A Full-Stack Approach to the Nature-Based Carbon Economy—Investing in Earthbanc

A Full-Stack Approach to the Nature-Based Carbon Economy—Investing in Earthbanc

Aug 14, 2023 11:39 AM
Posted by
Jahed Momand & Matthew Stotts

Earthbanc has built a comprehensive approach to climate finance with the potential to become a top 100 international bank (min. $250B AUM) and the first to do so entirely through originating carbon credits for natural capital assets (coastal wetlands, forests, agriculture) which will provide payments to under-banked citizens in emerging economies for their stewardship and regeneration efforts.

Earthbanc has built partnerships with the United Nations Convention to Combat Desertification (UNCCD) and European Space Agency (ESA) and SIX (the Swiss Stock Exchange) to issue Sustainable Land Bonds that generate carbon offsets for purchasers. Sold as forward contracts, Earthbanc bonds provide low-cost debt for countries borrowing money to develop sustainable agriculture, reforestation and conservation projects. Coupled with a patent-pending monitoring and verification system utilizing dedicated access to ESA satellites, Earthbanc will provide payment streams to citizens on the ground in those countries doing the work to fight climate change by stewarding nature-based solutions. By building the complete lifecycle of climate finance, Earthbanc is poised to become a high-growth, high-impact climate tech leader in both the regulated and voluntary carbon credit markets.

Earthbanc’s long-term opportunity intersects two sizable markets: the global carbon market (compliance and voluntary) which reached record $851 billion in 2021, according to Refinitiv, a subsidiary of London Stock Exchange Group. ; and the green bond market which passed $400 billion in 2021.

Earthbanc’s partnership with UNCCD provides the potential to originate Sustainable Land Bonds across a large portion of Africa’s Great Green Wall, enabling them to originate hundreds of millions of new carbon credits with significant market value and trust.

What is Earthbanc?

MRV technology

Remote sensing carbon monitoring, reporting, and verification technology (MRV) can bring massive economies of scale to nature-based carbon solutions. Their solution was developed because the Earthbanc team took a deep look at the carbon projects and realized the problems at the core were:

  1. Lack of annual auditing due to high cost. This leads to auditing every 5 years or so. In the meantime, this leads to carbon leakage in up to 50% of projects, resulting in false sales of carbon credits. Plenty of web3 companies are touting their ability to sell carbon forward contracts, but many of them are not investing in MRV the way Earthbanc is.
  2. Fines for carbon leakage and lack of certification makes carbon targets difficult to achieve as a result.
  3. Many projects overpromise and underperform on issuance. A constantly monitored and updated approach is necessary to ensure trust in the market.

Earthbanc’s MRV technology dramatically drives down the cost of auditing, while simultaneously reducing greenwashing and carbon leakage. With more accurate and ongoing assessment, project developers are assured more consistent revenue, and governments and investors in carbon projects can be assured that they’re not buying false credits, or missing targets due to carbon leakage.

Their patent-pending remote sensing MRV technology comes partly via partnership with the European Space Agency (ESA). The credits originated by Earthbanc are certified and audited annually to ISO 26000 standards.

The efficiency gains provided from this tech lend two distinct advantages for Earthbanc relative to competitive projects—they are able to survey an entire project instead of sample, reducing carbon leakage, and they can reduce lead times for project onramp, unlocking access to smaller project supply and aggregation. The average carbon project is >1,500 acres in size—Earthbanc can reach projects as small as 200m2, gaining access to 500M global smallholders via their NGO affiliates and partners.

This combination of MRV enabled by zero-cost access to ESA data and infrastructure, and partnerships with NGOs is a powerful force for regeneration, reduction of greenwashing, and market velocity to originate new credits.

Forward Contracts and Tokenization

One of the biggest problems in the ecological asset space is winning financing for early stage projects. The projects are plagued by middlemen of various types, must be of a certain scale to even be considered feasible, and take years for MRV and auditors to assess.

The structure of the forward contract becomes more interesting when considering classification as Sustainable Land Bonds (SLBs) under the UN Convention to Combat Desertification (UNCCD). The UNCCD has identified 2.5bn hectares of land and committed $43bn to restore land and sequester carbon under this charter, with Earthbanc as a chosen partner to pay landholders and settle carbon registry accounts. Earthbanc aims to issue forward contracts as SLBs to finance the carbon supply pipeline, and they have lined up top financial institutions and banks for this offering.

The long term play is to wrap the SLB product as a token (SLBT) and liquid carbon instrument designed for financing new carbon projects via corporate, retail, institutional, and crypto buyers. With partners such as Regen Network they can enable marketplace access. Each off-chain forward carbon credit will be tokenized into a unique NFT, with vintage year and fractional supply tracked. The NFTs can then be wrapped as fungible and tradable pool tokens representing a claim on the pool. This mitigates project-level finance risk, such that investors won’t have to vet projects individually but can invest in a pool of carbon project assets, get exposure to the asset class, while participating via third party regulated derivatives markets.

Carbon Market API & Enterprise Dashboard

Wrapping everything together is the Earthbanc Carbon Market API and Enterprise Dashboard. It aims to track carbon leakage, additionality, and permanence, and compile ESG impact scores for enterprise social impact managers.

The tokenized carbon project derivatives mentioned above, derived from real-world carbon assets bearing the ISO26000 certified carbon reduction standard, can be issued for trading via API to third party platforms.

This API also powers their native dashboard, where B2B customers can log in to view carbon metrics such as additionality, permanence, and leakage, which are updated constantly and audited annually.

Web3 Carbon Wallet for Direct-to-Farmer Payments

The last mile necessary to make this platform work is the ability to deliver payments at scale to land stewards and project developers. This is what Earthbanc calls web3 forward payments, enabled by a wallet dApp that works on any mobile device, where farmers can pledge their carbon project for auditing to the platform.

Eco-credit payments can be remitted to the farmers over the lifecycle of the project. This forms a loop within the product ecosystem, as Earthbanc’s MRV technology audits the project on an ongoing basis, ensuring that compliance officers receive the data they need from the investment, and project developers get paid for their stewardship.

Why did we invest?

The four co-founders at Earthbanc have the key areas of business leadership covered when it comes to product, finance, sales, impact, and enterprise go-to-market.

In the Founder and CEO Tom Duncan, the team has a proven leader who has written the book on Land Restoration, quite literally, with one of the leaders in the field, after practicing land restoration for 10 years. Before Earthbanc, he co-founded an AgTech startup developing algae bioreactor technology, which exited in a reverse merger on the Australian stock exchange. He went on to design and deliver large scale regenerative agriculture and land restoration projects throughout Asia and Australia, and has experience across sales, marketing, product, as well as asset management.

Earthbanc’s co-founder and current COO / CFO, Chau Tang-Duncan, brings over a decade of experience working in financial services, risk management, and compliance, managing accounts worth $10m to $500m for large banks such as Commonwealth Bank and the UKTI. Additionally, she knows the corporate ESG space inside and out, helping companies understand ESG, and identify, assess, and manage their ESG risks. Her experience is critical in managing the expectations of the flagship clients AstraZeneca and Swedbank and shepherding them to close for Earthbanc.

Technical architecture and product is led by Co-founder and CTO Antonin Stoklasek. Antonin built fintech software for Raiffeisenbank in Switzerland, Austria Central Europe, and also rolled out several new digitally-enabled community banks in the USA. Previously he was Principal Developer at AVG Technologies, a cyber security platform with 250 million  users. He is an experienced tech leader in fintech, privacy and security, and blockchain, and has managed large tech teams and projects across Europe.

Lastly, the team is rounded out by co-founder and Chief Impact Officer, Rishabh Khanna. Rishabh is a certified carbon and impact auditor under ISO 26000. He has influenced sustainability & climate and policy at the global level, including the creation of the 17 Sustainable Development Goals at Rio+20.  He is author of the book Surging Beyond the Bottom Line and delivered contracts to Tata group, UN Habitat, UNCCD, African Development Bank, and the WWF. His experience spans GHG accounting, sustainability reporting investment, and deal sourcing, and he is responsible for ensuring the success of Earthbanc’s partnership with the UNCCD from the perspective of impact reporting.

We think this team has built an excellent advantage in go-to-market strategy, as they need to court land stewards and project developers to onboard carbon supply, close demand from corporates so that there is enough funding for the projects, generate liquidity for their forward contracts (SLBs) to finance projects, and deliver last-mile payments for regenerative and restorative projects today, not in the future. Let’s break down each in turn.

Forward Contract Derivative Liquidity — Distribution Strategy

In order for supply-side market players (project developers, land stewards) to access direct, upfront carbon financing for projects that do not yet exist, there must be large, liquid markets in financing. The Earthbanc forward contract product enables this, but that’s only the first part of the story—for full functionality it needs to be composable and tradable, and that’s where Earthbanc’s partnerships shine. They’ve lined up distribution partners with large, unmet demand shortfalls to bring liquidity to this product and enable a forward contract derivative market, with a future discount.

Demand-side Distribution: ESG Platforms & Direct Corporate Buyers

Earthbanc has signed a definitive agreement with undisclosed SaaS and banking partners to distribute carbon offsets to corporate clients, through mobile experiences, in-app, and more.

They also have courted and won major business from a Europe-based corporate partner that will be announced soon, that will add significant volume to the voluntary carbon market when live.

Supply-side Partners: UNCCD, African Development Bank, Regen Network

Starting with the United Nations Convention to Combat Desertification, Earthbanc has an impressive headstart in the supply-side of the market, given that the universal problem for carbon registries in 2022 is supply constraint.

The UNCCD has identified 2.5 billion hectares of land at risk of desertification, and has $43bn in commitments to restore land and sequester carbon. Farmers, smallholders, and NGOs across 129 countries can set targets and achieve Land Degradation Neutrality (LDN) by enabling investment via Earthbanc. The opportunity can be up to 2.9 billion tonnes of carbon sequestered annually from IPCC estimates. These targets and associated LDC metrics have been embedded into Earthbanc’s SLBs, enabling businesses to achieve net zero emissions targets, and using digital MRV technologies enabled by Earthbanc to continuously monitor ecosystems and determine if LDN targets are met.

In addition to this supply opportunity, the African Development Bank has signed on to offer significant land rights to Earthbanc. The AfDB is a pan-African financier and investor with $208 billion AUM, and will be a customer of the forward carbon credit SLB.

All told, the team has manufactured a huge supply pipeline and opportunity, and now needs to scale themselves to address it with the efficacy and confidence necessary to win in the market and get it to where we all need it to be.

Nothing contained herein constitutes investment, legal, tax or other advice nor is to be relied upon in making an investment or other decision. This article contains the opinions of the author, and such opinions are subject to change without notice. Furthermore, it may also include data and opinions derived from third party sources. Cerulean Ventures does not accept liability for the accuracy or completeness of any such information or opinions which can be subject to change without notice.