In this episode of Developing Carbon Stories, we are speaking with Santiago Espinosa de los Monteros, CEO and Co-Founder of Toroto, a leading environmental services company that works with greenhouse gases, water, and nature-based solutions to address the climate crisis.
Pauline Blanc: Hello, my name is Pauline Blanc, and this is Developing Carbon Stories. A podcast about product developers developing the most innovative and impactful carbon projects around the world. Developing Carbon Stories is a project by Abatable, a carbon procurement and intelligence platform that enables companies to purchase high-quality carbon offsets. During each episode, we 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.
In this episode, we are speaking with Santiago Espinosa de los Monteros, CEO and Co-Founder of Toroto, one of the largest nature-based carbon developers in Mexico.
David Reside: Hi, Santiago. Thanks so much for joining us on today's episode of Developing Carbon Stories.
Santiago Espinosa: No, thank you, David, for having me on this podcast. We're excited to talk to you and your audience.
DR: Yeah. No, it's a pleasure having you, and it'd be great to start off by hearing about your journey up until this point and how you came to be involved in the climate industry.
SE: Absolutely. So, I mean sustainability and you know in general the fact that climate crisis has been very present I think for our generation since we were children, we might be the first generation where that's the case. And I really always knew that I would be working on something related just at first.
I studied renewable energy engineering. I thought my contributions would be on the energy side of things. Because I said OK, 60% of global emissions come from energy. I’ll study energy.
DR: It's a good theory.
SE: It's a good theory, right? It was not a terrible place to start. Actually, I do think the energy space has some incredible lessons for us all. It's technical, it's challenging, it's important. It's an economic engine. It's really important to address that. Just, I then saw that there is an incredible amount of bright people already working in energy space and that ball has started rolling, definitely. The nature ball, on the other hand, is the other 40% of the visions.
So, the nature ball is definitely not rolling already and we sort of started or I started reading a lot about what were the blockers for us to be able to territorially fight the climate crisis.
And in 2019, I had, like, my quit everything moment and joined my co-founders. Toroto is a family-founded company. So, I joined my cofounders and started. And how it happened was a very nice memory. It was Mother's Day in Mexico, so my gift for my mother was a hike, like a trip to the forest. It was a three-day hike with a few stops along the way. Then we also decided to invite my aunt, her sister. And it was really walking through the forest that we were talking about how we wanted to go into the next 15, 20 years of our life as a family—what we wanted to contribute to the world, how frustrated we are at the current situation regarding nature laws, degradation by diversity loss, and all of these things.
And it was really during that walk, that we decided that we would do something about it. We sort of decided on the initial budget, how much we could invest, the kind of business we wanted to have, and several things.
DR: And this was all just while you were on the hike, you were just straight into the business model into the investments, all that?
SE: Yeah, we've always been a business-oriented family. We have a mezcal brand. We have an advertising agency. But Toroto is by far our largest and most important endeavour now. But, like we've always done, done small things as a family.
DR: What's the mezcal brand? Would we be able to buy it? Well, myself in the Netherlands?
SE: I think so, yes. It’s called El Mero Mero. It means the one and only and the brand is a knife, like a hand knife. And it’s 40 empty wrists. It’s tough.
DR: That's amazing. So, you've got good roots in the family in developing businesses.
SE: Yeah, we were talking that we wanted our next venture to be purpose oriented and it's the first time that I lead a family venture. I have always been a follower. It's the first time that I lead a family venture. And we did come out of this hike with a lot of intentionality regarding, we’re going to start a business, right?
Now, really what the blockers were, what the blockers are to actually execute climate action at the territorial level in a high-quality way. We identified three main things.
Number one in general in the territory where there are climate action activities such as restoration, deforestation, and conservation kinds of things, governance is so bad that we can’t say that we have permanence. And permanence is the daughter of governance.
More so in the context of the Global South, where 50% of the land belongs to indigenous overland communities. Like if these people are not really brought into the market in a just way, it's impossible that they will be having these projects for 100 years, right?
We also saw that operational scalability at the field level is extremely low. If you want to refresh 1000 hectares, you need to be able to produce 1,000,000 trees locally every year, and to do that you need a full-time squad gathering seeds.
DR: That’s a lot of seeds. That’d be tonnes of seed.
SE: It's a lot of things because also you need seeds from trees, different species, but also from bushes and also from herbs because we need to restore the three strata and you need to create the local capacity building, and you need tools and you need pickup trucks, and you need a place to stay and you need territorial analysis, soil samples. To actually do climate action in a way that you are sort of activating ecological successional processes so that nature can restore itself is extremely difficult.
And I estimate, I guesstimate that around 97% of the planet is out of reach from an operational hub that can deliver on this infrastructure that is needed to do these activities.
And number three, we saw that all players in this kind of market are claiming for more transparency. Not only the investors and the demand side of the market, but I’m talking mostly about landowners in the rural South who don’t understand who is investing in their project. Who is buying those credits? At what price? When is a developer being honest? Is a developer not being honest? What percentage of what an end buyer pays is actually going to a landowner’s pocket? All these kinds of things are not, this is not information with landowners have access to currently.
And we thought, okay, I mean they own the project. So, it doesn’t make sense that this is the case. So, we decided to start the company. It was a six-month process of sort of re-engineering my brain out of energy and into nature, reading forestry engineering kinds of books, biologic kinds of books, ecological succession kinds of books, and territorial analysis kinds of books.
DR: And you, had you done any of this before or did you just do a six-month crash course?
SE: It was a six-month self-imposed crash course. Like really, I had no cell phone for these six months. No WhatsApp. No social media. No nothing. I went out to Mexico City with books because normally forest engineering, they study for four years and I only had six months’ worth of savings to do it right. So, I needed to get all of that information into my head.
And then, we did think, we did observe that we are going to start on the carbon removal side of things. So we trained and trained and trained to do carbon-oriented restoration and carbon-related kinds of things. But then one day we got a call from Groupo Modelo, the makers of Corona beer. And they belong to ABF, right? The global, the global beer maker. They produce one in every four beers that are produced globally. It’s amazing.
DR: They have one in every four on the planet?
SE: Twenty-five percent market share. They have Budweiser Busch, Stella, Corona, and Bavaria, and all of these brands are the brands that people like. They make them and we got a call from them. They said, “Santiago, we need Toroto to help us out with an aquifer recharge and watershed recharge programme.” And I said, “What? I mean, I don't even know how to look carbon. There’s absolutely no way we can do this.”
And then they say, “Okay, okay, okay. Don’t say no. Everyone is saying no. We’re gonna send you the technical details and you tell us if this is something you can help us with.”
I said, “Okay. Unlikely. But okay.” And then I realized when I saw a technical plan for this project, it was about doing ecological restoration. It was about doing reforestation. It was about doing soil control and soil conservation and these kinds of things.
So, I realised that the correct territorial management of any ecosystem provides several ecosystem services. We're very used to talking about carbon, but in this case, water infiltration into the watershed is also an ecosystem service. There is a consequence of these activities and that was our first project. They remain one of our largest clients so far.
So, I’m very happy that Toroto sot of launched with a different ecosystem service than carbon. Because today, we still have the water practice and that brings in like 60% of our revenue.
We've got additional traction with Alimbev, and Coca-Cola. Now about to close a contract with another top five global food and beverage company.
And then yes, we started developing carbon activities as well, which now amounts to around 40% of our revenue. Something like that. And we’re also able to model biological corridors.
So, all of the interventions that we do on the field are guided by either, how can we infiltrate more water. Or how can we enhance biological corridors? And then, yes, sometimes the monetization strategy is carbon.
Just to finish with the introduction, Toroto is now, uh, we have a technical team of 50 people working at the cabinet level. Full-time biologists, forest engineers, transform information systems experts, these kinds of things.
And then we also have a team on the field that is never less than 50 people but up to 250 people working at the field level at any given moment out of six biological stations at each activate climate action, or potential for climate activities in up to 300,000 hectares more or less.
DR: Wow. And that was only just in the space of 2019. That’s amazing. I mean, just going back to your first project. So when, when you know such a big player comes out and talks to you and says you know we wanna do this environmental restoration project, what’s their angle? What are they actually looking to get? I mean, are they the owner of the land and they want to see this natural space restored for biodiversity value or what's the thing?
SE: Yeah, very interesting question. In this case, what they needed is they have a brewery. And this brewery takes water from the watershed to make beer at a reasonable amount of some litres of water per litre of beer, right? Yeah. And the local government told them, hey, you need a programme to re-infiltrate at least 1.3 million cubic metres of water from rainfall every year into the watershed.
And it's very simple. When it rains, only three things can happen with a drop of rain. It can evaporate. It can slide into the centre of the valley and go away from the watershed and go away from the basin or it can infiltrate. So, the scope of this work was to stop water from getting away from the watershed, which also provokes erosion. And infiltrating it. And the unit here is they needed 1.3 million kilometres of additional and permanent water infiltration every year.
So, it’s like removals, right? When you’re thinking carbon, it’s like removals. Water oriented.
DR: Water capture? Yeah. I mean, this is really familiar for me because, I mean, my background in Australia, like we have an I mean similar climate in some parts to parts of Mexico in that it's a bit dry and so you know we have a really significant dry period of the year and then we can often get large rainfall events in one big go. And so, we have a very similar problem of water infiltration.
So, when we get water, it's a lot at once. And so, we have massive erosion issues and massive issues with water retention within the landscape. So, it would be fascinating to hear about what actual interventions you used to ensure that is this about, you know, slowing down streams and rivers, or was there a lot of earthworks or how did you go about it?
SE: It's a lot of things. That's a great question. I think we would divide our interventions into three layers. So, it's either we are in the highest part of the micro basin, we are in the middle part of the micro basin, or we are in the valley, right in the low part of the micro basin.
In the highest part of the micro basin, we're focused on revegetation. Either doing reforestation with native species or dispersing seeds that we collect locally because that's what nature does actually. Nature moves seeds from one place to another, not trees.
So, we also disperse tonnes of seeds in the highest part of the micro basin because that's where erosion starts and that’s where we need to stop sediment from being eroded into the lower parts of the basin.
Then in the main area of the micro basin, we’ll do what we call soil conservation works, which I'm sure, you're very familiar with. So, what they do is they reduce the speed at which water is flowing into the valley to make sure that it is infiltrated, and it doesn't escape the basin where we're working. So, we're talking dams, gabion dams, and accommodated stone barriers depending on the slope. It can also be trenches. It can also be anything that will stop water from flowing down and will make it infiltrate.
And then on the lower area of the basin, this is some of the most complicated work actually because we have so much sediment already in the lower areas of the micro basin that water bodies are dying. They just left and then they’re drying out, so they lose their communication to the watershed, and this is catastrophic.
So we literally remove the sediment from watersheds. And we use it because it’s so rich. We use it. We give it to the farmers, to the agricultural people who are doing agricultural activities and it actually enriches our land for three to five years. We remove it from the water bodies and use it for agricultural purposes.
DR: Is it almost like a fertiliser or something? It is almost like a fertilizer the way they are using it?
SE: Absolutely. It's very rich. It's very, very rich. It brings tons of things. It’s moist. It also brings tons of nutrients that have been washed down from the hills. So, it's very rich. It will enrich their crops for three to five years after we’ve produced it. So, it’s a basin-wide kind of management and it's hard because you need local germplasm. You need local capabilities. You need local people. Actually, at Toroto there are moments where up to 75% of all of our staff, their job is to restore their land.
And what's really interesting is this project happened on communally owned land. Actually, 95% of the land around this brewery is owned by communities, agrarian or indigenous communities. So, we actually need to be able to come to them and have the agreements so we can do this work on their land.
And we also train and hire these people to make sure they are the ones doing most of t the work, capturing most of the value and getting most of the necessary capacities to continue that into the future.
DR: Yeah, right. Because I guess a lot of your work is forming those agreements with local communities because correct me if I'm wrong, but my understanding of Mexico is that a lot of the natural areas are owned communally rather than private hold.
SE: Absolutely 51% of all of Mexico is owned by communities.
DRL Yeah, right. And so, a lot of your work is, is, you know, interacting with local communities about using their land for these projects. How do you know? How does that conversation go when I mean, I assume you approach some of these communities yourselves or do they do they come to you? How does that process work?
SE: At first, we approached them. Then they start approaching us. So, each time we do a new territorial hub, we start developing relationships with local landowners. And then yes, it's difficult. It's governance. It's social safeguards. It's a lot of the heavy lifting that technical teams are not used to.
They make decisions in assemblies where up to 400 people are going to be owning one single piece of land and they all need to raise their hand in an assembly so that our project can move forward.
But then that's also amazing because then that's a project that 400 people said yes to. It's very hard to derail that kind of activity which is why we say permanence is the daughter of governance, right? But it's a lot of work, definitely. Now Toronto is well known for serving the agrarian sector and the community sector. We are well known for producing some of the projects with the highest participation share for communities. So anywhere from 60% and up to 77.5% of the proceeds from a carbon credit or these kinds of activities go to communities, the communities where we are working. And then both Toroto and the landowners have reinvestment agreements. So, we will both reinvest anywhere from 20 to 50% of our proceeds into additional climate action in the activity areas that produced that money in the first place.
So, you have a mechanism that will make sure there is finance to maintain, monitor, and do more 30 up to 100 years into the future.
DR: Yeah. Wow. And so that, I mean that figure there, that the 67 to I think it was 75%.
SE: 60 to 77.5%
DR: I see. Yeah. And so that percentage of proceeds going to the local communities, in what format is that flowing to them? Is that you know through wages and salaries or is that through, you know direct investment? How does that actually fall toward them?
SE: No, that would be their revenue. And they are, in our best-case scenario it’s paid directly by our customer to the community. So, for example, if were we Abatable and Abatable buys some of our credits to then have one of your clients use them or retire them or this kind of thing, then it would be great if Abatable paid directly to the landowners this share that’s their share of the project. And then within the reinvestment agreement, we sit together with them once a year and say, okay we have 10 pesos. And there’s this list of activities that need to happen this year because we need to enhance biological corridors because water infiltration needs to be increased because this is a, there’s a risk to this forest here, or there’s an opportunity to restore here, or there’s secondary rainforest vegetation that we need to manage. So, we come to the landowners, sort of with the analysis and assessment of what needs to be done. And then together, we agree that this is how we’ll be spending this reinvestment share each year. And then the rest is for Toroto. That’s our own brand operational margin. And the rest is for the landowners. That’s their operational margin. And we, although we think it is amazing, or it would be amazing that they have more opportunities to spend that wisely. To invest it. To sort of create health services locally. Educational services locally. This kind of thing. We think there needs to be an ecosystem that supports them with that.
I’m not entirely sure, that Toroto can play or should play a role in telling them how to spend their share of their cake. I, I go back and forth on this idea. I would definitely not like it if they told us what to do with our share right. So, when you think about horizontal partnerships it’s weird. It gets complicated. It gets tricky.
DR: Yeah, sure. And I guess, I mean, there are lots of different revenue streams coming into this through different activities you can make. I mean, you know it's, you know, carbon is, you know what Abatable does, but you've also got, yeah, as you mentioned the water infiltration work and general environmental restoration. Do you find that these goals often align with the landowners and local communities that control the land? Because these are coming from, you know, corporate interests. They're saying, look, we want these environmental impacts. Is it often hard to marry those with the interests of the local communities?
SE: The short answer is yes. I mean the nuance would be they fully understand and prefer the value of having a healthy ecosystem and a healthy, healthy piece of land, right? They see it with their own eyes. They say, we had animals, and we don’t have animals any longer. We were able to live from nature then and now nature is not enough because we’ve degraded it.
They are very, very clear about why it’s important to have a healthy ecosystem and they want that now. Their reality is the market still incentivizes the relationship. The opportunity cost of conservation is still too high for them. So, for example, even, in the least productive areas in Mexico, they're able to get $250 per hectare.
So, you would need per year? Yeah. Out of activities that would be rained on ecosystem. Right. So, like extensive cattle, this kind of thing. The list of productive land will do $250 per hectare, whereas the most productive restoration projects or conservation projects. At current prices and current costs, et cetera, we'll probably make them anywhere from 50 to $150 per hectare.
So not even the most productive carbon, or ecosystem service-oriented projects can compete with the least productive degradation-oriented project in Mexico. Right, and this is, this is extremely, this is extremely tricky. So, they know what they prefer. It's just they also need to eat. They also need, to sort of have development. These are people that are not wealthy, or they probably don’t know what they will be living from two weeks from now. And that's extremely tricky to handle for sure.
DR: Yeah, does Toroto play a role in developing perhaps local industry of some kind? I mean, in the context of the example you gave before where you know you were, you were doing the water filtration work for the local brewery or not really local, the global brewery. You know, that would have obviously provided a lot of employment for local people, I'm sure, but does Toroto ever step in to try and create employment activities for locals?
SE: Yes, absolutely. Now, we’ve been discussing a lot about what happens with the revenue or say the net income that is generated by one of these projects. Now, the operating costs, most of that will be local jobs definitely. So, most of the operating activities are locally trained squads, locally trained biologists, forestry engineers, these kinds of things who also manage locally sourced squads.
So yes, I would say from each peso that goes through total, around 75 and 80 cents are going to go to field-level activities. And around 60% of that is going to go through local jobs.
DR: Yeah, sure. So, there are clear benefits for local people, uh, through the projects.
SE: It's a new kind of economy, right? It's not only about doing the restoration and land management. It's about very carefully crafting a regenerative economy.
DR: Yeah, I mean because the, you know, the revenue that feeds into these projects comes from you know abstracted spaces like the voluntary carbon market. Do the local people have like, what are their perceptions of things like the global carbon market? Do they care about these things or is it more just kind of, you know, this is just something that we can use to do the work that we really want to do.
SE: You know, I mean the most surprising sentence that I hear about a lot, and I've heard it from dozens of landowners. I've personally been to 150 to 200 assemblies with these communities. And there's a constant sentence that I hear at all of these gatherings, and it's “We have been waiting for this for 50 years.” Like, it’s incredible. They fully understand what ecosystem services they provided to the world. They are not going to tell you in terms of carbon, right? But what they’re going to tell you is we’ve been cleaning the world's air for generations and it's taking us a lot of work to conserve and it's taking us a lot of work to preserve.
And there are hundreds of people that die in Latin America, for example, to preserve these ecosystems. Right? It's definitely not only market-oriented people, but this is just such a huge breath of fresh air for them. It's amazing. The most surprising thing I've heard is that, and I hear at every assembly we've been waiting for this for decades.
And that’s very, very nice to hear. Very nice to hear.
DR: It's great to hear. I mean, I feel like it's, it would go against what I would feel like most people would assume and I guess it's just, it's a bit of a testament to the fact that there's been such little voice for these actors in places like the voluntary carbon market. They’re very much just a, you know, a source of supply that feeds into these markets.
SE: Absolutely. And that's where everything starts right. So, when I see, actually we did that, we did some research in the voluntary carbon market before we started of course. And we saw that the status quo is that from 30 to 5% of what a company pays to buy a carbon credit actually ends up in the pocket of a landowner. So. I mean, how can you scale the market like that? Where the value is not going to the field? We don’t even have the resources to fight the climate crisis once. How are we going to do it if 60% of the money that is being used to fight the climate crisis, territorially is used for activities that do not add value at the field level? It's crazy.
DR: It is. Yeah. And I mean, I think even, you know, there are even worse examples than that, you know, that have been, uh, around in, in recent media articles as well. You shouldn't, don't think we should pay many names, but in this podcast, but I mean, I think, you know, 30% going to local implementers is, uh, is high in a lot of cases. Unfortunately.
SE: Absolutely. And this is sad. This is really sad because the market asks for transparency, traceability, high-quality climate action removals, restoration, reforestation, local journalism, and locally created jobs. People hired correctly. No exploitation of local job vulnerabilities. Is that kind of time at $5 a tonne? Right? It’s absolutely impossible. It doesn't make any sense. We don't see that we're able to execute any kind of high-quality restoration activities funded by carbon for less than $35 a tonne and that's still making it happen with stuff like seed dispersal and successional ecological processes. If you actually want to do high-powered, high-impact restoration, that's $50, $60 a tonne at least. So, there's also sort of the demand side of the market is a very needy side of the market that is sometimes not putting enough value on the table for projects to be high quality.
DR: Yeah. No, I think you hit the nail on the head. It's very true. I mean, we have an increasing cost of carbon. I mean an increasing value of carbon credits as the years go on, but I think we're still a long way before the value actually aligns with what the real costs are in terms of what people are asking for. I mean if people are asking for an abatement of 1 tonne of carbon dioxide with none of the benefits that you mentioned. Yeah, sure. You know, you could make some efficient practices happen in a, in a glass factory in China for, you know, a very small amount. But for the sort of work that that Toroto is doing, you know, to be asking for, I mean, do you talk to buyers and investors that give you like pretty low-ball estimates on what they want to pay for carbon?
SE: Absolutely. I mean I think more at the beginning of our journey. Right now, we have become more knowledgeable about what we are looking for in a buyer or an investor, so it happens less and less. But yeah, definitely, I mean 15, we see anywhere lower than $15.00 is a conversation where it's hard for us to have because the kind of activities that we do are hard to fund with that kind of money. So sometimes we see the market sort of outsourcing losses to the supply side so that the demand side can be profitable, and this is it's complicated to manage. Now to be honest, David, also we are working with tons of amazing partners that have come up with incredible and very sophisticated mechanisms for us to, for us actually be able to do our work at a high-value credit and we are sure that this is the kind of relationship that we want to scale into the future, right?
So, for example, we without mentioning any kind of plan of course. But we are doing a restoration activity with our partner, and they don't want credits before 2028. Like what they're financing right now is for us to go restore, go and restore, go and restore, go and restore, go and restore. By 2028 we'll have more sophisticated MRV mechanisms and more remote kinds of tools. It will be easier; the credit will be worth more. So, they are being very, very patient for us to actually do the carbon side of things more towards the end of the first cycle of work instead of at the beginning and we think this is extremely sophisticated because the price is not even fixed yet because we can estimate how many tonnes we might remove from the atmosphere as a consequence of this restoration activity, but we won't know until 2020 something.
So, the price for this, for this transaction could be as low as $25. But also as high as $40 depending on how nature actually behaves. We think this is extremely progressive and a way to unlock climate activities using the carbon market as a tool but thinking first about the restoration and thinking first about the activities using carbon as a means to that end.
DR: Yeah, absolutely. And I mean, it's great to see more sophisticated and ambitious buyers moving into the space as well. Like we're seeing that a lot with carbon markets in the last year where in the last 18 months especially. I mean, when they when you know this partner and you're welcome to name names if you want, like you know, if it’s a partner that you think does good, you're welcome to you know plug them.
SE: Yeah. No, absolutely. Always a super shoutout. So, I would say this partner in particular is, the project is funded by Mercado Libre. So Latin American Amazon, they are the largest e-commerce in Latin America. Larger than Amazon in Latin America. And the partner through which we were able to structure this transaction is Pachama who is doing a lot of these interesting sorts of money-first origination that does provide a lot of value to field-level project developers like ourselves. For sure. For sure.
DR: Yeah, and I mean for investors out there, you know, are you able to speak a little bit about the structure of the way the funds going? Because obviously, this is a, you know, early amount of funds going into a project which will be delivering carbon credits, you know, like you said in 2028 and beyond. Are you able to speak a little bit about the structure of that deal and how it works?
SE: Absolutely. I probably can't provide any concrete details, but I can tell you that there are two phases and this is very important and it's a critical success factor for the project. Phase number 1 is pure investments into climate activity. So, it's doing the activity costs 10 pesos.
We get 10 pesos to do it and that's sort of all the first phase of work. And we call it any carbon that is produced in, in or that is removed from the atmosphere during this phase will not produce any benefits, any additional benefits to Toroto, and landowners are getting a low baseline rent, symbolic rent per hectare during what we call the recovery period. So, the client is investing in climate action, and investing in the project, but Toroto is making a profit out of these activities. So, we have a margin on what we do and then after we deliver a certain amount of tonnes to the client, then we go into a new phase which is called the permanence phase.
And in the permanent space, landowners, no longer receive a small symbolic rent per hectare of land. But they start receiving 60% of the market value of the credits that are being produced. And the rest is split between the developer and the structure, etcetera, right? So yeah, that's the general structure of this deal.
I would say the critical success factor is that we have a recovery phase and then a permanence phase and the deal is way, way better for the landowners during the permanence phase. But it's just the project would not be feasible if 100% of the money, at first, they're going to climate activities, right?
DR: Yeah. Yeah, absolutely. I mean that's actually a really interesting way to structure the deal. I mean this is, is this something that you're offering to, you know, to other investors and buyers when you go out there because this? I mean this seems like pretty…
SE: Absolutely. As we learn more about. Yeah, yeah, no, absolutely. As we learn more about the market and we learn more about what we are being able to do with our partners, I think both our partners and ourselves, you know, bring these lessons learned into our future activities. For sure. It works right. So, if It works. We need to do more of that, and also, currently Toroto has signed agreements with 61 communities. So, 61 projects. So, we have everything, we have vanilla, strawberry, chocolate. There are all kinds of different origination agreements inside that. Sometimes Toroto finances from our proceeds and from our own cash flow, when we can we finance our own project development, and then we'll bring credits into the market. It's only a partnership between Toroto and the landowners here. That's where the landowners will get 75, 77, 72% of the proceeds because it's only the Toroto and the landowner.
But then we also have origination and that's when we partner with demand actors or people running the demand side for us. They might be on the supply side or for someone else, but for people who are on the demand side for us, we partner with them to originate projects. And here what we're looking for is to shorten the capital cycle of our project.
So, when a landowner or a project developer is going to do a carbon removal project, it will take at least 18 months before the credits are available. So, it's 18 months of investment. This means that if you're able to get partnerships where someone is shortening this capital cycle and providing money upfront, we think that's extremely valuable.
Toroto brings a lot of things to the table and landowners bring a lot of things to the table, but capital is not one of them. That's not our strongest area. So, partnering with the players who do have this strength made some sense for us. We have boots on the ground, scalability, governance, local relationships, technical work, high-level scientific work, this is what we provide to the merchants.
DR: Yeah, I mean it's good news because there are a lot of actors out there that do have capital that are looking for, for projects like yours. So, shout out to anyone who's looking for a good carbon project to invest in.
Be good to hear a little bit about the legislative context in which you work. So, in Mexico, what are the legalities that you work within? Do you often find that there's support for the work in local and national governments, or is it sort of separate from what you do? Do you not really engage too much with the government?
SE: Absolutely. I mean I would say our current administration is not the most environmental or environmentally oriented administration we've had. That said, Mexico has always been leading the pack of developing nations from the perspective of international commitments, participation in the Paris process, and this kind of thing, right? Mexico was the first developing nation to put NDC forward. We lead the Environmental Integrity Group internationally and we are very, the government very much aware and willing to comply with Article 6 and everything that comes out of that.
Now, the government has concerns that we share, actually mainly around the fact that activities in. the voluntary carbon market shouldn't bring NDC-related targets outside of the country, right? Like nations in the global South or these where 90% of all nature-based solutions will happen by 2030. So if because of Article 6, the voluntary market means most of these reductions will go into Germany, the Netherlands, or the US, or where lots of these companies are based. Then Mexico, the country says, whoa. I mean, how am I going to comply with my own and this is or to reach my own?
So, we do share that concern. We think it’s about negotiating further at COPs. We would support this idea that the NPCs should help developing nations meet their own NDCs.
But they're very supportive. Also, they have been very clear that they want communities to make the most out of this. They were angry about information that came out last year, definitely so. So, it's a very socially minded government for sure and we are working with them hand to hand about a new rule book for the voluntary carbon market in Mexico that will provide an additional layer of trustworthiness of sort of a regulatory base of clear rules that the market can then read, understand, and participate around that, right.
That will probably come out this year and Toroto as well as tons of our competitive partners here in Mexico. We're all very engaged in working with the federal government to make sure these rules can help us scale the voluntary carbon market in Mexico.
So, it's complicated. There are nuances, but definitely support Article 6 for sure and the Paris process for sure. And then it's now about realising how we can make sure in the voluntary scope of work, the market can help solve NPCs.
DR: Yeah, yeah. How we can find that synergy? I mean that makes sense. And of course, you know Toroto, you're looking to expand beyond Mexico, right? You're looking to expand into other countries too? I mean, it would be good to get a sense of like, you know where you're looking to expand or at least you know, if you can't talk about that. What you're, what you're looking for in, in a country and outside Mexico?
SE: Absolutely. We are looking to expand in Latin America, for sure, and already have operations in Colombia. Now in Latin America, you have two kinds of countries from the perspective of land ownership. Either the country underwent an agrarian reform somewhere in the 20th century, or it didn't undergo an agrarian reform somewhere in the 20th century.
And if it did? That's the Mexico case, the Colombia case, the Peru case. You will have a huge percentage of the country owned by local communities, indigenous or agrarian communities.
If you didn't have an agrarian reform, so Argentina for example, the land will be more privately owned, and you'll be talking about properties that are millions of hectares large because there was no reform that gave this land back to the people. Right.
And so we are looking to expand to countries that did have an agrarian reform because this provides us with a layer of social economic activity to our work, and this also makes sure that the concept, the economic consequences for activities, are atomized into a large area of the population and also a sector of the population that has been underserved by financial markets. So far, whereas, well, when we work with a private landowner, we do it. It’s great. They’re amazing as well. We love them. But the social aspect of the project is less evident. And we think the fighter, the climate crisis should be taken as an opportunity to also rebalance inequality and also to build a regenerative economy. And this is done at the community level for sure. So yeah, we’re currently looking to further expand into Colombia.
Colombia is a country that we're barely starting to understand. Beautiful megadiverse with incredible social dynamics, and incredible cultural dynamics.
Peru, I think would be next. Central America, it's also extremely interesting for us. So, Central America, Peru, Colombia, Mexico. If I die having done that, it would be, already I mean, if I died today, it would already be a privilege to, have done what we’ve done so far. But sort of Peru, Colombia, Mexico, Central America I mean is a dream for us definitely.
Now, Toroto 2040, 2100, should be one of the top three players globally in creating capacity so that we recover all the nature that we lost. It’s very likely that that will be impossible. But, okay. 80% of the nature that we’ve lost needs to be recovered or on its way to being recovered by the year 2100. Right? So that will be the long-term vision.
I do see Toroto working in West Africa, in Sub-Saharan Africa, in Southeast Asia, in South Asia, sort of the Global South broadly speaking, but our focus from now to 2030 definitely would be Latin America.
DR: Very good. I love. I love so many things about what you just said there. I mean the first, being the climate crisis is an opportunity. I think that's really reflective of the work you do. And also, I was actually my next question was about to be where you see Toroto in five years, but I love how you just skipped ahead to 2040 to 2050 and then 2100. And this goal of 80% restoration in 80 years from now, I feel like it really aligns with the 30% conservation by 2030. You know the global agreement there. So, that's actually amazing to hear such ambition.
SE: And we want to do it! And then we need 100 Toroto’s, right? That's and how we do it is out of operational hubs, and we go call these operational hubs biological stations from which you can actually activate hectares of high-quality climate action.
So today we're operating out of six biological stations. By 2030 we might be operating out of 20 to 30 biological stations in Latin America for sure.
DR: Yeah. Wow. So, we have to watch this space. But it was great.
SE: Lots of work, David, lots of work to do.
DR: Lots of work. That's. That's the. Yeah, that's the catch cry of the climate crisis, isn't it?
But thanks so much for joining. It's been great hearing all about what you do at Toroto and the people you work with as well and how you do it. Thanks so much for joining.
SE: No, thank you, David. This conversation was really stimulating. Thanks for the questions and also, we’re very, very, very, grateful that you thought about Toroto for this episode of your podcast. Thanks a lot, really thanks a lot.
DR: Perfect. Alright. Thanks, Santiago.