DCS 04: Edit Kiss of Revalue Nature

In this episode of Developing Carbon Stories, we are speaking with Edit Kiss, Chief Investment Officer of Revalue Nature, a global project developer working to scale high-integrity nature-based carbon projects. They provide end-to-end development solutions to connect investors to mission-aligned project proponents.

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Transcript

David Reside: Hi there, my name is David Reside and this is Developing Carbon Stories, a podcast about the project developers creating the most innovative and impactful carbon projects in the world. Developing Carbon Stories is a project by Abatable, a carbon intelligence and procurement platform that helps companies purchase high-quality carbon offsets. Each episode, I speak with an entrepreneur from a different part of the carbon ecosystem and talk about their journey so far and how they are acting on climate change.

On this episode, I'm speaking with Edit Kiss, the Chief Investment Officer at Revalue Nature, a global project developer working to scale High Integrity, nature-based projects. They provide end-to-end development solutions to connect investors with mission-aligned project proponents.

Edit Kiss, thanks so much for joining me on today's episode of Developing Carbon Stories. Thanks for joining.

Edit Kiss: Pleasure to be here.

DR: I'd first like to hear about how you first became interested in carbon markets and what led you to decide to make a career out of it.

EK: Nice question, thank you. So actually, I was just finishing my masters in environmental economics around the time when the EUTS, the European Emission Trading Scheme which is one of the biggest compliance carbon markets just started in Europe, so I get intrigued by that. I managed to start my first internship as an equity broker on that topic to develop their in-house carbon fundamental analysis. And yeah, and it was fascinating. I think I found it so.

Already within the six months, I have seen the first roller coaster of boom and bust, because in 2006 when the first emission-verified emission data came out, it turned out that the countries/ companies overestimated their initial assessment. So, there was a huge oversupply as the market crashed.

But it didn't discourage me to stay on so, yeah, so I decided to keep on that and started actually with the compliance market side and then let through the to the project development the CDM back then the Clean Development Mechanism under the Kyoto Protocol and then, now the more yeah, the little different aspects under the Paris Agreement and they voluntary market.

And yeah, that came later. But yeah, it's I found it. Yeah, pretty fascinating how a new commodity, a new market can be created and pricing in this important negative externality, and I think it's a really powerful mechanism. It's challenges and opportunities we can discuss, but yeah, but it's a very interesting one. So, I yeah, I decided to stay on that.

DR: Yeah, and so was it you know the compliance side of it, the policy element or was it more about you know project development that really got you interested in the space? Or was it a mix of all of this?

EK: Yeah, I think initially, again, as an economist, as I yeah, the project development side and actually when you go more in-depth to industry specialise with the because it's very different to work with renewables versus nature-based, that's a whole different spectrum and does require actually maybe even more in-depth specialisation.

On my side it was more the echo. As an economist I find fascinating,g to have a something that you learn in textbooks as one of the mechanisms that you could address, this kind of environmental issues that how you see put in practise and in more particular on a personal level what was interesting as a as a new starter like an analyst or an intern, you can, you could get an expert level very quickly because it's new for everyone, so it was actually a pretty fascinating one to be after a very short time. Be one of the experts on the market, and with a very steep learning curve so it put more on that kind of aspects of it that drew me in and then and then later on. Indeed, when switching from the renewable or more like the industrial gases towards, for example, the nature base that required access and further specialisation. I did a bit of a postgraduate certificate as well and it's on forestry.

It opened a new spectrum, and I must say that yeah, the nature-based part when it opens up. Also, the other aspects like biodiversity, it adds additional excitement and I think since then I'm really now focusing on the nature-based segment which has such a, again, such can be, such a powerful tool. And it goes well beyond just the carbon. Yeah, economics or trading mechanics and cap and trade systems. So, it's much broader, and can yeah impact much broader sectors, commodity commodities and their land use sectors. So yeah.

DR: Yeah wow. I find it fascinating that you were a part of the market when it was in such a nascent form. You know, in the mid-2000s you know, being there, you sort of in the cold face you know, and then starting at Athelia climate funds which clearly you know you were there for quite a while and it was a very innovative project for its time, could you? I'd like to talk about that for a little bit. If you could maybe run through perhaps some of the innovations that the fund brought to the market at the time?

EK: Yeah, sure happy to, and again I think the context is that also the climate fund and the team behind has been all personally involved on the market on the and the Kyoto under the Kyoto Protocol CDM. So there has been a lot of experience and learnings.

But for some reason, unfortunately for some well-defined reasons back then, the Kyoto Protocol ignored the nature-based sector, the forest sector, and only the first under the voluntary carbon market, the are the main standard there, the first credits have been issued in this sector only in 2011, but again the first CDM project started day before and I think there was already a very interesting, you know, vision to see that how this could actually work for the nature sector again, which has been left behind.

So with Althelia that was designed as a climate fund right at the collapse of the market, actually, when the prices were tanking and but still again with the vision to how to, how to deploy this super powerful tool, this carbon finance, into the land use sector sustainable land use, so we're focusing only on the land, land use sector and for forest conservation because that's what is the most urgent to keep the forest standing, the primary forest, obviously now we have much more broader spectrum restoration and all the new segments which are super important, but back then we had to start with the most urgent one and yeah, really, the vision was to deploy this tool, provide a price for carbon.

So back then, when actually prices were collapsing, there was not even a voluntary market, was this tiny, it was very CSR, so corporate, social responsibility and philanthropy driven to provide a price signal for this nature-based future generation of credits, we had an ATR closed ended fund so that meant that we could even if it's just more like a floor price, but provide a price signal for that eight years, which was extraordinary back the time and had the investment thesis, so we had very visionary investors, who allowed us to yeah put a price on carbon and do that as the investment thesis combined with and diversified with other revenue sources. So, the other innovation was to back then there was already some first-generation early stage early, let’s say early action projects in the space, Red Plus, in particular, but nobody has tried as an investment thesis tried to combine that with revenue stream, for example from cacao, from sustainable smallholder cacao.

Which is a, it makes sense. It's a holistic approach. It's had its challenges and lessons which you can touch on. But that's what we kind of pilot, pioneer or pilot, this protection production approach as well. On a landscape level, which today now it's called landscape approach is much more common. People talk much broadly more broadly, so that was the, I guess that diversification is also from the carbon away was interesting.

We also had to innovate on the financial instruments because the traditional financial instruments such as equity and that are not suitable for this sector. So, we kind of used or yeah piloted what it's called today carbon collateralized profits participating loans let's say so it's kind of has a quasi-equity you take equity risk, but still it's collateralized by carbon. Which back then was not, I mean, yeah, it's a lot of risks today, I think the good thing is carbon becomes a proper asset, a new asset class tradable with the price signal.

You can actually, this is a very important collateral so and yeah, so it was a more flexible basically instrument that was more suitable for this type of smaller-scale community-based or even government-based project. So, the financial instrument was another interesting element, and then, yeah, maybe just to touch on once we have deployed our commitment to the capital, there's €100 million funds, so not huge, but back then again providing some support and pricing for this new emerging type of yeah asset, let's call it asset, or yeah, carbon.

Right after that, a few years down the line, we realised that the market was not coming, and you know as a…

DR: How many years down the line?

EK: Was that I would say three, Three, three years, so could you had four years to commit to fund all the capital and once we started to build a very nice portfolio of carbon credits, actually the biggest one sitting on back then.

It was like close to 30 million tonnes so then we realised that we actually have to also do something on the building the market because basically what happened is almost all the brokers and intermediaries either went out of the market or diversified away and nobody really held the flag for nature-based segment. It was all a blend. Anything and everything, low quality whatever, and yeah, so that's when we created the surplus, our marketing kind of subsidiary under the fund, which was a bit of a stretch.

But again, the fund structure allowed us and it was very catalytic because they basically had the mission, capitalised properly had the mission to work on bringing in new sectors, growing the pie for the whole sector and not just trying to grab some existing few, the few existing clients in the market so that required at least, yeah two years of heavy lifting, building coalitions working with NGOs, educating the market, the governments, the consumers, yeah, different stakeholders and that started to yeah repeats, benefits. And then the market started too. I think turn around late 17 or early 18, really.

DR: Hmm, and so how does Ecosphere Plus how does that sit within the Althelia climate fund? How? How are the two related and how are they different?

EK: Yeah, it's yeah, it's again. It's a. It's another traditional factor, so it's a bit of a, you know he had to be innovative, creative slash innovative. It's an investment from the fund, so it's an asset of the fund which is a bit creates a bit of yeah, it's a bit strange in the sense that it's closed and it fund that owns the company, the vision, costs to obviously to create, grow the company and then and then and then exits to sell the company where the fund wraps up as a closing fund.

And initially really, the mandate was just they grow the market they sell monetize the portfolio of the Fund, but over time serves the whole market by basically creating a new yeah new channel and by today we see that there is a plethora of new actors. But back then it was quite unique to have a dedicated marketing company, yeah.

DR: Yeah, OK, and that was really to address the difficulty in finding finance to back projects at the time? That was, sort of, not to sell.

EK: The credits basically we're financing the fund, so the 100 million was enough to build and do all up for financing.

DR: Oh, OK.

EK: But the investment is heavily relied on, then later on monetizing. So basically, the investment fund buys you eight years on the market. But at the end to pay back the investors you need to monetize the credits and we will hope that that will come more naturally, but we had to push a bit harder than initially expected.

DR: Yeah, yeah, and so I mean being in the space for 8 plus years, you know what were the lessons learned from the fund? You know what? What were the key takeaways that have informed you know project financing now?

EK: Well, yeah, lots of lessons learned, and that one is now expanded another year, so I'm sure you're always working on the exit reports and lessons learned to share with the broader industry because there are many. I guess one obvious one is probably we could say a little bit too early.

From the yeah, we were with earlier and really look to think about the climate fund, the Althelia climate fund being we had a pioneer that had to do many things that a traditional asset manager or fund manager will not be able to do or shouldn't be doing. But that was the necessity back then, and then, as I mentioned, eight years, providing 8 years like a kind of vision, price or like yeah price curve for eight years, was very it seemed like a very long time and even today it is signed here forward contract is a good one but when it comes to investing in this underlying as yeah kind of nature-based solutions, it's actually turned out to be quite short. So, one of the lessons also is I think if you look at your generation funds there.

For you know 15 years for. For example, Mira was land degradation fund is 15 years. There are others, or at least 10 years, 10 years plus, and then plus two if you can renew it so setting the tenor is becoming very clear that especially for restoration you need a lower tenor.

There are lessons. Yeah, I think again, we were constantly challenged on whether carbon pricing is the right instrument at discover finance. Whether it works, you know there could be other instruments like the taxis, there are others. We tried everything we looked into whether premium and sustainable produce should solve the issue. The market was not reacting to that or to the industries don't like that at all.

So, I think the conclusion is that actually carbon works, and it's still probably the simplest instrument. It's very technical, very complex, but in terms of as an instrument, as an international instrument under English law, once you have a contract, you can do a project in Brazil, in Africa. In Indonesia it's relatively. You always have to do some underlying, obviously, due diligence, but it's way simpler than trying to do equity alone or more complex transactions in very different locations, so it's easier for me to standardise once you have carbon credit.

Yeah, if it becomes commodity type of instrument then you have a common market so, I think and it's physically, yeah, compared to physical assets. Like again, cacao you. You don't have that kind of same you have to ship it. You have to have a logistic it's digital asset, right? So again, I think it's one of the lessons it does work to those who it does work.

But it's not enough. It's not gonna solve everything. I think one of the difficulties with nature-based carbon has been that people thought it's gonna solve everything, everywhere, everything, it's not true, but if you use it wisely and if it's used also as a fine as a tool within an impact investing for example framework.

It's actually very powerful and provides a very nice diversification even for the more yeah, traditional commodity or private equity or other type of investment. So, it's it. It does work. I think that's, that's an important one to the other, maybe other lessons. The liquidity closed ended fund if you're closing it, fund self-liquidating contracts are like financial instruments, are key, and again, the revenue share loan is, yeah, it's a self-liquidating instrument which turned out to be super convenient compared to more complex equity. When you invest in a corporate team or cacao, and you know the exit costs are super high and super complex. And that's one of the reasons the fund had to be extended to exit the non-carbon. These more complex assets, something that's also an interesting one, and again the yeah, the impacts of how you can diversify with carbon and the risk profile is it still remains different?

So, what we found from a diversified portfolio of maybe 50% carbon, 50% on carbon, is that the performance risk on the carbon was much lower.

What we forecasted, what we thought will be generating or producing as carbon credits was pretty spot on, where it was more difficult as the dimensions, the markets, the market was not coming and the price was not there where it should have been, but on the commodity side or the produce agriculture, we encounter much more performance risk. You had so much early climate actually issues, droughts in Amazon, something not necessary planning for these small-scale projects all underperformed in terms of volume and but then the price. Once you have a nice high-quality cacao bean, it was easier to sell, right? So that's yeah, that was the kind of interesting to see how you can diversify it, but then also you had different risks. And how do you manage it within one portfolio is not super easy either.

DR: Yeah, and in terms of, I mean fostering the market for carbon credits. I'd be interested to hear thoughts about how the role of corporates in funding development has changed during that time as well. You know from a rather than a traditional just buying carbon credits as they're issued, and as they move further up the chain. More towards funding projects, being a part of funds, like the ones you're part of, you know how has that evolved over time?

EK: Yeah no, that's a super interesting one. So exactly what you mentioned. First, typically you expect these corporates to buy credits spot then forward and we have managed to do again through plus the first biggest structured contracts with even the options and longer dated forwards.

But then some of the especially the big ones that have a big footprint or big demand, or also the common those that have a trading house is energy trading commodity. They know how these markets work and then it's natural for them to start building their own in-house departments and start becoming themselves obviously the providing upfront finance.

But even those that are maybe a bit less, yeah, not in the trading side. So, we have worked with corporates like L’Oréal that was very interesting to see how you know from a pure off-taker wanted to have maybe go closer to the projects. More of an upstream and even going one step further on the on the impact investing side. I think that's super interesting to see how corporate stepped up in space.

I would even say that all the growth and that exponential growth has been fuelled actually by corporate more corporate and some speculative, maybe financial investors, but not the traditional kind of institutional investors. And they're a bit lagging behind I must say so. It was very good that the corporate stepped up, stepped in, and went up. Because on the chain, because that provided more, yeah, more capital for up from financing, which was a big gap.

Having said that, this you'll need to. You still need to not take our eyes off from the end goal, which is the demand we need obviously at the end corporate still play the game. Buy the credits, retire them because if not, it's just a circle or it's becoming, it's gonna become a bubble. But I think that's super interesting to see how the carbon fund structures are coming back, which was again very popular during the Kyoto Protocol vehicles where you can lend investors and corporates, that gets the dividend in carbon. That's coming now becoming very popular.

But also, I think again the impact investing, like the L’Oréal Nature Generation Fund, very powerful because it's a financial fund, it has a long tenure, it's patient capital because it's very focused and the impact and it complements super well. This yeah companies other supply chain net zero strategies, because with this kind of funds they can go and have impacts on ecosystems or places where maybe they don't have any procurement or no impact. But still, yeah, it's a very interesting and it's a different type of capital they can deploy into these funds, so I think it's a good mix.

DR: Yeah, absolutely. Do you think this is a trend that will continue? Will we see more corporates moving in or rather up the value chain like we've seen in those examples, like with L’Oréal or is this something that was more demand-driven and perhaps as supply potentially meets that demand in future, you know, is this more of a transient trend.

EK: Yeah, it's a good question. I think it's quite a mix and there is, yeah. There can be some theories. Who should do what? Focus on what they do best, and I must say also in the impact investing space there is still that what is capacity building, whereas investors if you look at how the international NGOs are also moving towards impact investing because the grants and the yeah, the public money is drying up, laundry money is drying up so it's a bit mix. I think there is a role for yeah there will be a role for them, I think.

It's important again to have these. These companies at the end we need the demands. I think that they should obviously focus that on that. And if you, if you already identify that investing upfront, it takes more risk, it means that also you can lower those costs or optimise. I think it does make sense for them. What I'm hoping for is that yeah, the again the institutional investors that have lagged a bit behind, if they come in then that's that will be more important also to go to the true scale and provide the liquidity and buffer also for, for, for the whole market, so that you have also credits that are available on the spot market. And there is liquidity because everybody invests upfront and takes the credit. And yeah, that you don't create that market, so I think we need the different actors and also the even the more speculative ones. You know what we have seen last year.

Also, when we had a big increase in the price, it was driven by some speculative one and even the crypto some of the new crypto companies and I don't mind I mean, again, what we have a fundamental issue, the carbon is still not pricing correctly. You know, if you look at the fundamental forecast or what should be true price for this, $50.00 or plus, we're trying to make this work in an Althelia. We're all at a sub $5 and now we are 10, 15. I think if anything we can have with the price discovery and speed it up. It will help the whole market and obviously help us to do our work on saving the forests and keeping those natural resources.

DR: Yeah, definitely. Now the work you're doing at Revalue Nature. How's that different to what you were doing at Althelia, yeah, is it just like an offshoot from Althelia? It's focusing on a specific kind of investment structure. How does that work?

EK: Yeah, it's quite different and it's to do with what I just mentioned. So, I think it's there's a natural evolution, so as the market is growing and finally yeah, actually the market is becoming more liquid. There is more price, yeah, transparency price discovery. We need different actors, or we need actors to again focus on their core and to be able to scale. So typically, Althelia was the Climate fund was again a pioneer first of its kind.

First, a first-time fund manager also so, we could afford to do things which a traditional last manager shouldn't or would do—co-building the projects, building the market at the same time and all that. What now the market needs are obviously like Norova and other asset managers that are in the space and also more traditional centering is looking to structure bigger vehicles and go to scale. And on the other hand, we need new entrants and new companies are professionalising the project developments and bringing these investable bills to the investors. And that's what Revalue does. So, Revalue Nature, which is a spin-off of Systemiq has been completed there for a few years. Actually really quite advanced and have a pipeline and all the development processes, design and working on activity that is yeah with, that in mind was structured to fill in a very important gap is that investible, yeah you can read everywhere like lack of investable deals and also in the carbon– The lack of investable deals or like business cases has been on the market when we had no price. That was where we had to advocate for a price and now the price. I don't think we need to talk about, of course, as I mentioned, we need to have a higher price, hopefully we'll go to the price discovery, and to go to the more equilibrium price but it's also once you have the price.

So, it's extremely complex to do these projects. We need to do it right, so the integrity is a big issue. Right now, there's a lot of talk about that and the scale on paper. It's a. It's a huge sector and yes, nature-based solutions offer a significant portion of the mitigation. And actually, the cost-effective. So below $100 per tonne mitigation opportunities, but to bring that to life from theoretical to a real project, knowing that it involves people’s communities. It's like an infrastructure project that you just put up in turbine or a plant somewhere in the desert. It's extremely complex, I think where the next challenge is also lies for the market is to now to yeah to bring this project to scale, keep the integrity or actually grow the integrity. And that's again, that's where we need more private sector proper like companies helping those super important work that NGO's and on the ground conservation and community organisations are doing but simply are not able to do because they are local, and we need also global companies to bring in this kind of know-how and also financial knowledge as well.

DR: Right so-so revalued nature sort of sits between you know the on-ground implementer and the investor sphere.

EK: Yeah, exactly on the market. So, basically our yeah global project nature-based project developer where we have the team in house technical expertise to do the carbon work by diversity community aspects, but the technical work also the investment side, so I'm personally heading up the investment side and then we also have the tech side a bit of the on the technology side to make sure we cover also all the new developments and the remote sensing and that we just keep part of the integrity piece as well, and we enter into partnerships with local implementing organisations who have the boots on the ground who have been working with the communities who have relations with the governments, because that's something that you can't shortcut or can't.

And as a joint venture or as a partnership, then we developed the projects together and we from our balance sheet are able to bring it up to the feasibility stage where the bar is for the invest ability, where as an investor I have been able to haven't been able to do before, for example, to anything that didn't have a feasibility study.

And that's when we can unlock, so to say, the broader yeah from the capital from the market. Still through our balance sheet. So, we value nature is planning to sit in front of the investor, which I think is again an important gap. As an investor, investing in these difficult jurisdictions often or you know, like developing countries, small entities, it's very hard to pass scale ICBM all those requirements. So, we value the UK limited company. So we hoping that we reduce the burden for the local partners and also make the investors more comfortable, and compress the time like because one of the other problems on the market right now is that investors take too long, rightly so because they need to do their due diligence, and they're regulated, but you know 6 to 12 months to make a 5 to 10 million deal is not sustainable and by the time we deploy capital at that speed we lose all our for us.

So, the idea is to compress the lag, help to yeah bring the capital faster the only way is to do is to provide this kind of yeah new private organisations that can work directly with investors.

DR: Right, so you're sort of shortening the timeline of investment to sort of suit the needs of on-ground developers and to suit the timeline that that they require.

EK: Yeah, yeah, exactly so we will yeah, we will be doing that and then yeah, the I guess the other piece is the on the integrity side on the quality. So, we're looking at keep pushing the market on the quality side as the market grows, it's inevitable that obviously there is more noise. More broader players, so it's important to not go into the lowest common denominator, which often standards have to do but try to experiment and see how to push the bar.

And that's something also because we integrated, we, we have our in-house teams on that we can stand by that quality, we don't need to rely on external consultants and that's something that yeah, we can stand by our integrity principles and design the projects and then be there for the 30 years carry out also the MRV. The monetary reporting verification for the long term, so hopefully that will also again give confidence to the investors that we have skin in the game and our interests are fully aligned with theirs and with the communities on the.

DR: Yeah, right? I mean, it's interesting. You bring up the concept of integrity and quality carbon credits. You know what is it that revalue nature looks for, you know when you're trying to find the next project to find feasibility for and then and find investment for what's the first net that you use when sort of looking for these projects?

EK: Yeah, so that's the beauty as a project developer. You start from scratch and that's why I think it's so important that the project developers, and again there is a new generation, there are a lot of also the existing ones that are all to work towards high standards, it's super important because the investors. The reality is by the time they get the project in front of them, it's as you say, you need to have some criteria, but you can't really influence it that much.

You can put additional covenants and create a more complicated contract on the back end, but I think to again solve simplified market and make it more efficient the projects need to be developed from the beginning, from scratch from the Greenfield, so we don't, so the way we do is we use a really like a scientific and evidence-based approach. Just also again have all the in-house capabilities. For example, in the science, the data science and GIS, looking at where is the scientific scientifically, where should go, which field you should select. Obviously not everything is available for carbon development, so you work typically with again a local partner. We select a local implementing partner with whom we intend to do multiple projects, so it's also again aggregating and systemizing how to go to scale and there is the first bar is who you want to work with and it's the main criteria is to be mission aligned. So have as an organisation same kind of integrity principles and then once you have the two pieces of the partnership then together, either there's already an identified area where we can start scanning through the carbon potential using the models using all the remote sensing and data available, and selecting basically the best places for that or where the carbon looks obviously promising. And then it's all about your process so…

From what is interesting again also. Personally, for me switching from the investor to also to the kind of project side is really again, you’re closer to the ground and you start from that perspective, structuring everything so you start what is, what is, what other communities need, what's the processes, how to how to structure everything and.

And you will bring that to the investor rather than in the past because there wasn't enough capacity for these NGOs or local operators to do these investors even impact investors. We have to come in and try to help them figure it out.

But still, you represent the investor, right? So it's I think the ground that so we start from the ground up representing the project that hopefully will result in a much more yeah, fair design and fair or all that which it is demanding that is designed for resiliency and with the involvement proper consultation, everybody's fine and only bring it to the investor when it's ready so you don't get weird yeah discounts or penalties because you are too early and you don't know how to price the market didn't know how to price those risks in.

DR: And so, I mean, revalue nature, nature-based solutions primarily well exclusively. And do you find when you're using that tool for assessing quality at that early stage, does it tend to favour particular project types?

Would it be you know afforestation reforestation projects, red plus, blue carbon. You know you're seeing that sort of favouring any particular project type at this point. Or is it still, you know, quite broad and dependent on other-on-other factors?

EK: Yeah, I think it's it has to yeah, it's broad because we need a lot of different solutions, but as a company we also try yeah, I think and also the team right has the kind of same yeah vision on the on the markets that we are. If you follow the mitigation hierarchy actually also in this level you inevitably start looking at protecting the primary forest, so that's red plus obviously there are some movements and creating even crediting for the high for slow differentiation countries somewhere like the kind of conservation proper conservation play, but let's say on the red plus where you have already threats identified, you can do the baselines and calculate the future threats. That's still I think the most urgent, and also the most limited because there will be limited jurisdictions, limited space is available for that, and so I think that's for us priority, so I guess not a surprise that our first projects in our pipeline will be red plus projects big landscapes and again looking into how to go from project Baseline to the allocation to jurisdiction. Also testing that out.

Restoration is super important as well, on also on a long-term horizon because we need to get there. There are issues for us, for example, we wouldn't do any monoculture or any plantation type of things we be focusing on ecosystem services, so we would do always high diversity and higher yeah. That kind of segment. Maybe and not involved in the underlying ourselves in underlying agricultural supply chains, but we could very well work alongside with somebody who's covering that cocoa supply chain or something and we work with them hand in hand and then yeah.

So other than that, there are some very some new developments around soil carbon, around bio charts. I think they are all super interesting and we'll need to do that. It's just we started off with naturally with Red Plus and some of the restoration projects coming behind.

DR: Yeah, definitely it's interesting that you know Red Plus projects are obviously quite urgent for the reasons you just described, but do you get many demand signals from buyers and investors looking for removal credits?

You know there seems to be this trend that we're seeing at Abatable from clients and people we're speaking to looking for, you know removal-based credits for addressing, you know, buying side integrity initiatives like the STI principles, looking for removals. Is that something that you've found coming into the projects you're developing?

EK: Yeah, so I think there has been a lot of confusion around this and us have been going in circles a lot and again I think hopefully the mainstream or, like the consensus is developing around that you need in a portfolio you need the like, everything has its rights, so we need to have protection first protection, we'll need to have removals, especially by yeah, 2050, for sure you should only be removing because you should have removed the threats. Are we there yet? Nowhere near so yes, I find that some of these new standards and guidance have made a lot of confusion in the market and unintended consequences well and I think it has been clarified, for example on the STI that it wasn't meant to exclude Red Plus it was just meant more for the transition or trajectory which makes perfect sense on the trajectory we should be using actually more urgently red plus credits in the near term in the next decade.

EK: While we are starting to do the removals because that's gonna take anyway a lot of time to ramp up, so I think that's hopefully clarified. There are some interesting ones as well around mangroves or actually peat. So, wetlands more broadly, where you can actually do restoration and the restoration results in a reduction type credit. Because peat, actually, that's a kind of reduction, and so it's sometimes you know practitioners or people on the ground find it's quite confusing.

We need these credits. We need to them high integrity. It's not about reduction or removal. All of them have to be. You can do a very bad removal credits by planting eucalyptus and damaging biodiversity and not even being additional because you get your money from timber or you can do a yeah beautiful red projects and with the baselines that are conservative that are designed, you know, redesigned the permanence around working with the communities and engaging the yeah working the landscape approach for full resiliency. That's as powerful as anything else, so I think it's. Yeah, it's a bit tricky and I'm really hoping that we get some standardisation because yeah, there are too many too many standards and too many new integrity frameworks that are actually very mixed. The life of actual implementers or people doing the work on the ground extremely difficult.

DR: Yeah, no arguments here. There's a lot of confusion and a lot of standards to understand, especially for the people new to the space. I'd like to get a sense of if you have any favourite project types in what you're looking to develop over the next 5 to 10 years. If there's you know particular demand signals for a project type, whether it be like you mentioned soil carbon, we see a lot of interest in that we sometimes get interest in regenerative agriculture as well. And you know which has a lot of overlap with soil carbon as well yeah, is there any trends you're seeing emerging in that space?

EK: Yeah, I think one of the interesting things is the blue carbon. I think there's a really a lot of interest, and rightly so. If you look at coastal ecosystems and mangroves that actually kind of the intersection of terrestrial and marine, it's super interesting because there are so many benefits again, if you do it properly, the flood resilience you would the sea level rise, the adaptation benefits for the communities for the fish fishing. For the yeah, the local population and all that is super interesting.

So, the market. I think there is a quite strong signal even with the current more like downward trend has been very resilient. Obviously might be also to do with the demand with, sorry with the supply it's still limited amount. It's hard to buy blue carbon credits still, so there I think there are at the moment, we do see some spreads which are maybe, uh, fundamentally not maybe justified, but there is a strong demand signal and I think it's rightly so for blue carbon.

And yeah, there are all the other ones you mentioned, soil still I think some more potentially to be done, but soil and below ground carbon in mangroves already there in the calculations, so that again it's part of those.

Biochar is another one, very interesting, a little bit different profile. But yeah, the permanence profile as well, or the, is also quite different and the price points are huge, but also because the quantities are fine so yeah it's another surprise so I think it's nice to see that the price is increasing and the market sophisticating you have these range of so many actions you can take back then again, just to go back to Althelia. When you started the first projects in, more like National Park buffer zone for US conservation didn't even bother to quantify or verify the impact of planting, for example, cocoa trees or like the buffer zone activities for the removals because it was tiny in terms of volume compared to the plus and the price signal wasn't there. And now if you have a proper price signal, you can do the yeah these more sophisticated one and hopefully drive more action.

DR: Yeah, so the price signal of carbon obviously delivering so many benefits for the market being able to enable and Environmental Protection and restoration. How can we value other natural assets? You know, in a similar way, we sometimes hear about an emerging biodiversity market. Are you seeing signals for that in what you're doing?

EK: Yeah no, I think that's super interesting. That should be the next. I'm quite convinced the next one in the broader environmental assets or ecosystem services there is a huge development also on that in terms of quantification. New technologies you know with the emergence of environmental DNA with the new metrics like the IOC and star metrics that has been developed over many years, which is a big development compared to again, where we started initially, intuitively, qualitative you all knew that it was great, but you could have maybe some surveys, some camera traps.

But today we can fly over drones. You can again have these more sophisticated sand space tools. So with the advent of these new technologies as well, and new metrics, I'm quite confident that yeah, as soon as we have a robust baseline or robust possibility of measure the initial status, and then the uplift, then we'll be able to create these new assets, which could be a biodiversity credit and then hopefully with the TNM Afd doing the same trick as TCRD done did for the carbon. We'll get more nature-related understanding companies how they depend on nature, what are the risks and start reporting their footprint and that will lead also naturally to trying to put on their balance sheet these nature-positive assets and that will should create the demand for this new generation of ecosystem service credits.

DR: OK, so that would come from a similar way to carbon. You would have people looking to be I guess you might call it biodiversity neutral. Like in the same way that we have carbon neutral like would you have a biodiversity footprint which you would then offset with biodiversity offsets?

I mean actually as I'm as I'm saying this, I'm realising it brings up this other question of maybe we're getting too specific here, but like you know, finding a like for like biodiversity credit, it's not quite, you know, one tonne of carbon equals one tonne of carbon. You get different kinds of biodiversity and that kind of thing. How do you see these challenges being overcome? I mean, I know it's very nice at the moment, but…

EK: Yeah, no, no, it's. It's very interesting I really hope that we can learn from the carbon and not waste another 10 years just arguing about theoretical problems.

But yeah, the like for like has been an issue, so biodiversity offsetting is actually quite advanced or widely known and has been around in the extractive sectors and for really local thing and that's the problem is that it has been so localised that it doesn't possible to make it into a market, and I think there is the opportunities with again this advanced more advancements on the measurements and metrics. For example, with the star tool it uses the ICM global Red List and it's able to quantify things in a global level and make it comparable. And once you have a unit that is comparable then you can start creating a market.

The offsetting is difficult. It's we already see how complicated it is on the carbon side, so I don't think there we will get any consensus, or yeah, to do that? OK, you kill some animals here and there and it's not right, but I'm hoping that what where we can go for as a more like the company level you can have yeah, nature positive. I think we will be going for not just neutral then I have to go into your nature positive there are these new frameworks how to how companies can think about how to become nature positive, and inevitably, there will be footprints, and then maybe on a balance sheet level you can start investing into nature positive. Yeah product, yeah, like investments and also the assets underlying them and create some value for it, but still a bit more work to be done on that side.

DR: Yeah, I feel like we could have a whole episode just on biodiversity markets, but I mean I'd like to, you know, ask you one or two last questions, just mainly around for project developers. As a project developer you know what do you see to be the biggest opportunities in the next couple of years within the carbon market that is?

EK: Yeah, I think it's again if you look at zooming out, we are at an unprecedented, yeah, like opportunity. I mean, we have obviously the headwinds and the macroeconomic outlook is not great, but if you simply yeah, if you look at the journey and where we have come from the price signal is where it hasn't been ever. We have yeah forward pricing emerging. We have new entrants. It's becoming clear that you can't anymore or the problems around the climate and nature and biodiversity crisis. So, I think there are huge opportunities to come in and help grow the market, there are a lot of gaps still, which is interesting and there are. Yeah, that's why you see so many new innovations happening also from the technology side, all these new players.

A lot of some hype around so obviously in every industry you will see if you shake a bit how much you have to shake the tree and who stays. But it's there are a lot of opportunities and I think that is encouraging to see so much. Once you get the private sector, once you get the innovation,

We can solve the problems and we were missing that in the past we were. Yeah, it was just development, finance, grants, NGO's that's unfortunately not scalable. So yes, I would encourage new entrants bringing all the mines we can bring, because the problem is huge, there is enough business for everyone.

DR: Yeah, I mean that's a very uplifting note to wrap up on...

You’ve taught me so much. I've learned a lot during this episode, but thanks so much for joining and running us through what you do and how things have changed over the last 20 years. It's been great to hear from you.

EK: Thanks a lot very much enjoy the conversation as well.

DR: Thanks again, thank you thanks Edit.