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Tim Phillips:
Welcome to the latest episode of A Just Transition brought to you by RBS International. My name's Tim Phillips. And a special welcome to the person who really does all the hard work around here, my co-host Bradley Davidson, ESG Lead at RBS International. Bradley, welcome.
Bradley Davidson:
Hi, Tim. It's good to be back.
Tim Phillips:
Bradley, we don't have any acronyms for you to explain today, but we do have a big, important topic today. We're talking about carbon credits and carbon trading. Who have we got today to help us with this?
Bradley Davidson:
Absolutely. We thought we'd give listeners a break from that.
Yes, we are tackling a big topic today, but we're in good hands, as we're joined by Bill Gilbert, Head of Digital Innovation at NatWest Markets. Bill continues to drive the development of Carbonplace as NatWest Group teams up with global banking giants to deliver a truly innovative platform.
Bradley Davidson:
Welcome to the podcast, Bill.
Bill Gilbert:
Thanks very much, Bradley. Great to be here.
Bradley Davidson:
It's our pleasure.
Before we get into the details, could you share with our listeners a brief description of Carbonplace and the work you're doing within NatWest Group?
Bill Gilbert:
Sure. We were handed a task of solving some of the challenges of Carbonplace. Typically, those challenges are buyers in the market who want to buy carbon credits for offsetting their residual emissions, and there are sellers in the market. The buyers tend to be in developed countries and the sellers are in developing countries. There was a real problem connecting those two parties to the transaction because of things like; know your customer, anti-money laundering problems, terrorist issues, because nobody knew who they're actually buying from and where the money was actually going.
The banks got together and said, "Okay, so how can we start making this accessible?" That was the first thing we started to build on. That's one of the problems we have set up to solve and we believe we have solved it.
The other one was how do we add transparency? A lot of the customers who wanted to offset their emissions, didn't know how to. Where do I get it? How do I access it? How do I engage with the marketplace? They had no idea. We felt that by having this platform and then engaging with our own customers, that would also bring that accessibility, but more importantly, transparency. The idea that banks were standing behind this platform for their customers, bringing all the transparency about price, about the projects, about any aspect of the marketplace, was very important.
We felt that those two things, accessibility, transparency would really lead to trust. People could feel that they could go to the marketplace, purchase a carbon credit through their bank, no matter where they were in the world, trust the process and trust the value that they're getting from it. That's really what started it. And that was about 18 months ago we started the journey.
Tim Phillips:
Bradley, I'm not giving you any acronyms, but it's not a holiday for you here today. We need to take a step back at this point to explain how does carbon trading work – when it works?
Bradley Davidson:
Firstly, I want to highlight that we are discussing the role of voluntary carbon offsets. This differs to compliance markets established through programmes such as the EU Emissions Trading System.
Voluntary carbon markets allow market participants to offset unavoidable emissions, as Bill has said, by purchasing carbon credits delivered through projects that remove or avoid greenhouse gases. One point worth focusing on, that often gets the attention is that carbon offsets are designed to tackle those areas of activity that cannot yet be decarbonized through direct action by the company or entity. We recognise that we're on a journey working towards science-based or net zero targets, but that further investment is required to develop or scale up climate solutions. Offsets cannot be seen as the sole lever towards net zero, but they do play an important role during the transition and can deliver greater climate value for companies wishing to reduce emissions beyond their short-term pathway. The best way to view carbon offsets is another tool in the box as funds continue to adopt ESG.
I want to touch on the market itself. Unlike compliance programmes, which are restricted to specific regions, the voluntary space is significantly more flexible and can support entities globally. This reach has meant that carbon offsets have developed into a $1 billion market with Mark Carney, the former Bank of England governor, estimating a rise to $50 billion by 2030.
Despite this rapid acceleration, critics point to flaws within the unregulated market. It's fair to say voluntary carbon offsets remain in their infancy with further work required to ensure the system delivers value to both those in-setters or those sellers and those end buyers, which brings us on nicely to Carbonplace.
Bill, you've mentioned accessibility and transparency. What's different or new about the platform?
Bill Gilbert:
A lot of people, I imagine, have taken a flight recently. When you book your flight, you're asked, "Do you want to offset the fuel?" Now everybody, even the biggest tree- hugger among us, probably still says, "No." One, you don't trust it. Where's my money going? What are you actually doing with that? How do I prove that you're actually doing what you'll say you're doing? I think what Carbonplace is about is really introducing a process by which, the whole transparent journey of somebody offsetting their residual emissions is transparent.
A big, important part of Carbonplace is any customer who joins through the bank is going to get a wallet. That wallet will be able to track all the climate assets that they buy or sell. If you own some land and you want to plant some trees and generate carbon credits, you will be able to sell those carbon credits as well. Having that audit trail, that reporting capability as you transact is a very important aspect of really bringing trust to everybody who can now see what they're buying, what projects are related to and how they are making an impact in terms of changing their lifestyle to try and lower emissions and also offset the emissions that they can't actually get rid of, at this point.
Our vision is that you log onto your bank or your mobile app to check your account balance, but also at the same time, you'll be able to see, what climate assets do I have? Do I have a biodiversity credit? Do I have a carbon credit? Then, where have they come from? What have I bought? What have they offset? I think being able to track that and bring that into everybody's day to day life, not only for corporates and for businesses, but also eventually for personal accounts as well is really that difference that Carbonplace and wants to deliver.
Tim Phillips:
Bradley, is this just for businesses that trading carbon and, as Bill says, eventually for consumers as well? Or is there an angle for fund managers here?
Bradley Davidson:
Over the last year, we've seen increased demand from fund managers to adopt science-based targets, as we've discussed extensively on this podcast. When they set those targets and they go through that process, they're provided with a pathway to decarbonize, with a primary focus on scope three emissions from investment activity where we're talking about funds specifically. As fund managers set out those ambitions, it's clear that challenges remain and that achieving that zero status will not be a linear process creating an opportunity to leverage carbon offsets. I'm always going to come back to this point, I came back to it at the start, but I'll say it again. Before funds consider offsets, managers should benchmark their direct actions against peers to identify developments that may further reduce carbon emissions before tapping into the voluntary carbon offset market. Frameworks, such as the science-based targets initiative do allow for the use of carbon offsets, but only to go above planned actions. That has to be the first and very crucial step on the journey for fund managers. It is not a one or the other, it is a combined strategy together. Once that review is complete, fund managers may use carbon offsets to minimise the net impact of remaining emissions through the purchase of carbon offsets through Carbonplace or other marketplaces. I'll be transparent there and say that there are others for the sake of our listeners, I'll try and remain neutral. Relatively simple when you really break it down. Clearly work needs to be done in terms of due diligence and making sure that when you purchase a carbon credit, that you understand how it's been produced.
I'll just end by touching on the point that no two credits are equal. Voluntary carbon credits can be produced through that carbon avoidance programmes. For example, switching to renewable energy or removal projects such as, investment in mangrove plantations. Many view the latter as being more sustainable since they'll continue to capture carbon once we achieve a net zero status for our economy. Fund managers should focus on that split between programmes and look to tilt portfolios towards removal projects as time progresses. It isn't as simple as saying, "We've offset." And that is the same quality across the board, you have to understand actually where that money is flowing through and our customers should be familiar with that. It's the same as making investments, you are making an investment. It is going into the real economy. You have to understand where that carbon offset has been created from.
Tim Phillips:
Bill and Bradley, you've both said earlier in this podcast that some people are a little bit cynical about the way the carbon offsets are used, how they're marketed and full disclosure. Well, I'm one of them. Am I right to be cynical?
Bill Gilbert:
First of all Tim, you're way too young to be cynical. Not till you get to the ripe old age that I am, that you're allowed to be cynical. So...
Tim Phillips:
Oh, thank you.
Bill Gilbert:
A lot of outrage has been thrown around that's for sure, but I don't know how anybody thinks a carbon credit is bad. Let's just take nature-based project. First of all, is restores nature. You're restoring a bit of our globe that has been destroyed for some other economic reason and now we're restoring it. We're restoring nature, which I think most of us will agree, using Bradley's example, a mangrove is far more attractive than a brown field. Not a day goes by when some aspect of our earth has been destroyed or lost and these nature-based projects do restore by diversity. All these projects and ones that in particular over the last two or three years that have been started all work with local communities. Key part of these projects is the positive impact on local communities. Whether that local community is outside Manchester or whether it's in a Honduras, it doesn't matter. They all benefit the local community, and the programmes are about basically doing that, about the benefit for the local communities.
Lastly it removes CO2 from the atmosphere, there's too much out there. The idea of a carbon credit being bad is just completely mad to me. What people really are talking about is that, are they being misused? Are people not changing their behaviour while using a carbon credit? Basically, it's that same old question now, is money good? Is money bad? It serves a purpose, but people use money for bad things. It's not the carbon credit itself that I think is bad, it's how people maybe abuse that.
The other point to make is, it's voluntary. You don't have to do this. You don't have to buy a carbon credit. Any corporate that sticks their hand in their pocket and pulls out 250,000 pounds with all this energy issues, inflation, rising interest rates, supply chain problems, pulls out 250,000 pounds to buy a bunch of carbon credits to offset their residual footprint, my hat goes off to them. They don't have to do it right now and they are doing it because one, emotionally they believe it's the right thing and philosophically, they believe it's the right thing. Most of the, and I think the word here is greenwashing, that people feel happens is when people buy a $3 credit and claim that they're doing something that's worthwhile.
High integrity credits cost somewhere in the region right now between 12 and 20 pounds a ton. If somebody comes up to you and says, "Oh, you want to boy, some of these $3 ones?" Don't be surprised that if you went and saw where the project was, that it's a parking lot. People still do buy them and they still claim that they're doing something for the climate, that I think is more the issue. People who are buying high quality credits, I don't know how anybody can say that they're behaving inappropriately because they're not, they really are working very hard.
Bradley Davidson:
That point on integrity is so important when we're talking about Carbonplace and we're talking about carbon offsets. How is it that we're maintaining that integrity through checks and balances to ensure credibility of the projects that are offered to customers but also that are entering the marketplace itself?
Bill Gilbert:
There's five, actually there's quite a few, independent entities that go through the verification and certification process. Their names like Verra, Gold Standard, Plan Vivo, these are companies that have been working tirelessly for the past 15, sometimes 20, 30 years to really ensure that all these projects meet certain criteria and certain standards. Obviously, there's still people who try and gain that. There are a couple of private companies that are also rating agencies. Sylvera is one, BeZero is another, and they are going around and rating projects independently. We have now great methodologies for identifying the standard of a project. We now have private companies adding services that can rate these projects as well. We also have the industry through the integrity council of the voluntary carbon market, also coming out with their core carbon principles. That's going to start adding their certificate to projects as well.
Reputationally, it hasn't been the greatest market, but we're talking about 15 years ago. I think the progress that's been made in the last two years, I would expect to continue in another two years’ time, less time actually, probably in a year’s time, we will have a lot of checks and balances, throughout the industry, in terms of finding and defining those high-quality credits.
I'd just like to add one thing about Carbonplace is that, and if you're a customer of NatWest, for example, you may know nothing about this market, but you want to buy a carbon credit. You're going to call up your bank and you're going to say, "Can you help me?" The banks are also going to add a lens and a filter to what they feel is high quality before they send it to their customers because banks have reputational risks and don't want to be seen selling rubbish to their customers.
Carbonplace actually helps with that filtering process by using it through the banks, which is another value added that we believe Carbonplace really add.
Tim Phillips:
Bill, I have so many questions about this. The first one is, and this really comes from talking to Bradley a lot, he's always saying that we over index on the "E" in ESG. For carbon offsets, the clues in the name, carbon. Is this just about removing greenhouse gases from the atmosphere?
Bill Gilbert:
No, it's not. When I was talking about the nature-based projects, and that was actually doing their own nature-based projects, and the company we work with, they've been in business a long time. They started off as biodiversity and social impact projects. Carbon credits is just a great way to pay for that, is the way that they're approaching it. A lot of other companies are the same way. How can we introduce social and economic justice? How can we introduce biodiversity, carbon credits and remove CO2 from the atmosphere, which helps pay for it? It is really a very powerful aspect. There is a lot of "S" in it. The government side of it is obviously, policy makers are getting very much involved in this, particularly in the UK and in Europe. Actually in Japan, one of our partners is at Japanese banks on Carbonplace. It's quite amazing the amount of policy that is being directed or being considered in the area. It's all joined up.
Then have to tell both you and Bradley that, we are going through a period of transition. That period of transition is always disruptive. People have to change from one thing to the next. It's going to be over an extended period of time and a core part of that has to be the economic and the social justice of that transition. I think carbon credits really does help with that process.
Tim Phillips:
Back to the "E" though, are there limits to what we can do with carbon trading carbon credits?
Bill Gilbert:
There are, there's only so much land. There's not enough land to offset all the emissions that we put up into the atmosphere. There is, but we would have no room to grow food, I don't think. I think we all see the benefit of food, don't we?
There's the tech-based solution, and this is still in its infancy. There are various companies that are really trying to solve the CO2 sequestration through technology. As I said, it's in the infancy, a carbon credit through a tech-based solution can cost as much as 10 times what it cost the nature based solution, but in much the same way that solar panels back in the 70's cost an arm and a leg. If it hadn't been for those early adopters and those early investors, we would not have been able to make the progress that we've made to date and continue to make in solar panels. All I can say is, it's almost like a charity in some place. People feel that it's their obligation to support this investment. May work may not work, but they are putting a lot of money into it because without it, it's going to be a tough nut to crack, just relying on nature.
Tim Phillips:
So given that, how would you define success at Carbonplace? What would that look like? How long have you got to get there? Not very long, I guess.
Bill Gilbert:
The sooner, the better not getting too scientific. Right now, the amount of CO2 in the atmosphere is 41,000th of 1%. Doesn't sound like much, does it, but the last ice age had about 20,000th of 1%, so we're doubled that from the last ice age. I think we'll all probably agreed and none of us were alive then, but the ice age was probably a bit too cold, right now, it's probably a little bit too warm. We need to try and strike that balance between the anthropogenic or the human generated CO2 emissions that we put up into the air, what we can take out of the air through nature, and through technology. It's that balance, that's what this transition is about. It's transitioning to an economy that clearly puts a lot less emissions up in the air, works more productively in taking it out, but is the end goal a completely zero emissions world? No, it's not because nature itself puts it back up there. There's a lot of, I guess, variables in this.
A lot of people argue that we're not doing enough. I would argue we're probably not doing it quick enough, but I think there are a number of people really working towards meeting the goals of the Paris Agreement. We need to go a little bit quicker, I think.
Tim Phillips:
Do you have hard targets that you have to hit?
Bill Gilbert:
Carbonplace as a business and in terms of what we're trying achieve with that customer base? We have targets in terms of what we feel needs to be done in order to prevent a climate catastrophe, but that's not just up to Carbonplace, that's up to all of us.
Tim Phillips:
Bill, really interesting to hear about what you're doing, but Bradley's got one more question for you.
Bradley Davidson:
I always get the fun bit at the end. This podcast is called, A Just Transition. What does a just transition mean to you Bill?
Bill Gilbert:
It's a tricky one. To me, the missing part right now is, and maybe this is a shock to anybody who works in a bank, we need a little bit more regulation, in terms of how people should behave and how people should change their behaviour. I think that has a dramatic effect in the way that the speed at which we can move, as always and I think I highlighted before, there's always disruption when you go through change. I think some people will be unintentionally disadvantaged. I think government actually conversations, we have, they're very concerned with that not happening and on how to rectify it. I think we ourselves, as well, in banks particularly in NatWest, we talk about it all the time in terms of, how we can serve the community in just way? I think everybody has to work towards that. There are always people who try to take advantage of these things. It's in our interest to really work together.
I'll leave you with one thought is that we're not trying to save the planet, the planets going to survive. It's been around for 4.5 billion years, and it's probably seen a heck of a lot worse than what us humans have thrown at it. The planet will survive. What might not survive is the human species and our ability to sustain ourselves. I think there's a common goal here to look together to solve it.
Tim Phillips:
That is a fundamental appeal to our self-interest, isn't it?
Bill. Thank you very much. For people who want to find out more about Carbonplace, where do they look?
Bill Gilbert:
We have a website: Carbonplace.com.
If you are more interested in also climate, we've written a bunch of articles as well on the NatWest website, which sort of goes through helping people with their transition plans, their climate strategies. Obviously, pick up the phone and give us a shout, we're very happy to chat through.
Tim Phillips:
Careful what you wish for Bill. Thank you for that.
Thank you for listening everybody. We hope you've enjoyed this episode about what really is a very, very important a hotly disputed topic. So I'd be interested to hear what you think about it. If you've got any points of view, please do get in touch with us. Don't just get in touch with Bill, get in touch with us as well.
Tim Phillips:
Also, if you like what you're hearing on A Just Transition, remember to subscribe wherever you get your podcasts, we'll be there and give us a review as well. Especially if it's a five-star review, we really do prefer those. Look out also in a couple of weeks’ time for our news update, bringing you all the news that's happening in ESG provided by Bradley.
Bradley Davidson:
Thank you, Bill, and to our listeners. We'll see you again after our summer break, when we return in September and until then, goodbye.