would expect in that situation, from the water quality around it, the soil quality around it, the time. So if there's a good biodiversity reflecting a quality action delivering, not using the term, the higher biodiversity is more valuable because that's the way it's usually used. But that would mean actually that a tropical forest with high biodiversity is more valuable than this peatland area which has a lower biodiversity. Both serve their purpose for that specific environment. So it's really a biodiversity appropriate for that specific location. So nature, the living things around us sometimes included water and so on as well. And biodiversity really being the variety of species and hence a quality measure. Two other terms which quite often get mixed up is actually the term nature based solutions versus the term of natural climate solutions. And that will come later in the podcast, but especially when we connect nature with the theme of climate. Nature based solutions is actually all the solutions nature provides us with which also have a social benefit to society. There can be anything to from mangroves protecting the hinterland from being flooded, to for example, carbon capture. But the carbon capture side of things is actually has a specific name to it in its natural climate solutions. Another nature based solutions could for example also be sand sedimentation in front of the coast to protecting the coast again from being flammable. To me being Dutch, that is a very much a nature based solutions for me. And I always get confused when people refer to natural climate solutions being nature based solutions. So I think it's important to distinguish the two.
• 3:03
  Speaker B: That's great, thanks. And yeah, I know those are been coming up a lot as we go through this. And Bianca, I know often you talk about like the role nature plays in the way that we operate and we often take it for credit and curious, kind of. If you could expand on that just briefly.
• 3:19
  Speaker A: Yeah, thanks. Well, over the years actually if you look back, nature has covered us actually for capturing a lot of carbon. And you might have heard that oceans for example, are capturing a lot of carbon as well. But now when the oceans are getting warmer, they're able to capture less carbon. And if you look at weapons as well, for example, and even recently there was an updated research on the amount of carbon which actually moss captures. So there's a lot of carbon already captured over the years before we even realized that it was, it was an issue. So nature has, has covered for a long, long time in that sense.
• 3:53
  Speaker B: Maybe as we take that step back to kind of why are we talking about nature and kind of carbon markets and all of this together at this point. And curious how the two of you are seeing that show up at the moment, particularly from a risk perspective, which seems to be an area that is getting a lot of traction.
• 4:11
  Speaker A: Obviously climate has been a theme for a long, long time already and a lot of climate risk assessments have been done over the years also because it was of large virus. When people want to report to tcfd with TMFD coming up, you see that those two are getting more and more aligned. We see a lot of our clients initially asked for solely the climate risk perspective, but we, we always stress too, whenever you want to do both, do them at the same time actually because you're using the same channels of information, the same data gathering systems, partially you use the same data to actually in the end be able to report to TCFD and TNFD and to look at your climate and nature risks. And also if you look at the different risk from different risk lenses. So being a physical risk or transition risk. So the transition risk for nature and climate are kind of like the same. It's both policy changes with technological advances, for example, but on a physical level they really differ. And for nature those physical risks are really sudden or gradual. But they're location specific and that is the difference between with climate and nature. But they're connected as well and there's trade offs. So sometimes one climate risk actually might minimize the nature risk or the other way around, or even they might like the climate and nature risk together at one location actually will amplify the risk. So since there's so much crossovers and there's so much also nature being able to mitigate 37% of their emissions from due to climate change, I think it is important to have both of those lenses, but look at them also together to see where they influence one another.
• 5:47
  Speaker B: Chris, I'm being interested to hear what are some of those conversations you're hearing as people are thinking about maybe that shift in how they view carbon removals and offsets and credits.
• 5:55
  Speaker C: Thank you. And it's, I mean I find this fascinating because often when you're thinking about offsets, by definition this is typically an emission reduction that is happening in a location that is elsewhere from when the emission is actually taking place. So getting your head around that can be a bit tricky and understanding how the risk is, is connected to the other risk. But maybe stepping back for a moment in contextualizing the voluntary carbon market I think might be helpful here. If you're not aware of it, this market has been going for about 30 years. And the very first land based offset project was initiated in 1988 when the WR, the World Resource Institute advised a company called Applied Energy Services to plant trees in Guatemala to offset emissions from the US coal plant. And that's kind of where it all began. It was really a recognition that ecological restoration was going to form a key part of whatever was to come next. So while initial kind of efforts in this front were philanthropic in nature, it began to take very different format and eventually the VCM now has emerged to fill gaps where compliance markets don't cover emissions reductions. So this is why it's so important. And when it comes to the natural climate solution piece, it's kind of coming full circle again. We're really going to a place where, as I said off the top, where we are looking at an offset of an emission in a different location. Now we're beginning to look at offsets slightly differently. And that can be in the form of really trying to approach them in what is known as a like for like solution, where hey, if it is a biogenic emission, we want to offset with a biogenic solution. If it's a fossil fuel emission, maybe we'll look at permanent storage in rock weathering this, there's all kinds of really innovative things going on where an emitter can begin to look to the risk they serve with a particular type of emission and go to an offset that matches that.
• 7:41
  Speaker B: How are you seeing the nature element of that starting to show up in those discussions? And is there like a desire for this kind of dual benefit that Bianca's been highlighting and commenting about?
• 7:52
  Speaker C: Yeah there is. I think when you look at the latest data that anything there's a natural climate solution And Bianca, thanks for the definition in offsets. Often we just talk about nature based solutions because that's all the small segment we're talking about. But a natural climate solution represents about 50% of all the credits that are traded in the voluntary carbon markets. When you look at removals it's about 98%. So these are the afforestation and these other kind of more removal types of credits. And yes, the answer is absolutely, it's an affirmative. And that's largely because often when we're looking at scope three, we're looking at supply chain. These supply chains can extend often to locations where some of these wonderful projects are located. So we try to align these credits with the supply chain and the client needs in that format.
• 8:38
  Speaker A: Jackson is actually a very important point which you make there and which always from a nature perspective, I think I stated before, nature being so location specific to make the link of a company with somewhere in a supply chain where you're actually buying those credits. The carbon credits with co benefits are very quickly evolving yet not very established. Energy credits, biodiversity credits, whatever you would call in credits, nature related credits, market that location specificity is really key in that and hence as a company knowing your supply chain is really key and that brings it back again to also looking at the nature and risk part. So also for that you need to know where your supply chain is or where your value chain is. That is one of the actions I think where those things come together as well. So what I've seen happening as of the beginning of this year, and I really want to state that point, is that we were all on the road towards disclosing. That was the main reason why a lot of things were done. It's about disclosing and with amongst others the eu but also what's happening in the US actually and another countries disclosure being less importance or it's watered down. But still companies are actually looking into their nature and climate risks still they are because they notice it is common business sense. It actually taught them whilst doing that they learn where their Risks, were they connected to risks which they hadn't previously known? They're now using actually that knowledge of risks and the exercise of doing this climate and nature risks analysis. They're using it to dive deeper into their supply chain and to really identify the actions to take. Once you also have this business case and this is where you come to the credit market again. And what you just stated, that as a company, if you know in which locations you actually have a connection with through either your supply chain or maybe somewhere in your own operations, and from a carbon perspective, you could maybe mitigate it everywhere. But from an agent perspective, that location specificity and like, for like as close to where the impact is happening, that is so important. Sir, thank you for saying that.
• 10:41
  Speaker B: Yong Tu, you mentioned that shift from disclosure to action and I'm curious if there are a few like telling examples of one, the kinds of risks organizations are facing from a nature perspective and then also what are some of the actions they're taking, including some of these, like different approaches to the carbon market.
• 11:00
  Speaker A: Nature, best solutions, ecosystem services. It's all about the dependency your business has of nature. And by finding that out so knowing in specific locations, for example, you only find out by deep diving into your supply chain that you're sourcing your main resources actually in that location being prone to flooding. Could you use mangrove forest, for example, because of that, the hinterland will indeed. So as a company I would then invest actually in carbon credits which are at that location. And preferably if it's about restoring mangrove forest, it's actually also restoring in nature restoration at the same time. And you might even improve on the livelihoods locally because as you might know, marigold forest are places where young fish hatch and where they develop. That's also beneficial to the fishery, fishermen maybe in that society. So you're in that way, you're connecting your value chain or your supply chain to specific action you can take on the spot, ensuring that you can still deliver on your resources whilst at the same time also having this connection to wherever you're making a positive impact on carbon capture.
• 12:07
  Speaker C: What I find so interesting about that is, as I was mentioning earlier, it can be simple or it can be very complex. Right. What we're getting into is like the complexity of how you can really connect a value chain or supply chain to your emission reduction elsewhere. So it used to be that you would just. People would shop around for an offset. Yeah, we got a hundred tons of emissions, we'll buy 50 of those and 50 of those, that's the easy Solution, not the ideal solution. What we're seeing now is a really interesting evolution and sophistication of the market where now we have the technology, the methodologies, the tracking of whereby we know kind of point source pollution against where the opportunities are to protect something that is very similar, the like for like comes into play. And now as we're touching upon, as we see increasing sophistication in the corporate demand and what they expect to see in the market, we're beginning to see that reflected in the kinds of credits that are now available.
• 12:57
  Speaker B: I know that there's been a lot of interest around the SARO project and how that's shown up. And maybe that's a good example of how this can start to manifest. Your point jigs from that shift from we're just trying to meet a threshold number at the lowest cost to what is the most effective or as I said, ideal approach to that. Maybe the two of you could speak to kind of how that's showing up in that project and others like it.
• 13:23
  Speaker A: So it's a project in the pampas in Argentina and it's really an agricultural, regenerative agricultural project with very specific co benefits from nature and a social side of things. And it's also really astonishing. So our colleagues were visiting there and at that time actually the biggest droughts in Argentina were happening and they were driving up this pampas and all of a sudden they saw agricultural fields very draw and really like nothing happening there, no livestock, really not looking very good. Whereas and like there was this fence and on the other side of the fence there was livestock happily grazing, which is really. Wow, that's an incredible difference actually. So what they did do is using livestock to mimic the natural grazing behavior. So it means that you're actually not always having your livestock graze the full field, but you're using patches of the field and you're moving the livestock around, which actually allows vegetation to like regenerate, restore itself in between. And because of that you actually see that grass grows faster and it's growing better. And apart from that they use a holistic management plan. So really 100% farmer specific plan really adopted to what the farmer can do. The sequestration went up with 4 tons carbon per hectare per year. The soil health and the microbial activity went up and the number of grass species was actually there were up to 26 extra types of grass species being seen in those fields. Water retention went up, hence during the drought they really still were able to have their livestock raised there. And they had, they reduced the input of soy and of fertilizer. So by adopting to a more regenerative agricultural solution, capturing carbon, proving on biodiversity and improving on the livelihoods. And those are actually then translated into carbon credits which are sold by enthesias. And I think change, that's much more you are, you're knowledgeable about.
• 15:16
  Speaker C: Yeah, thanks. This is so exciting. I think again it demonstrates how flexible and the voluntary cog markets can be. So it used to be again going to the way back machine for a moment. You know, in the US we would have a no till agriculture project and that was exciting, right? That was exciting at the time. So carbon is incredibly complicated. As Bianca could probably speak too far better than I. But measuring soil carbon content is challenging. But at the time that was, that was a very new project and doing that was demonstrably keeping carbon in the soil where it belongs to. So this, this is kind of a sea change in that kind of evolution. Minimizing soil disturbance, yes, but also maximizing crop diversity. You keep the soil covered, natural cover crops, mulches, you integrate livestock, as Bianca was mentioning, into the farming practices and you maintain living roots so there's fewer inputs required, less additional water needs to be put upon it. And all of this results in a much less impactful form of agriculture which results in better crops, better yields, also sequestering carbon. It's a fascinating project. You know, concomitantly it goes along with companies being interested in this type of project because of course, like we mentioned, this is in Argentina. Plus it's going to be growing into other South American countries. And so many corporates have supply chains and value chains which extend into this part of the world which are very agriculturally focused. Again, thinking about like for like and demonstrably participating in a market which makes sense to you by looking at your own scope, free emissions and saying I could really do some incredible work in this Sarah project or another like project and have a big impact.
• 16:52
  Speaker B: And I'd love to hear from the two of you. Knowing our clients, the partners we get to work with, I feel like this is just given. But I'd be really interested to hear how do organizations and corporations and investors in this space realize the value from that? Like you can see the financial logic of we'll do industrial agriculture. We will squeeze every penny out of our supply chain as we can, just be as economically efficient in theory as we can and then we'll go and buy credit somewhere else. That is the cheapest way we can kind of mitigate that impact or at least take the Carbon out of the air. This sounds like a way to maybe internalize some of those externalities. And curious, how does that show up for an organization? How do they realize the value? How does a sustainability team help the finance team understand the additional value and realize that from these types of efforts?
• 17:42
  Speaker C: It's an important question and one that I encounter fairly frequently. And in that I think we're seeing a maturation in the way people choose to invest in offset projects. As I said early on it was really just trying to get a solution that would help to mitigate emissions. But now we really see the, you know, aligning with the science based pathway. Reductions have always been the first thing to do, but they're even sort of more emphasized now than any time previously. So when it comes to the any kind of decision around an offset purchase, it really is about those residual emissions which year over year should be going down. So hopefully the purchase is not a large one, but given scope three and the complexities it can be. So I think that oftentimes that discussion is around, yes, it's recognizing the risk that exists in supply chains, particularly as I said, if it's an agricultural based company, if you need coffee, if you need paper immediately, that is a existential risk to your business. So yes, you will take action on supply. Maybe it's in setting, maybe it's a variety of different approaches, but ultimately there will be some residual emissions. So the other piece of the maturation is that companies are doing a much deeper dive on due diligence around projects. So rather than just expecting that the VCS project they'd purchased previously or the goal stand they're looking at now is going to match their needs and their risk profile, they are doing their own due diligence or looking to companies to do that on their behalf. And so they're getting in earlier stage with each project. So sometimes it's a matter of really it's one company focusing on one particular project. And for our projects, for example, we do due diligence on our own. If it's not our own project, we conduct that due diligence. A company may do that independently, but it also means that they probably were working with one company, one project more often than used to be. This is also another evolution that's happening. Portfolio credits are still quite common. Companies will buy from a number of different projects to satisfy either stakeholder demand or reduce risk or, you know, whatever kind of reason or driver that is. But increasingly companies, as I said, most mature ones, are now getting in with a larger project or Pardon me, an earlier stage in a larger way than.
• 19:47
  Speaker A: That project, maybe adding the nature lens to this. Would you say the value of what you would do on nature. And a lot of times as we heard, if you look at the carbon credit markets, it's through the go co benefits and it's then more the ecosystem services. So again dependency of a company of nature. And you use that as a value. In general when looking at nature, I want to go actually one step back. So in general when you're doing anything on in a land based area or a seascape, in this case you're using the mitigation hierarchy. You'll see that back in SBTN as well, which is about avoiding, minimizing, restoring and then offsetting potentially is the impact count being avoided or can't be minimized or it can't be restocked. So that's the mitigation hierarchy we usually use how we look at nature the way actually now the credits come in and apart from carbon credits, you see this development on nature credits, biodiversity credits or whatever we want to call it there. I think there's more than 400 different types of credits now and it's absolutely not an established market yet as carbon credits are. Having said that the ask and the demand is actually quite minimal. But the major credits is one of the ways of of monetizing biodiversity outcomes. And this is what the. With the 7th of July I think that the European Commission enlarged the roadmap towards nature credits actually and it's very much about also setting this favorable policy environment. There's a lot of things we still need to establish from a nature perspective. So what are we actually measuring? What are the KPIs for carbon is quite clear, it's CO2, but for nature less clear. But still there's multiple ways around it. And we have been in environmental impacted assessments in a way measuring that. But what the roadmap did towards nature credits actually does it's again inserting the favorable policy environments. And what's interesting, within the roadmap towards nature credits they actually distinguish between certificates. So which are the high quality actions and the credits which is actually the demonstrated biodiversity outcomes. And that is what is really important. That's the way obviously you need to find your measure at and that is the way of putting nature in the end on the balance sheet through using those biodiversity credits. As said, it is a market where a lot of demand is still lacking. And I do think that the route to go and the way to go from my perspective would be carbon credits. And then having well established co benefits for nature in that case. And be sure to get that right.
• 22:13
  Speaker C: Yeah, I think there's good reason that most good carbon credits have an associated group of, of co benefits to go along with them. You know, it's really actually an ad wire that doesn't, it's really just your direct air capture or something like that. That is of course the focus is always that one ton of emission reduction. But on top of that it's, it's almost impossible not to have positive impact on biodiversity, on community, on economy, et cetera, et cetera. And, and we're getting better at measuring those things as well.
• 22:37
  Speaker B: I realized I kind of jumped to assuming there's a significant additional cost for having these multi benefit offsets, credit programs, et cetera, around that. And we'll be curious to hear how does this actually show up in practice? Is it in the same ballpark? Is it a significant added lift?
• 22:55
  Speaker C: Yeah, the credit market is heterogeneous. Right. So we've got lifted lots of different project types, lots of different inputs and the cost that go into projects vary greatly. Ultimately when someone is looking at like what do I want impact the most when I'm purchasing an offset? The short answer to your question is no, they don't impacted in a, in a material way. Typically the highest cost of all is this direct air capture which includes, you know, incredible technological lift and inputs which we don't get involved with. But when it comes to other types of credits, whether it's cook stove to a forestry project, to a mangrove restoration, there will be differences in pricing, but that can be due to a number of different factors. It's not necessarily just this additional value of the biodiversity left or economic assistance.
• 23:39
  Speaker B: That's great. Yeah, it feels like that makes it a very valuable conversation given all the benefits and co benefits you all have highlighted. And maybe just before we wrap up, Bianca, anything you would add in terms of other actions you see organizations taking beyond say carbon credits or kind of the risk assessment and efforts within that.
• 23:56
  Speaker A: So contributing to nature positive is, and I deliberately said contributing to nature positive not becoming nature positive. I do believe personally that as a company you cannot become nature positive, but you can always contribute. And yes, the carbon credits with co benefits for nature is one way of dealing with that. Actually looking at your ecosystem services which you depend upon as a business and actually then looking at how you can improve or assure that those ecosystem services will be available to you in the long term and actions you can take to improving nature to ensure that there's Actually another way of how you can contribute to nature positive, but at the same time actually find a business case for you to invest in nature. And the third option which still exists, but there might be a risk to remorting nowadays actually is simply contributing to nature recovery through philanthropy. I would always say when a company would want to move in that direction, always look for a way how and still connects to your business through either somewhere in your supply chain or in your value chain or maybe the type of product you produce and that you actually have the resource you're dependent upon. So you're dependent on water. Why not invest in wetland restoration or actually wetland preservation? Because that's really the areas to keep our water available actually for that water source. So I think there's different ways how you can deal with that as a business in contributing towards nature positive and carbon credits.
• 25:22
  Speaker C: I 100% agree. And I feel like the companies that are doing this really well, the companies that are experiencing positive feedback internally and externally because of this, are doing this in a very coherent manner. Right. So as Bianca is saying, I think it's really about connecting all the dots of your business and whether it's philanthropic initiatives, whether it's employee engagement, whether it's investment, it all has to come from that place. And nature and climate really is that kind of that centralizing that I think they can all connect to very nicely. You know, we don't only just sell credits, we sell a host of different services that go along with it. So it's. If you're thinking about it, it's about a 360 approach to your strategy.
• 26:00
  Speaker B: Oh, it's wonderful. Yeah, it's great to be bringing these disparate pieces together and making that into a kind of coherent path forward. I know that we're coming up on time, so maybe we'd love to hear from both of you just in terms of. We've covered a lot of topics, a lot of ground. What are some key takeaways and specific actions you would guide listeners to pursue from here?
• 26:20
  Speaker A: For me, from an edgy perspective, let's understand nature. And there's this great course, Nature in Business it's called, which we as n Thesis just co developed together with the World Business Council for Sustainable Development. In short wbcsd. And you'll find that course on the WBC Academy, but you'll also find it on the M Thesis Academy. It's a course which helps you to understand what is nature, how does it relate to a different business and what from the different roles you could have within A business, how it's actually connected to that role and it really supports you in taking the first steps of action. For those already very well versed in the nature theme, for them it's a way to bring their colleagues on like a little bit up in the level on nature so you understand how nature relates to your business. So I would certainly do that course. And the second point, really address climate and nature risks together. It's a waste of money actually not to do so. And it's a waste of opportunity as well not to do. And the third one for me really moves to taking action. There's a clear business case tita if you really look at it very well. And that's where for me the carbon credits and co benefits nature come.
• 27:27
  Speaker C: Yeah. I would obviously be remiss if I didn't re emphasize the carbon and the Vulcan carbon markets. I think that there's a lot that goes with this market. There's a lot of feelings about it, a lot of talk about it, but at its core it is about addressing those residual emissions and it can be an incredible tool when you're thinking about how do you connect climate and nature emissions goals, all these together, there's some amazing work going on. I would urge people to engage in that, to speak to anthesis or learn more about the market and to get involved. Some of these new methodologies are exciting. The technology is intriguing. There's opportunities if you're private equity. I mean, there's just all kinds of things going on. And so I think that if you're looking to address these key areas, this is one way to do it.
• 28:12
  Speaker B: Wonderful. Thank you both so much. I learned a lot. I imagine the listeners learned a lot. I really appreciate your time and insights.
• 28:18
  Speaker C: Thanks, Chris.
• 28:19
  Speaker B: And thank you all for listening. We'll include links to the carbon and nature services as well as the great new course that Bianca mentioned in the show notes. As always, we'd love to hear from you on your feedback and how we can continue to improve and can be reached through the anthesisgroup.com website where you'll also find past episodes and lots of valuable resources. Thanks again and take care of.