A Complete Visual Guide to Carbon Markets
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A Complete Visual Guide to Carbon Markets

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The following content is sponsored by Carbon Streaming Corporation.



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A Complete Visual Guide to Carbon Markets

Carbon markets enable the trading of carbon credits, also referred to as carbon offsets.

One carbon credit is equivalent to one metric ton of greenhouse gas (GHG) emissions. Going further, carbon markets help companies offset their emissions and work towards their climate goals. But how exactly do carbon markets work?

In this infographic from Carbon Streaming Corporation, we look at the fundamentals of carbon markets and why they show significant growth potential.

What Are Carbon Markets?

For many companies, such as Microsoft, Delta, Shell and Gucci, carbon markets play an important role in offsetting their impact on the environment and meeting climate targets.

Companies buy a carbon credit, which funds a GHG reduction project such as reforestation. This allows the company to offset their GHG emissions. There are two main types of carbon markets, based on whether emission reductions are mandatory, or voluntary:

Compliance Markets:
Mandatory systems regulated by government organizations to cap emissions for specific industries.

Voluntary Carbon Markets:
Where carbon credits can be purchased by those that voluntarily want to offset their emissions.

As demand to cut emissions intensifies, voluntary carbon market volume has grown five-fold in less than five years.

Drivers of Carbon Market Demand

What factors are behind this surge in volume?

  • Paris Agreement: Companies seeking alignment with these goals.
  • Technological Gaps: Companies are limited by technologies that are available at scale and not cost-prohibitive.
  • Time Gaps: Companies do not have the means to eliminate all emissions today.
  • Shareholder Pressure: Companies are facing pressure from shareholders to address their emissions.

For these reasons, carbon markets are a useful tool in decarbonizing the global economy.

Voluntary Markets 101

To start, there are four key participants in voluntary carbon markets:

  • Project Developers: Teams who design and implement carbon offset projects that generate carbon credits.
  • Standards Bodies: Organizations that certify and set the criteria for carbon offsets e.g. Verra and the Gold Standard.
  • Brokers: Intermediaries facilitating carbon credit transactions between buyers and project developers.
  • End Buyers: Entities such as individuals or corporations looking to offset their carbon emissions through purchasing carbon credits.

Secondly, carbon offset projects fall within one of two main categories.

Avoidance / reduction projects prevent or reduce the release of carbon into the atmosphere. These may include avoided deforestation or projects that preserve biomass.

Removal / sequestration projects, on the other hand, remove carbon from the atmosphere, where projects may focus on reforestation or direct air capture.

In addition, carbon offset projects may offer co-benefits, which provide advantages that go beyond carbon reduction.

What are Co-Benefits?

When a carbon project offers co-benefits, it means that they provide features on top of carbon credits, such as environmental or economic characteristics, that may align with UN Sustainable Development Goals (SDGs).

Here are some examples of co-benefits a project may offer:

  • Biodiversity: Protecting local wildlife that would otherwise be endangered through deforestation.
  • Social: Promoting gender equality through supporting women in management positions and local business development.
  • Economic: Creating job opportunities in local communities.
  • Educational: Providing educational awareness of carbon mitigation within local areas, such as primary and secondary schools.

Often, companies are looking to buy carbon credits that make the greatest sustainable impact. Co-benefits can offer additional value that simultaneously address broader climate challenges.

Why Market Values Are Increasing

In 2021, market values in voluntary carbon markets are set to exceed $1 billion.

YearTraded Volume of Carbon Offsets (MtCO₂e)Voluntary Market Transaction Value
201746$146M
201898$296M
2019104$320M
2020188$473M
2021*239$748M

*As of Aug. 31, 2021
Source: Ecosystem Marketplace (Sep 2021)

Today, oil majors, banks, and airlines are active players in the market. As corporate climate targets multiply, future demand for carbon credits is projected to jump 15-fold by 2030 according to the Task Force on Scaling Voluntary Carbon Markets.

What Qualifies as a High-Quality Carbon Offset?

Here are five key criteria for examining the quality of a carbon offset:

  • Additionality: Projects are unable to exist without revenue derived from carbon credits.
  • Verification: Monitored, reported, and verified by a credible third-party.
  • Permanence: Carbon reduction or removal will not be reversed.
  • Measurability: Calculated according to scientific data through a recognized methodology.
  • Avoid Leakage: An increase in emissions should not occur elsewhere, or account for any that do occur.

In fact, the road to net-zero requires a 23 gigatonne (GT) annual reduction in CO₂ emissions relative to current levels. High quality offsets can help meet this goal.

Fighting Climate Change

As the urgency to tackle global emissions accelerates, demand for carbon credits is poised to increase substantially—bringing much needed capital to innovative projects.

Not only do carbon credits fund nature-based projects, they also finance technological advancements and new innovations in carbon removal and reduction. For companies looking to reach their climate ambitions, carbon markets will continue to play a more concrete role.

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Ocean Economy: The Next Wave of Sustainable Innovation

This graphic explores how the $1.5 trillion ocean economy can help fight against some of the toughest challenges facing the world today.

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Ocean Economy: The Next Wave of Sustainable Innovation

Roughly 21–37% of total greenhouse gas (GHG) emissions are attributable to our current food system, which includes conventional agriculture and land use according to the latest IPCC report.

With the global population rising and more mouths to feed, now is the time to reconsider how we can tap into our global resources to build a more sustainable food system.

This infographic from Billy Goat Brands (CSE: GOAT) (“GOAT”) explores how the ocean economy—also referred to as the blue economy—plays a vital role in our fight against climate change and other environmental challenges facing the world today.

What is the Ocean Economy?

The ocean economy is described as the sustainable use of the ocean and its resources for economic development and ocean ecosystem health.

The global economic output of the ocean economy is $1.5 trillion each year. Here is an example of some of the activities and sectors that make up the ocean economy today:

ActivityRelated Sectors
Harvesting of living marine resourcesFisheries
Aquaculture
Harvesting of non-living marine resources 
Marine biology
Mining
Oil & Gas
Transport and trade
Tourism
Maritime transport
Shipping and shipbuilding
Coastal development
Renewable energy
Renewables (wind, wave, tidal energy)
Indirect economic activities
Carbon sequestration
Coastal protection
Waste disposal
Biodiversity

Financing ocean-related economic activities will ensure the future sustainability of this vital resource, and help combat threats that pose a risk to humanity, such as overfishing, pollution, and habitat destruction.

However, some experts say that there is insufficient private and public investment in sustainable ocean economy activities.

The Investment Opportunity

Investors have a unique opportunity to drive change through companies innovating in the ocean economy and be part of the solution.

  • The ocean could provide six times more food than it does today.
  • Seafood continues to be the fastest growing sector by 2030 with only 60% of fish available for consumption.
  • The ocean economy provides a smaller carbon footprint compared to conventional agriculture.

The potential for economic growth will only continue to grow, presenting investors and institutions with a chance to add value at this crucial stage of development while making a real and tangible impact.

In fact, investing $1 in key ocean activities can yield at least $5 in global benefits—a number that will continue to rise over the next 30 years according to a World Resources Institute report.

The report also states that investing between $2 trillion and $3.7 trillion globally across four crucial areas could generate between $8.2 trillion and $22.8 trillion in returns by 2050. These four areas are:

  1. Restoring mangrove habitats
  2. Scaling up offshore wind production
  3. Decarbonizing international shipping
  4. Increasing the production of sustainably sourced ocean-based proteins

An Ocean of Possibilities on the Horizon

Plant-based alternatives will play an important role in alleviating the pressure on ocean resources, and technological innovation has been pivotal in creating imitation products for the consumer market.

GOAT provides diversified exposure to expansion-stage companies that contribute to the ocean economy through innovative food technologies, functional foods and plant-based alternatives.

“We believe that plant-based seafood alternatives should be available for everyone, everywhere. That’s why we spent years creating a seamless experience that’s nearly indistinguishable from their animal-based counterparts.”
—Mike Woodruff, CEO Sophie’s Kitchen

Sophie’s Kitchen is one of GOAT’s investee companies and a leading California-based manufacturer and distributor of disruptive plant-based seafood alternatives.

Go to billygoatbrands.com to learn more about investing in the ocean economy today.

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Impact Investing: Building a Better World

While investors often focus solely on returns, impact investing introduces a way to also tackle global environmental and social problems.

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Typically, an investor’s main objective revolves around building wealth and then turning that wealth into an income generator. As a result, financial returns are accepted as the default performance metric.

But what if investing could also address the world’s most pressing social and environmental problems?

More Than Investing

This infographic from BlackRock introduces the concept of impact investing and explains why it can be a force for good.

impact

BlackRock Impact Investing

What Does Positive Impact Look Like?

Impact investing is a sustainable investing approach that combines the intention to generate positive returns with positive, measurable social and environmental outcomes.

To understand what these outcomes actually look like, here are some highlights from the companies that the BlackRock Impact Team invests in.

  • 102,000 GWh of renewable energy generated
  • 11 million metric tons of food waste mitigated
  • 114 million individuals empowered with access to financial services
  • 99 million people given access to clean drinking water
  • 600,000 families given access to affordable housing
  • 1.8 billion patients given access to affordable healthcare

These outcomes were generated in 2020, and help to make our world a better place.

The Three Pillars of Additionality

For impact investing to be an effective strategy, investors must be able to accurately measure the positive outcomes their capital is helping to create. A company may claim to be aligned with the UN Sustainable Development Goals (SDGs), but its actions may not be making a real world difference.

“Alignment to the SDGs is not enough to qualify as impact; we require that companies advance the SDGs by providing a solution that is additional, thereby creating genuine impact.”
-Quyen Tran, Director of Impact Investing at BlackRock

Below is an overview of the three pillars of additionality that BlackRock uses to measure impact. In this context, additionality means an outcome would not have occurred without the company’s contribution.

1. Additionality From the Investee (the company)

A company provides additionality if its products and services address a need that is unlikely to be fulfilled by others. The primary sources of company additionality are:

  • The application of leading technologies
  • The deployment of innovative business models
  • The delivery of products and services to underserved populations

Helping underserved populations is a powerful way to create impact. In 2017, for example, it was estimated that 1.7 billion adults did not have a bank account.

2. Additionality From the Investor

Investors can also provide additionality by empowering businesses to create positive impact. This can be done through five mechanisms:

  • Invest with a long-term ownership mindset
  • Engage with companies to help enhance their impact outcomes
  • Invest capital when an impact company needs to raise more capital
  • Bring much-needed visibility to undervalued impact companies
  • Create a better marketplace for impact companies looking to go public

The effects of these mechanisms are already being seen worldwide, especially as awareness of environmental, social, and governance (ESG) factors rises. According to a 2020 report by KPMG, 80% of companies now publish sustainability reports.

3. Additionality From the Asset Class

Even with the help of private investments, the world faces a multi-trillion-dollar shortfall in its quest to meet the UN SDGs by 2030. Public equities have the ability to shrink this gap by moving capital towards enterprises that are solving the world’s greatest challenges.

MarketValue
Private market impact investing$0.5T
Private markets$5.3T
Public equities$93.0T

Source: McKinsey & Co (2019), BlackRock (2020)

At $93 trillion in total value, public equities are roughly 20 times larger than private markets.

Building a Better World

Solving today’s greatest challenges often requires innovative solutions. Consider the fact that many regions suffer from a lack of doctors.

RegionDensity of Physicians
Europe1 for every 293 people
Americas1 for every 417 people
Southeast Asia1 for every 1,239 people
Africa1 for every 3,324 people

Source: World Health Organization (2021)

An impact investing strategy will seek out companies whose products or services can help to alleviate this shortage. For example, the BlackRock Impact Team has identified a medical software company whose platform lowers administrative costs and increases productivity.

Cybersecurity is another area where investors can help create positive change—according to McAfee, cybercrime has become a $1 trillion drag on the global economy.

This risk disproportionately affects small and mid-sized enterprises (SMEs) because they have limited resources to protect themselves. Cybersecurity companies that specialize in servicing SMEs can help protect this important part of the economy.

The Time is Now

Impact investing is not limited to a single theme. Around the world, various social and environmental issues are capturing the attention of governments and society. Ultimately, what’s needed are innovative solutions.

“If your savings can earn a strong return invested in companies that are doing good for the world, why would you invest any other way?”
—Eric Rice, Head of Active Equities Impact Investing at BlackRock

By directing capital to the right companies, investors have the potential to generate financial return while building a better world.

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