Voluntary offsetting, csr, and the sustainable supply chain

bhfs.comBrownstein Hyatt Farber Schreck, LLP

The Future of Corporate Social Responsibility (CSR) Investing in Carbon Projects

Special Role for REDD Projects?

Thomas HoustonSenior Attorney [email protected] 310.500.4622


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) investmentsReduced Emission from Deforestation and

Degradation (REDD) Programs & Projects


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).

Nature of the Problem: Where human emissions come from


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

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.


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


By 2020:• Forestry is 31% (~5.9 Gt) of global

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

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Cost of abatement€ / ton CO2e

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Abatement potentialGt CO2e

Global abatement cost curve, 2020 (up to costs of €60/t)

2020

McKinsey cost curve: purple areas represent emissions from forestry and agriculture--without those reductions, we’ll have to make more painful cuts


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 InformationCERES Socially Responsible & Green Investing PERS & STRS and National Association of Pension Funds


Building Pressures On Companies cont….

Marketing & Advertising Competition Green MarketingSocial MarketingAnti-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) ProjectGovernance

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 creditsOnly pay as credits verified annually

National, Regional and Local Political approval and supportCertification: Approval of Project by VCS or Equivalent UN

Program


What Type of REDD Projects to Support Currently

Only VCS Certified Carbon Forest or REDD ProjectsRequires 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 creditsCurrent 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 grantsPossible return of Cap & Trade?


Up & Downs of current CSR REDD Participation or Investing in NGO controlled REDD (or other Carbon Forest) Projects Up SidesJump 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 SidesLack 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 & OrganizationLook 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 projectsG 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 [email protected] 310.500.4622 www.bhfs.com

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Voluntary offsetting, csr, and the sustainable supply chain

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