The first nature improvement assets are expected to be issued this year by a provider of digital infrastructure for the burgeoning nature-based financing market, which sees itself challenging some of the conventions of the voluntary carbon market (VCM).

The Landbanking Group has launched with a strong focus on measuring, reporting, and verification (MRV) of nature uplift through remote sensing and other technologies, and will start issuing nature uplift assets later in 2023, once sufficient time has passed to record biophysical improvements in the landscapes tracked, a senior executive at the firm told Carbon Pulse.

“Our big vision is to provide accepted and trusted infrastructure for planetary-scale, equitable restoration and preservation of nature, for both managed and pristine landscapes,” said Martin Stuchtey, founder and co-CEO of the Landbanking Group, who also founded environmental services provider Systemiq and was formerly a senior partner at McKinsey.

“The Landbanking Group aims to make it possible to invest into nature maintenance or nature improvement equivalents as a capital asset that you could put on your balance sheet, which can be intermediated by multiple financial institutions that operate with very high fiduciary standards,” he said.

MRV FIRST

Since launching in Apr. 2022, the Landbanking Group has so far focused on providing MRV as a service to international agrifood chains, large infrastructure operators, and SMEs wanting to assess the health of parcels of land in their supply chains. To do so, it uses a combination of remote sensing technologies like lidar and radar, coupled with ground data, to generate predictive models that assess carbon, soil, water, and biodiversity for polygons of land.

“Today, the offering exists for moderate grass- and croplands, but soon we will cover tropical agro-forestry, moderate peatland and forests, tropical savannah grasslands, and so on. We have the aspiration to offer structured MRV across all biomes by 2025,” Stuchtey told Carbon Pulse.

The Landbanking Group doesn’t yet offer MRV for marine environments but has ambition to do so, with kelp production and mangroves likely areas of focus, given its experience in remote sensing.

MRV clients receive quarterly, semi-annual, or annual datasets to help inform them about how they can fund nature assets in a way that is balance sheet grade.

To date, the Germany-based company provides an MRV service and natural capital accounts to 15 clients including a wine brand, retailer, food and vegetable importer, coffee brand, construction company, and cosmetic brand, but ultimately intends to provide “real value through issuing balance-sheet grade nature service agreements between land stewards and nature capital investors,” Stuchtey said.

Buyers, including corporates and ecologically minded investors, can offer offtake agreements to suppliers of nature claims in a 1:1 relation or by a diversified risk portfolio. All claims are stored in the Landbanking Group depositary, where they are traced, valued, transacted, and settled, all backed by financial market licenses.

“Currently, it’s particularly the buyers who pay us the MRV fee, until we have seen some nature uplift and some nature assets have been exchanged, and then we have a holding and a transaction fee for an asset, which makes us a company that predominantly earns money from verified nature improvement,” he said.

FIRST UPLIFT

The Landbanking Group is two months away from delivering the first water holding capacity uplift in a South African winery, which will be verified by its MRV and accounted for on its nature asset management platform, where providers of natural capital such as farmers can enter into bilateral transactions with buyers of natural capital like agricultural corporations.

Verifying nature uplift takes time because it reflects the pace of ecological cycles in the natural world, which vary between a quarter to several years, said Stuchtey.

Examples of nature uplift could be one cubic metre of water holding capacity above the wilting point on a hectare of land, the number of pollinators in a certain area, or ecosystem intactness for conservation areas. Once the uplift is verifiably delivered through MRV, then the payment is made from the buyer of the nature asset to the provider.

“Currently, we are being rewarded for structured MRV. Later on, most of our income will shift towards transaction and holding fees for verified nature assets,” said Stuchtey.

The Landbanking Group has currently verified natural assets for about 20,000 hectares worldwide with MRV and 1,500 hectares under nature asset management. By the end of the year, it aims to have about a million hectares under MRV and about 5,000 hectares under asset management.

IN/OUT OF THE MONEY

A fundamental difference between the Landbanking Group model to reward nature positive assets and that of the conventional VCM is the former’s ability to use MRV to verify that the improvement has indeed occurred, and were that not the case, for the buyer’s natural capital account to be forfeited, according to Stuchtey.

“If a preservation or improvement equivalent has been confirmed, the asset is ‘in the money’, then you can use it as an asset and have it credited to your asset account. But if it breaks down because of bad practice, such as a drought or forest fire, then that asset is ’out of the money’ and your total stock of valid assets is reduced,” he said.

This fundamentally differs compared to “the business of today’s ‘ex-ante’ nature carbon projects where you’re making a forward commitment on an ecological outcome but then you are vulnerable if it has not been delivered,” he added.

In this way, the Landbanking Group approach challenges some of the conventions inherent to the VCM, in its ability to provide “balance-sheet grade credits” for nature assets that are validated through transparent, scalable, and repeatable MRV and with an ex-post payment structure, according to Stuchtey.

Developers of nature carbon projects tend to need extensive upfront capital as it may be years before they are issued with credits for verified outcomes against baselines, while also being required to build up a buffer of credits in reserve to guard against potential reversals.

Stuchtey maintained that the Landbanking Group approach to transacting nature positive assets is akin to how the global economy already functions and that large investors will therefore be comfortable with it.

POWER OF HINDSIGHT

The remote-sensing MRV used by the group also has the ability to assess five-to-10-year historic ecological performance, thereby enabling landowners to be rewarded for nature improvement activities of the past.

“It allows us to reward the ecological stocks and credit-worthiness of a land steward in a nature service agreement,” said Stuchtey.

For example, growers able to demonstrate improvement in carbon stock or water quality levels of their land over recent years could benefit from the ability to assess and value historical ecological performance, and could sell claims with respect to this historic activity.

MARKET RESPONSE

The nature asset model proposed by the Landbanking Group has been well received by buyers like agricultural corporates that seek a way to tackle the environmental impacts of their supply chain, known as ‘insetting’, which is growing increasingly popular in the market, said Stuchtey.

They like how they can put it on their balance sheet and use our infrastructure as a way to simplify the management of a multi-polygon problem, said Stuchtey.

In terms of the providers of nature assets, such as farmers, Stuchtey admits there can be greater scepticism, however, due to a lack of trust in the reliability of climate income programmes.

INSETTING

The concept of ‘insetting’ is gaining traction as companies seek ways to take credit for the positive action they take to clean up their value chains or Scope 3 emissions. It is particularly well recognised in agriculture-related supply chains, but is also applicable in other sectors.

The world’s two-largest carbon credit issuance bodies, Verra and Gold Standard, have work ongoing around insetting, and prefer to use the terminology Scope 3, or value chain interventions.

Likewise, in the emerging biodiversity credit market, some proponents advocate that corporations should primarily targets actions that reduce the nature footprint of their supply chain.

An arguable benefit to insetting as opposed to offsetting is that the former targets investments to decarbonise a company’s value chain, which is generally agreed to be more valuable on the mitigation hierarchy of corporate climate action.

But there is no guarantee that insetting presents a more credible approach than offsetting without robust oversight, some experts have pointed out, noting that clear guidance needs to be produced for insetting in order to avoid allegations of greenwashing and to quantify the exact impact of specific investments given the complexity of supply chains.

OUTCOME-BASED

Stuchtey maintained that, overall, there is a strong push in the conservation market to move from conventional donation-funded conservation towards outcome-based conservation, and to do so with a tool that works at large scales for broad landscapes.

The Landbanking Group has mostly worked with managed lands so far, such as farmland and wineries, but aims to expand into highly biodiverse conservation land too, so that no areas are off limits.

“Often managed land and conservation lands occur in the same area, so you need to have different ways to assess and reward those different sub-polygons,” and digital infrastructure offered by the Landbanking approach can be a way to do so, said Stuchtey.

By Bryony Collins – bryony@carbon-pulse.com

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