Our investment in BeZero — the missing link needed to scale carbon markets
Excited to be able to share details of our 2021 investment into BeZero and why we think this team can help unlock the value of environmental and ecosystem assets — the next phase of the great carbon opportunity.
Carbon has become an asset — we must learn how to price and manage it
It was/is hard to escape the multiple headlines coming out of COP26 on the urgent need to solve the climate crisis. Key to this is the issue of carbon emissions — specifically how we account for, reduce, offset and manage them.
The very fact that carbon is beginning to be quantified and priced indicates that regulators, corporates, governments, societies, and the financial services industry alike recognise that this is fast becoming an asset class in and of itself. An asset class that desperately needs the tools to help participants of all sorts price and manage their exposures.
There are two key elements to this. First is how corporates, investors and individuals work out their own carbon footprints and stress test the associated potential financial exposures (like they would for credit risk for example). The second is how we assess carbon as an asset itself. If emitting carbon creates a financial liability and risk, then removing or sequestering carbon is an asset.
For carbon offset markets to scale, carbon credits need to have an independent and trusted underlying unit of comparability
There are varying estimates on how big the market for carbon offsets will become. One of the most publicised estimates is $100bn per annum. This is a long way from the $300m it was at the close of 2021.
“The demand for this is going to be huge, because we have this big shift. More and more companies — and it will be a tsunami by Glasgow — will have net zero emissions plans…This needs to be a $50–100bn per annum market.” Mark Carney, former BoE governor at the FT Energy Transition Strategies Summit.
The challenge in reaching this figure is that the existing market is fragmented, and there is no widely accepted unit of comparison between the types of offset. This isn’t just referring to the difference between voluntary and regulatory offsets — but the various type of voluntary offsets, whether natural (forestry, blue, soil etc), engineered (eg direct capture) or some other form yet to be innovated. We believe all of these offsets are an asset as they take a certain amount of the now priced carbon out of the atmosphere.
For the market to truly scale however, each of these offsets need to be fungible and have a means of trusted like for like comparison. Units of carbon sequestered is the early emerging winner. With this as the underlying value mechanism, market participants can start to assess the probability of these offsets delivering this, and pricing them accordingly.
A financial markets problem needs a financial markets solution…
This is a financial equation — we are assessing the value of an asset (current and future units of carbon sequestered by an offset), applying a risk weighted discount to this, and assigning it a present-day price.
The huge disparity in the traded values of offsets today, and the lack of correlation between these traded prices and carbon sequestered, shows how desperately the market needs more data and analytics tools to mature. This will enable investors and natural asset owners to accurately price each credit and allow us to begin to realise the value of what could be the largest global asset class — our environmental ecosystem.
This is one helluva BHAG (big, hairy, audacious goal) with space for multiple category defining companies to emerge. We believe BeZero can be one of them.
… and a team with experience across finance, policy, environmental science and technology to deliver it
It is often said that starting a company is like jumping off a cliff and assembling a plane on the way down. Never is this more applicable than when you are not only starting a company, but also pioneering in a new market. To tackle this challenge you need a team with a unique blend of skillsets from a range of industries to bring the best in class ideas and practices from each. This is the team that co-founders Tommy Ricketts and Seb Cross have succeeded in rallying to the cause.
It is not just their ability to hire top tier talent we have found impressive. It’s been the way they have taken their skills and networks from financial markets/central banking/policy and applied them to this new journey. The perseverance and grit they have demonstrated in the months we have worked together shows how they are able to knock down the doors and get the buy in needed to build a category leading business.
We can’t wait to see how this team continues to grow and define this fast moving market and look forward to working with our fellow investors Molten, Contrarian, Extantia and Norrsken to help them on their journey.
