British company Kana Earth Ltd has launched an open ledger and investment platform for the UK’s carbon offsetting market, which, the company writes, is designed to address many of the major obstacles holding the sector back for fund managers investing in this sector.
The company says that it is already in talks with several UK based fund managers, who collectively have over a trillion in assets under management and are interested in using the platform.
The Kana proposition is designed to enable UK landowners with carbon offsetting projects to list and promote these on the platform at an early stage of the project development, detailing the seed capital required for the projects to start. The firm writes that this will provide unprecedented levels of transparency in terms of overall goals and carbon reduction targets for the schemes, and how these will be achieved. The firm says that this will make it easier for fund managers and other professional investors to reduce their carbon footprint through buying and investing in transparent UK offset credits at an early stage of the project.
With the average Woodland project in the UK being 50ha and Peatland 200ha, these projects are normally too small for fund managers to invest in, but Kana writes that with the Kana Investment platform providing the technology and legal framework, fund managers will be able to invest, manage, report and insure credits to create a portfolio of UK credits thereby scaling the investment in this UK Nature sector.
Under the Glasgow Financial Alliance for Net Zero (GFANZ) initiative, over USD130 trillion of globally managed assets have been committed to achieving net zero by at least 2050. Fund managers including Invesco, Vanguard and BlackRock have signed up, aiming to achieve a net zero target across their business operations, but also across their investment portfolios.
Kana believes more fund managers will increasingly look to compensate for all or part of the carbon emissions linked to their portfolio companies through the purchase of carbon offsets. It also expects to see more fund managers launch new ‘carbon neutral’ share classes enabling investors to offset the carbon emissions attributable to their investments by paying a slightly higher management fee.
It also predicts that more active fund managers will start to re-invest part of their performance fee into a charitable pool or foundation whose goal is to back carbon offsetting projects.
Andy Creak, CEO, and co-founder, Kana Earth Ltd says: “If the UK is to meet its carbon neutral targets, it needs to find a way to make it easier for fund managers to invest in projects in the country. However, there are significant challenges facing the UK carbon offsetting market, which is adversely affecting this goal.
“The challenges the UK carbon offsetting market needs to address include limited data availability, scarce financing, and the inability to attract private investment at scale, inadequate risk management , and the lack of a process, technology, and legal framework to standardise how UK Nature Carbon works. There also needs to be a greater standardisation of codes in the UK carbon offsetting sector. We have developed Kana to address many of these challenges and in so doing, hopefully encourage fund managers and other professional investors to back more UK carbon offsetting projects.”
Kana is implementing the UK Nature Carbon directory that will integrate with all the codes, developers, verifiers, and registries to provide a single view of all projects that are looking for investment through to those who are generating Carbon Units for sale.
It is developing an investment platform that provides asset managers the technology to create transparent collective investment products that would invest in future UK Nature Carbon Projects. This is designed to enable project developers to obtain low friction private capital that could work in addition to public grants or as replacement funding.
It is also developing a single legal framework that will allow a buyer to purchase carbon units across multiple projects, time periods, project types and codes in a single low friction transaction. This is designed to allow embedded carbon shortfall insurance projects to be available to manage the different risks across a buyer portfolio.
Kana Earth’s core carbon principles (CCPs) align with the Integrity Council for Voluntary Carbon Markets (ICVCM) principles for identifying high-quality carbon units. The CCPs form the basis of the Integrity Council’s Assessment Framework, which elaborates criteria for evaluating whether carbon credits and carbon-crediting programs reach a high-quality threshold. Once established, Kana intends to leverage ICVCM’s assessment of each Code and publish their findings. Until this assessment framework has been implemented, Kana has assimilated 18 high-level comparison points to represent the Code’s published positions against the 10 CCPs.
The macro challenge
Carbon offsetting is critical in meeting the UK’s target to reduce carbon emissions targets by 78 per cent by 2035 from 1990 levels, and to be carbon neutral by 2050, but during this time, the country will emit a sizeable 3,340m tonnes of CO2.
The market to offset this the domestic market is disjointed and underdeveloped.and as a result UK’s Nature based Carbon projects to date will absorb less than 1.5 per cent or 50 million tonnes CO2 during this period, the firm says.
The UK carbon offsetting market’s complexity and lack of scale means it is missing out to massive carbon growth in other countries, the firm says.
Creak says: “The UK has huge carbon offsetting potential, but the market is inefficient, disconnected and lacks scale. Kana Earth’s solution will resolve these challenges by connecting companies that want to manage their emissions with viable, provable offsetting projects in the UK. At the same time, we can help asset managers and institutional investors’ capital reach relevant carbon offsetting projects so they can reach optimum scale.”
Brendan Curran a Sustainable Finance Policy Fellow at the LSE’s Grantham Research Institute on Climate Change, says: “Kana Earth is developing a platform that looks to address each of these barriers individually and provide the already emerging and vibrant UK nature carbon community with the appropriate market infrastructure that connect buyers and sellers of UK nature carbon in a consistent, credible and transparent way.”
Brendan Curran and Darshini Waibel, CEO of Wiseblik LTD, a UK strategic advisory firm, have just published a report on the challenges facing the UK carbon offsetting market. It includes new research that reveals 97 per cent of UK FTSE 350 board directors agree that as a UK company, a large part of their carbon offset budget should be allocated to UK based projects, but they claim there isn’t the provision.
