Planet2050 – executive interview

In this interview, Lucas Zaehringer, CEO of Planet2050, speaks with Klaus Schinkel, Managing Director at Edison Group at the Sustainable Investment Conference at the Frankfurt School of Finance & Management. They discuss the shift from CO2 offsetting to investable carbon assets, how Planet2050 mobilises capital for carbon reduction and removal projects, and the European Commission’s plans to integrate permanent carbon removals into the EU Emissions Trading System. Finally, Lucas explains why Planet2050 is pursuing a direct listing to broaden investor access to the emerging carbon economy.

What does Planet2050 do, and how does its carbon finance platform work?

Lucas Zaehringer: Planet2050 aims to enable and finance a new generation of carbon projects that have the possibility to reduce emissions or capture carbon dioxide and remove it permanently. There’s a lot of growing demand for this type of asset from companies and governments, because there are new regulations and new policies, and companies also need better tools to reach their climate and net-zero targets. However, there’s a lack of financial providers that deeply understand the market that can provide new sources of capital to help these projects get started and scale, and that can give all types of investors access to the investment opportunity. That’s exactly what we do at Planet2050.

Concretely speaking, we source and originate projects, alone or with our partners. We bring them to our carbon finance platform, where we analyse them with due diligence and risk assessment. We select the best projects, with proper monitoring and understanding of the risks, and plan the investment proposal with them. Either we acquire the carbon credits with prepayment and resell them in the market, or we take an equity participation in the project developer or the companies themselves. That way, we provide capital and certainty of revenue, with carbon credits and carbon removals as a currency of exchange. So, in a way, we are working as a green asset manager – or a carbon bank, if you want – with a technology touch.

What is driving the evolution from CO2 offsets to investable carbon assets?

Lucas Zaehringer: I think the carbon markets overall are entering a new stage of maturity. Now we have price discovery, and we have new standards and methodologies which are science-based. We have new verification protocols to ensure that the impact is there – that tonnes have been avoided or removed. That’s simply something that didn’t really exist in a market that was mainly voluntary in nature back then.

For example, the European Commission proposed just two months ago to integrate permanent removals, which are one of the types of carbon assets we’re working with, into the ETS – the Emissions Trading [System] – which is the biggest carbon market in the world. This means that €50bn may be added to this market, which has already delivered a cumulative average growth of 320% over the past four years. So, we believe that with institutional participation, new standards and quality, and better guidance for companies to act, it’s a perfect time to participate.

How does Planet2050 respond to concerns about inconsistent quality, lack of transparency and companies using carbon credits instead of reducing their own emissions?

Lucas Zaehringer: I believe that quality and transparency should be the cornerstone of a well-functioning carbon market. It’s true that there have been a lot of issues with quality, with the difficulty of sometimes verifying the impact of projects that are far away around the globe. Frankly, there have also been standards that weren’t holding up to what an investment asset class should be. That’s still the case today: not every project has the same quality. That’s why you need expertise, you need data points and you need to do proper risk assessment and due diligence on any type of asset that you’re looking at, and that’s what we do at Planet2050.

We do have tools that we didn’t have in the past. Now we have technologies with real-time or near real-time satellite imagery monitoring. We have [Internet of Things] sensors that can tell us the temperature in a biochar kiln on the ground. We have AI algorithms and models that can verify the data that has been inputted. So, this is something quite new that helps to provide more transparency. We also have external companies, like risk and carbon rating agencies, that can give external endorsement of what is quality. And finally, the methodologies themselves and the carbon standards have evolved. They were maybe sometimes a little bit loose in the past; now, methodologies are very strict in what they require to be measured and verified.

So, that’s on the supply side – the quality of the projects themselves and the underlying credits. Moving to the demand side, it’s true that a lot of companies have wrongly used carbon credits in the past, partly, I would say, because of a lack of guidance. But the priority needs to remain clear. Carbon credits and removals are not a distraction; they’re an additional instrument in the toolkit to get to net zero. If you look at a lot of heavy industry, automotive companies, even the aviation or marine sectors, there are a lot of emissions that are very hard to abate, or that can only be abated at a very high cost. In this case, investing in removals makes sense. Actually, all net-zero companies will have to use removals to fully neutralise all the residual emissions they have or those that are simply too hard to abate.

Why might carbon assets be relevant for European investors?

Lucas Zaehringer: I do believe that carbon assets are the best and most exciting new asset class of our generation, compared to what emerged maybe 15 or 20 years ago, or in recent years. Why? First of all, because we’re doing something good for the planet, which I think everybody now realises is urgently needed. But it’s not a philanthropic or grant activity. It’s based on market dynamics, a business model that has [been] proven to work and demand that is now becoming predictable and is growing. Especially in Europe, we have the most ambitious policy and regulations, which support the ecosystem. For investors that want to look at profitable returns and impact, I do believe this emerging carbon asset class is a great addition to a portfolio.

What value does Planet2050 aim to add for investors, and why has it chosen a direct listing?

Lucas Zaehringer: First of all, I think the carbon market is complex. Not every investor understands it properly or knows what the right investment decisions are. Second, it’s not accessible. It’s mainly for a private class of institutional investors that are well equipped to enter this market, and that’s something we want to change: accessibility, making it simple and making it transparent.

The way we chose to do it is by going public with a direct listing. It’s a way to open the capital of our company from day one, so that everyday investors, but also institutional investors, can participate in the adventure and be shareholders of the company. What we’re building is a diversified portfolio of assets in order to benefit from the growth segments of different carbon assets but also to diversify the risk in the portfolio. And investors get access to this with one share, which is Planet2050.

Also, if we look at the climate challenge and the need for carbon finance to scale, we need a market that is liquid and has the possibility to scale. It also needs to hold up to the standards we need in the carbon market, meaning the strong regulation and oversight that the capital markets offer. So, transparency and openness are also at the core of what we do, and we hope it will greatly benefit the investors that join us and, eventually, the planet.

This transcript has been lightly edited for clarity and readability. Verbal fillers, false starts and minor repetitions have been removed from the interviewee’s responses only. Punctuation, spelling and formatting have also been standardised in line with Edison house style. No substantive changes have been made to the meaning of the discussion.