ESG Investing

Tracking Growth in Forest-Based Carbon Offset Programs

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Carbon offset programs operate on the principle that reducing and removing carbon is a crucial step in mitigating and stopping climate change. Trees remain perhaps the most valuable ally in this fight due to their ability to absorb carbon dioxide, which is why several reforestation and restoration efforts are underway.

Nevertheless, the scale of the problem eclipses current efforts. Far more work is needed, including engaging with forest owners on private land and encouraging them to resist cutting trees down for profit. New startup NCX recently raised $50 million Series B funding with an aim to help meet the growing demand for forest-based carbon offset programs amid ESG shareholder activism.

Offsetting Carbon in Forests

A carbon offset is an activity that removes carbon from the air to balance emissions created by another activity. The net result is that the total amount of carbon in the air remains the same. Since trees absorb carbon, protecting and expanding forests is an ideal carbon offset.

For instance, companies looking for forest-based carbon offsets could pay the owners of forests on private land to maintain their trees rather than cutting them down for profit. Implementing this idea typically runs into two main issues:

  • It can be difficult to connect companies looking for carbon offsets with the owners of trees on private land. Many forests are maintained by small, private landowners, whereas forest-based carbon offset projects are typically run by large organizations, including governments and charities.
  • It can be particularly labor-intensive for individual holders of land to track the size of their tree populations. This may reduce some landowners’ incentive to participate in offset programs.

Tracking Trees via Startup Solutions

NCX created a digital marketplace that connects owners of forests on private land with companies looking to pay for carbon offsets. The payment amount depends on the forest conditions, such as age and species, but NCX says owners could receive roughly $600 per year per tree. Since landowners make about $10,000 for selling a tree for timber, it could take them roughly 17 years to break even for not cutting one down.

To make sure forest owners follow through, NCX uses satellite imagery to track the conditions of forest inventory in the United States. NCX charges a percentage of each transaction for the marketplace service. To date, NCX has reached agreements with 2,470 landowners across 4.3 million acres of land for forest carbon projects.

NCX created a digital marketplace that connects owners of forests on private land with companies looking to pay for carbon offsets.

Growing Demand for Carbon Offset Programs

NCX’s funding comes at a time of growing demand for voluntary carbon offset programs. Companies spent $320 million on these offsets in 2019, whereas demand more than tripled to $1 billion in 2021.

This growth came in spite of the pandemic’s impact on airlines and hotels. Many of these companies use carbon offset programs so that customers can donate to organizations that plant trees and balance the emissions from their trips. Individuals could also use apps such as offCents to track how much carbon they use during their daily life.

As part of this trend, two carbon-offset sustainable ETFs launched out of Europe in July 2021. HANetf S&P Global Clean Energy Select HANzero UCITS ETF (ZERO) and the Saturna Sustainable ESG Equity HANzero UCITS ETF (SESG) both put money toward projects that offset the total carbon generated by their investments. This allows them to still operate as a low-carbon ETF without restricting their investment options. These funds mark another logical step given the growth in demand for sustainable ETFs.

Notably, many companies and ETFs pay for these carbon offsets voluntarily. This could build evidence for the strength of ESG-centered shareholder activism that encourages companies to spend on these projects.

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