Carbon Forest
Nedbank bets on carbon market demand despite Copenhagen disappointments
Published: 31 March, 2010
INVESTMENT
South African banking group Nedbank has signed a multi-million dollar deal to launch a carbon credit scheme in Kenya. The project, which spans 200,000 hectares of dryland forest, is managed in conjunction with Wildlife Works Incorporated, an NGO, and aims to release 2.5m tonnes of carbon onto the carbon trading markets.
Nedbank will commit to buy carbon credits generated from the Kasigau Corridor project until 2026, with the credits made available for sale through Nedbank Capital, the group’s investment banking arm.
Kevin Whitfield, the bank’s head of carbon, says that the company hopes to demonstrate that sustainability can be a viable investment class, despite the brake on the development of carbon markets caused by the global economic downturn. “When the world blew itself up, consumption disappeared. Everyone that was generating, either in the steel space, the energy space or anywhere else, saw natural decline in demand, which then had a natural decline in the carbon market,” he says.
“As the world starts to come back online the pressures will be back to see constructive action to reduce those emissions.”
The failure to reach an agreement at the Copenhagen climate summit likewise hit the development of the markets. Without specific emissions targets being set at the conference in December, the carbon market is dependent on voluntary limits.
There was also little progress around the Reduced Emissions from Deforestation and Degradation in developing countries initiative, a UN programme to monetise the carbon stored in forests. “It was reconfirmed as an important component. It was reconfirmed that there’s going to be a pool of money put aside to address these issues in the short term, but I guess that’s like second or third prize,” Mr Whitfield says.
Even so, Nedbank believes that the asset class remains viable. “The margins aren’t as low as you’d think and we certainly didn’t find them unattractive,” Mr Whitfield says.
Projects have not gained traction because the organisations that run them have been unable to integrate a sustainable financing component, but the bank hopes that it can bring that to what is essentially an NGO project which has found sustainable employment for local communities as an incentive for protecting their forests. The bank has a pipeline of projects across the continent, and is now looking to formalise some of the relationships with the NGOs that execute projects, in order to have a base of expertise in social and environmental parts of the operation.
