Voluntary offsetting, csr, and the sustainable supply chain

The Future of Corporate Thomas Houston
Senior Attorney

Social Responsibility (CSR) Thouston@bhfs.com
tel 310.500.4622

Investing in Carbon Projects

Special Role for REDD Projects?

Brownstein Hyatt Farber Schreck, LLP bhfs.com

Connecting Threatened Forests in Borneo, Indonesia


To Stock Exchanges & Carbon Traders


To US Energy Companies and Executives as
Investors


After 2010 Defeat of Cap & Trade in US and
Elsewhere, What Remains for CSR Investments?

 UN CDM Projects – Already Established Market
 Renewable Energy Projects (driven by RES standards
and standard Utility (rate based) investments
 Reduced Emission from Deforestation and
Degradation (REDD) Programs & Projects


Nature of the Problem: Where human emissions
come from

Figure 1[1]: (a) Global annual emissions of anthropogenic GHGs from 1970 to 2004.5. (b) Share of different
anthropogenic GHGs in total emissions in 2004 in terms of CO2equiv. (c) Share of different sectors in total
anthropogenic GHG emissions in 2004 in terms of CO2-e. (Forestry includes deforestation).


How does the world reduce emissions most
efficiently and economically?
 Economical opportunities (less than $40 per ton) to reduce emissions by key
sectors of the economy.

1: Total abatement opportunities under €40/t CO2e in 2030 (in Gt CO2e p.a.) Source: McKinsey, Vattenfall

The facts of deforestation

 30 million acres of gross deforestation
every year--area the size of England
 18 million acres net loss of forest annually
 Deforestation and land use change are
responsible for about 20% of global GHG
emissions--more than all forms of
transportation
 Brazil and Indonesia are by far the biggest
deforesters--China, India, and the U.S. are
net reforesters


McKinsey cost curve: purple areas represent emissions
from forestry and agriculture--without those reductions,
we’ll have to make more painful cuts
2020
* Global abatement cost curve, 2020
(up to costs of €60/t)
*
Cost of abatement
* € / ton CO2e

*
* * * * *
*
Abatement
By 2020:
potential
* • Forestry is 31% (~5.9 Gt) of global
Gt CO2e
abatement potential, and 41%
* (~5.5 Gt) of developing world
potential
* • Agriculture is 15% (~2.9 Gt) of
global abatement potential and
* 16% (~2.2 Gt) developing world
potential


REDD -- How to save the climate faster, cheaper,
and with more orangutans


Why now? -- Building Pressures On Companies
Despite Failure of Cap & Trade

 New Disclosures Required
 SEC Climate Change Reporting Requirements
 Stockholder Proxy Battles
 Investors Pressing for More Information
 CERES Socially Responsible & Green Investing
 PERS & STRS and National Association of Pension Funds


Building Pressures On Companies cont….

 Marketing & Advertising Competition
 Green Marketing
 Social Marketing
 Anti-competitor Marketing
 Cap & Trade Might Come Back Around or Cap & Tax,
Or EPA Cap & ?


Up & Downs to CSR Investing or Participation in
REDD (or other carbon forest) Projects


Key Criteria For Selecting REDD (or any carbon
forest) Project
 Governance
 Board of Directors that is led by For Profit and includes
 Investors
 Government Officials
 NGO or Project Manager
-- Clear Lines of Authority to Execute
 Transparency
 Verifiable and unquestioned carbon credits
 Only pay as credits verified annually
 National, Regional and Local Political approval and support
 Certification: Approval of Project by VCS or Equivalent UN
Program


What Type of REDD Projects to Support Currently

 Only VCS Certified Carbon Forest or REDD Projects
 Requires both methodology and project certification
 Sale of Credits only after post certification
 CCBA (Climate Community Biodiversity Alliance) Certification adds
additional value & Protection
 What about CDM carbon forest projects?


Future REDD programs

 UN working on REDD Project Standards
 May be a UN market established for REDD credits
 Current G to G REDD programs may evolve into
market based programs
 G to G programs could be used to help establish market based
REDD credits by taking “marketable” credits in return for grants
 Possible return of Cap & Trade?


Up & Downs of current CSR REDD Participation or
Investing in NGO controlled REDD (or other Carbon
Forest) Projects
Up Sides
Jump Starts Projects
 Noel Kempff Mercado
 G+ TNC (NGO)+ Private Utilities
 Ache Carbon Forest
 G + Floral Natural (NGO)+ Merrill Lynch

Initial Investors May Make Large Arbitrage Profit if Cap & Trade ever Comes

Down Sides
Lack of Follow Through Because No profit motive if Project Led by NGO
 Lack of Attention to Governance Issues
 Timidity in the face of Government or other corruption

Loss of Financial Support over time as Credits become questionable


Advantages of REDD Projects Led by For Profit
Companies
 Truer Negotiations re: CSR Investment
 For Profit Motive helps:
 Ensure realism
 Accuracy in cost and credits projections
 Accurate accounting of credits
 Provide backbone for standing up to governments


Importance of REDD Project Governance
& Organization

 Governing Body of REDD Project:
 Must be Led by For Profit Company with Voting Control
 Must include Representatives from
 National & Local Government
 Local forest tribe
 Investors
 May include NGO


Governance & Organization
Look Beyond Staffing Charts to Examine Governing Board


Flow Chart for VCS to Compliance Market


New Hope for Government to Government Carbon
Forest or REDD Models
 Traditional G to G capacity building or AID programs (Ineffective)
 Norway’s contingent $1 billion fund(s) for Brazil and Indonesia
 G to G not necessarily inconsistent with private financing for
carbon forest projects
 G investment to get ROR through carbon credits and sale of
credits into compliance market or later privatization of projects


Overview – Possible International Carbon Forestry
Fund for CSR Investors
 $1 billion Fund
 $5 to $10 per ton per carbon offset
 Trade VCS first and then transition into “compliance” or UN REDD
market
 Investors are major utilities with GHG emission reduction requirements
 Help jumpstart REDD projects
 Provide leadership & governance models
 Ensure that REDD projects withstand scrutiny and build for the future
 Spread the risks with multi projects in multiple jurisdictions
 ROR on investment and/or steady stream of “lower cost” carbon offset
credits


Criteria For Fund Are the Same As Good Corporate
Social Investment
 Governance
 Board of Directors that includes
 Investors
 Government Officials
 NGO or Project Manager
-- Clear Lines of Authority to Execute
 Transparency
 Verifiable and unquestioned carbon credits
 Only pay as credits verified annually
 National, Regional and Local Political approval and support
 Approval of Project by VCS or Equivalent
 Approval by UN or other Compliance Agency


Thank You

 For more information please contact:

Thomas Houston
Senior Attorney
Brownstein Hyatt Farber Schreck, LLP
Thouston@bhfs.com
tel 310.500.4622
www.bhfs.com


Voluntary offsetting, csr, and the sustainable supply chain

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