Season 2, Episode 3 - Game Changers and Transition Makers: Carbon credits that make a deep and lasting impact

Lorraine

Hello, and welcome to ESG Matters @ Ashurst. You're listening to the second season of Game Changers and Transition Makers. My name is Lorraine Johnston. I'm a partner here at Ashurst in London, specialising in ESG regulation. In this series, we meet global entrepreneurs who are embracing disruption to boost business performance and drive the sustainability agenda. In today's episode, you'll hear my conversation with ShanMae Teo, chief financial officer of Climate Impact Partners. Climate Impact Partners collaborates with climate-leading companies and organisations to develop, finance and support projects that reduce carbon emissions, improve health and livelihoods and protect and restore biodiversity. So without further ado, let's jump in and hear the discussion.

Thank you very much for joining us on the podcast, ShanMae. It's genuinely lovely to have you here, so thank you for taking that time.

ShanMae

Good morning. I'm very happy to be here.

Lorraine

Can we start, could you just tell us a little bit about yourself, and in particular, a bit about Climate Impact Partners?

ShanMae

Sure. Sure. My background is having done investment banking and strategy consulting, spent 12 years of PE and venture investing and made the transition eight years ago to the CFO role. And I was really drawn to Climate Impact Partners because it had this perfect Venn diagram of being about growth and transformation. It was starting with the new CEO at the time, and what really wrapped it all up is that this is a business that really has a strong purpose and aims to make a real impact in some of the biggest challenges that our planet is facing today. So meaning and purpose was really a key driver for why I've joined Climate Impact Partners.

In terms of Climate Impact Partners, we have over 27 years of experience in the voluntary carbon market, which is really astounding when you consider how the market is really still at such an early stage. So I have a real admiration for the founders of our company because they were pioneers, early, early pioneers in enabling climate action. Of course, now I'm sure that you're going to ask what is the voluntary carbon market?

Lorraine

I love that you already foresaw what my next question was going to be. So yeah, talk me through what is the voluntary carbon market and how can you help some of the listeners understand what it involves?

ShanMae

Sure. Absolutely. Here's the big picture question I think that we're all facing. I'm sure everyone's heard these stats, right? To stay on path towards 1.5 degrees, emissions need to reduce by 42% by 2030, and the current outlook is that they will rise by 3%. So just picture a bathtub, and this is the Earth's climate system, and water really represents carbon dioxide. So the bathtub is filling really fast. The VCM really is a mechanism which allows finance to go to projects that slows down that tap flow. There are projects that avoid or reduce carbon emissions, and we also widen the drain with projects that remove carbon dioxide. It's all about how can we stop the water from filling up faster whilst we work to reduce footprints? And so, we serve corporate clients that really wish to complement their decarbonisation goals by offsetting unavoidable emissions with carbon credits. And we support these clients by developing and sourcing carbon projects that are aligned to their goals and values and drive to that impact.

Lorraine

ShanMae, that is the best imagery I have ever heard around about the carbon markets. So if anyone has been reading the media that there's been some scrutiny of carbon markets, could you just help explain how some of those challenges that you face in that market have been addressed and how you've tackled them at Climate Impact Partners?

ShanMae

Sure. Absolutely. I think one of the key criticisms is, does offsetting allow companies to keep polluting and not reduce their emissions? Does it enable bad behaviour because we're distracting with marketing on one side, but still polluting on the other? And that's something that we really should look at because that's certainly not what all the industry would want is to enable bad behaviour. Hot off the press, we do this annual review of the Fortune Global 500 companies, and our research has shown that 42% of companies are planning to use carbon credits. Contrary to the charge, these companies are two times more likely to have set an SBTi target, and they're three times more likely to have set a net zero target for their entire value chain. There's also research across the industry that shows that companies that do use carbon credits, they're decarbonising footprint at two times the rate of companies that do not use carbon credits.

So putting a price on carbon really does drive change. It really says, "Here's what it's costing us that drives that business case to reduce your footprint." So I think that is just the one thing where as we think about, "Okay, let's just make sure claims are accurate," and of course, we need to make sure that they are. Actually, the companies that we support, really great actors and they're working to make the world a better place whilst just trying to maintain, let's reduce our footprint, but let's also make sure that we stop the flow and we widen the drain as well along the way. So really that’s the first criticism I think that the industry faces.

The second is about, well, what are the quality of these projects, and are they really having an impact? Is it just know vaporware? And I think what I would say is, listen, in the early phases of any market development, there will be a learning curve on how to do things better. And this is necessary and it's definitely welcomed.

And there's really great development and key industry bodies like the Integrity Council for the VCM, the Voluntary Carbon Markets Initiative, and these are really starting to drive quality. And what that means from both the supply and demand perspective and also as a company, this is something that we're very much focused on. Quality for us means making sure that the projects that we support are having the impact that we say that they are. But with all of this improvement and quality, we really shouldn't lose sight of the bigger picture. So I know there've been recent media reports around projects like cook stove projects, and just to set the scene around what is the problem that cook stove projects are trying to solve. 2% of the world's global emissions, that's the annual emissions every year, this is equivalent to all the air travel is due to burning wood and charcoal.

So 2.6 billion people, or a third of the world globally, currently lacks access to safe clean cooking fuels. This contributes to 4 million deaths a year. So, of course, we need to continuously improve how are we calculating, what are the methodologies to make sure that the carbon equals the stoves that we're rolling out or the change in cooking methodologies? But we also need to have carbon finance continue so that we can drive impact and enable more people to have clean cooking options. What we try to do at Climate Impact Partners to ensure quality is we go in on a very detailed project level to see what's happening on the ground. And with our enhanced quality assurance process, we really want to make sure that the projects that we're supporting are delivering that impact from an environmental and community standpoint.

Lorraine

That is such a nice segue way into my next question, because I think understanding what these projects look like and what you do in relation to those projects really brings to life what Climate Impact Partners does on a day-to-day basis and how it differentiates yourself. Could you give us a little bit of an explanation or bring to life what a typical project might look like for Climate Impact Partners?

ShanMae

We are working on a project in India with an NGO that has been experienced in developing water structures for the region as well as tree planting. And this project will work with communities and farmers to plant around 11 to 12 million native trees, a variety of species across 200,000 hectares. We actually provide trees to these communities and these farmers. We are going to give them a share of revenue from the carbon credits. These projects also provide new sources of incomes because these trees are fruit trees, so they will get produce that comes out of these fruit trees, they're mango trees, etc. These farmers can double their income because of these fruit trees that are growing on their land. Because these are fruit trees and they're providing them an income, they will take care of the trees, which ensures that the trees grow and have durability and permanence, which enables the strength of the quality of the carbon project. Of course, we have new jobs that are created from tree nurseries and also the ongoing labour that we pay these communities to maintain these trees.

Alongside planting trees, we're also installing dams, wells, boreholes, which will not only ensure that the trees survive, but also provide improved water supply to the villages around the project areas. The way we think about carbon credits is that these carbon credits that will be purchased by corporate clients from these projects, that's what makes all of that impact possible. It's like this circle that continues, you have trees, the communities look after them, the trees absorb carbon, and companies are supporting that impact. Carbon makes that all possible.

Lorraine

I think when we last spoke about this, we spoke about some of the key concepts that you'll look at when you're examining whether the viability of a potential project and things such as additionality around about permanence. Could you explain a little bit more about some of those key concepts and how they flow through into your decision making over the choice of projects?

ShanMae

Yeah, those keywords that you've used, those are things that people use in the industry to say, are these really quality projects? Additionality is really the key issue that we look at for all carbon projects, and this is fundamentally, would this project have happened if it weren't for the carbon financing? So it needs to be additional. It needs to make a real difference through the environment today. And of course, when we look at a project like I've just discussed, which is an afforestation project planting trees, there is no way that these communities would've received 11 to 12 million trees to plant and the money for the water structures if it weren't for the carbon financing. From an additionality standpoint, that's a big check.

Permanence is all about, okay, can we make sure that the trees, whatever that you're doing, remain standing and continues? Of course, because we have this infrastructure around it, both in terms of the water to make sure that the trees continue to grow, but also because of the incentive system that we bake into the community, which make sure that they continue to benefit from the trees continuing and the project continuing that aids to the permanence of the impact. So the carbon that's being absorbed, can we ensure that it's absorbed for long term? So those are the metrics that we use to ensure that actually, is this project really making a difference?

Then, of course, there's a real emphasis on community and doing no harm and making sure that there's monitoring around that. So we are putting in place measures around how do we make sure we monitor the flow of funds and the benefits that the community are getting so that we can go to our corporate clients and say, "You thought you were funding all of this impact. This is what it's providing. This is what the community is getting," and we're ensuring that we have that auditable outcome to prove that community benefit. Those are just some of the key quality metrics that we look at when we try and establish is this really quality? Things like the spread of native species, that's something that we look at to make sure that there’s biodiversity in what we're putting in place on the ground.

Lorraine

I love that, and it sounds as if you've got that real world experience as well in those geographical areas. I guess, looking at the future, both for voluntary carbon markets and also for Climate Impact Partners, what's your outlook on this type of area? Is there a strong pipeline of a project that you think that you can source? Also, what about that supply and demand that we spoke about that faces its own challenges?

ShanMae

I think that from the size and scale perspective, we're really at the start of this S-curve. So, of course, you know in any S-curve, you're going to have some squiggles. But the long-term outlook is, I think I mentioned before in our report, we have 42% of the Fortune Global 500. They've set a significant climate target, and that's up 2% compared to last year. And given the targets mentioned earlier, reducing the footprint but also ensuring that scope 1, 2 and 3 are aligned, that there's action, this could lead to demand outstripping supply by about 1.3 gigatons of carbon by 2030. So we're starting to see really sophisticated corporate buyers with net zero targets start to plan for forward supply.

Because currently, what is the pipeline of removal projects in terms of what could that supply look like, they're really thinking about how can we ensure that we manage our climate liabilities with the upcoming shift in supply and demand? So thinking about how do they ensure they've got off take supply in the future so that they lock in whatever that price is. And a lot of the sophisticated buyers are trying to think about this almost like a renewables perspective, PPAs, how do we make sure that we know what is the prices against this claim? So that is something, when we think about the longer term, we're focused on how do we continue to drive that, increase the supply so that we can meet that demand in the future.

Lorraine

But presumably from our Climate Impact Partners, one of the key principles is that the projects that you will look at to develop will always maintain adherence to those principles around about additionality, permanence, man-sharing community. And that's why your carbon credits are strong, robust, and fulfilled by that sort of governance arrangement.

ShanMae

Absolutely. That's something that we are really focused on. If we think about what are we trying to build for the future and make sure that we establish this or continue to build on our strengths, it's always going to be about quality and due diligence to design and deliver these carbon projects that have measurable and repeatable environment and community impacts at scale, because we think that's what needs to happen. And alongside that, what we're doing is we're addressing that growing demand for long-term off takes by really developing innovative partnership models between project partners, investors and corporates. How do we pull together finance, delivery, as well as corporates to ensure that actually in the future we've got that supply and it's high quality supply that makes an impact to the planet? So we're looking at that.

Then also thinking about the future, we're launching a new programme that enables corporates to invest in carbon dioxide removal technologies so that companies that are forward-thinking, as we start to scale these removal technologies, how can they get access to that early mover, fund this innovation that's really required to really start to remove carbon dioxide at scale? Then, of course, what we're also focused on is if you imagine a lot of this technology is really exciting because you're removing your plants, right? These are great big plants that's going to suck out carbon at scale. But what we also need to focus on is what kind of planet are we going to live in? So focusing on biodiversity, we've got a Save A Species programme, which is a partnership with the Botanic Gardens Conservation International, and we're working globally where corporates can work to recover threatened species from extinction.

We're trying to enable how do we actually stop the flow, drain the tub, but also make sure that we've got a beautiful world to live in? It's a really exciting dynamic to be involved with. And not only do we work with corporates, we're also working with governments on their ambition to meet nationally-determined contributions. So how are they managing their footprint and how are they throwing carbon finance to other host countries that could use that finance to build out great infrastructure, which enables the improvement of the livelihoods and the people in their developing nations. So it's a pretty exciting future for us in terms of the impact that we're hoping to support.

Lorraine

So much going on. You've almost answered my next question, which was going to be, this is an incredible story that you've told around about what Climate Impact Partners does and how it helps your corporates. But one of the questions that we always ask speakers in our guests is around about what they're doing. So what is Climate Impact Partners doing? I think you've covered a couple of bits, but is there anything else that you from Climate Impact Partners are focused on in terms of your own impact on the world and climate?

ShanMae

Absolutely. What I've talked about is how we support our amazing clients and what they're doing. What we do is we measure our scope 1, 2 and 3 emissions every year. Of course, the nature of our organisation, and it's probably similar to yours, a service organisation, is our largest emission category is really business travel. And so that's something that we're really focused on. We enable flexible remote working for our teams. We try to limit the travel wherever possible. But at the end of the day, because the impact is on the ground with our projects, we can't avoid travelling completely. Although we avoid doing it necessarily, per the mitigation hierarchy, we look at high-quality carbon credits to offset what we can't yet abate.

We focus on how do we make sure we don't encourage any emissions, but for what we can't avoid, we make sure that we offset that. Along with our ambitious clients, we're signing up to the SBTi corporate net zero standard where we're committing to a near-term target with a baseline. We have a net zero target to achieve a 90% reduction versus the baseline before 2050. We're neutralising residual emissions by using permanent carbon removal to counterbalance a residual 10% that we can't be eliminated. And of course, along the way, we're using beyond value chain mitigation through the retirement of high quality carbon credits each year. So those are all things, so we're working on reducing the water that we're emitting, turning off the tap and widening the drain.

Lorraine

I love the continuation of that analogy. It's so good. So just to do a little bit of jargon busting for any listeners who aren't familiar with the acronym SBTi, that's the Science Based Targets initiative. Now, these define and promote best practise in emissions reduction and net zero targets in line with climate science.

ShanMae

Sure.

Lorraine

Listen, it has been fantastic to speak to you this morning. Let me finish by this: If you could give listeners one action to take away from all of your experience in this market, what would it be?

ShanMae

I would say I'm just going to raise one big global problem as well. So this has to do with water. So there's 2 billion people today that do not have access to safe and drinkable water, and a million people die a year because of this unsafe water sanitation. And women and girls spend 200 million hours each day collecting water.

Lorraine

That's staggering.

ShanMae

That is something that is near and dear to my heart as a gender issue. I would say to get inspired on how a carbon project can also have impact on this issue, I'm going to shamelessly plug a podcast where it's the Climate Impact Partners Ambition to Impact Podcast. It's Episode 1, but it's with a really inspirational person who is the CEO of Aqua Clara Kenya. Now, this project has delivered water filters to close to 10,000 households, reduced 256,000 tonnes of carbon. And if we can get more funding to Aqua Clara, we can amplify that impact. So really, my action is learn more. Learn more about this market, learn more about the impact, and then go back and think about how can you encourage that in the organisations that you're working with or leading today.

Lorraine

ShanMae, it's been an absolutely delight to talk to you today. Thank you so very much. I know that we've worked together in the past, which was fantastic. It's been really, really interesting to hear even more about Climate Impact Partners. So thank you very much for your time.

ShanMae

Thank you for having me.

Lorraine

Thank you for listening to this episode of ESG Matters @ Ashurst. I hope you found the episode engaging and inspiring. To subscribe for future episodes of Game Changers and Transition Makers and to hear previous episodes, click on the link in the show notes or search for ESG Matters @ Ashurst on Apple Podcasts, Spotify, or wherever you get your podcasts. And while you're there, please feel free to leave a rating or a review. Finally, to learn more about all Ashurst podcasts, visit ashurst.com/podcasts. In the meantime, thanks again for listening and goodbye for now.

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