As the global imperative to tackle climate change and promote sustainability gains momentum, leaders such as the KPTL Forest & Climate Tech Fund (the KPTL Forest & Climate Tech Fund), led by a seasoned sustainability advocate, are playing a key role in promoting the transition to a greener, low-carbon and more equitable economy.
In an interview for MORFO 's white paper on The Future of Reforestation Carbon Credits, head of the KPTL Forest & Climate Tech Fund, Danilo Zelinski, a renowned figure in the investment industry, offers valuable advice to companies considering carbon credit investments, stressing the importance of prioritizing quality, long-term sustainability and social impact over cost. It highlights the transformative potential of technology and innovation to improve transparency, confidence and liquidity in the carbon credit market, thereby promoting a sustainable future for our planet.
Can you introduce yourself?
I've been an active player in the investment industry for the past 15 years, with a strong focus on sustainability and the transition to a low-carbon economy. During this experience, I spent a decade in BlackRock's Paris office, helping institutional investors align their efficient portfolios with the sustainability and carbon footprint reduction agenda. In 2020, I decided to take a more active role in the green and climate tech ecosystem and returned to Brazil as head of KPTL's sixth seed VC fund and first impact fund, the KPTL Forest & Climate Tech Fund. Our aim is to invest in companies that can accelerate the transition to a greener, low-carbon and more equitable economy. Since then, KPTL has been actively seeking out exciting technology to help humanity become more sustainable.
What is KTPL?
KPTL is one the pioneer firms in the Brazilian VC space, having made over 110 early-stage investments in the past two decades. With an entrepreneurial background, we take an active management approach, helping our investees achieve scale with profitability. We believe innovation drives progress and creates the future.
How do you get involved in carbon projects linked to reforestation?
As we focus on innovative solutions that will accelerate the transition towards a sustainable economy, we keep intricately close to reforestation projects, especially in Latin America. We talk to mainly two types of startups:
- Ones looking to improve the current reforestation methods’ operational inefficiencies (e.g., from AgroForestry Intelligence to bioeconomy, to solutions able to drive costs down and speed up the reforestation process).
- Ones with auxiliary solutions (verification, financing, management software, etc.).
Additionally, it is worth mentioning that one of our LPs, Fundo Vale, has a goal of recovering 100 thousand hectares by 2030, which provides us with an insider understanding of the hurdles related to reforestation and has been a true partner in our effort to understand the ecosystem.
What is your opinion on the current market of reforestation carbon credits?
Carbon Credit markets in Brazil are mostly focused on conservation, and for a good reason – Brazil is home to ⅓ of global rainforests. But to really capture carbon from the atmosphere, to protect water basins, and increase the capacity of forests to mitigate climate change we also need to look at restoration and reforestation.
The market for reforestation carbon credits is incredibly promising and complex. We see more and more companies understanding that simply buying credits to offset their emissions is not enough, and realizing that we have to rebuild the carbon sequestration areas we have destroyed while creating jobs and income for people around those areas if we are serious about our environmental awareness and global goals. This trend has significantly driven demand and increased the price of reforestation credits. But there is still a lot of room for improvement!
On the supply side, because of the industry’s freshness, we still note a high variability in reforestation projects’ quality, on top of the expected range related to each geography, soil, and other characteristics, which brings us to the need for rigorous standards and accreditation. Overall, it's a market filled with both opportunities and challenges, and gathering from our interactions with startups, there are some promising tech-based solutions that will tackle these obstacles to enable faster, cheaper, and more trustworthy reforestation projects.
What could be improved?
We have a large number of commitments from companies, investors, philanthropists, families and other organizations to reforest and restore degraded areas in Brazil and around the world. According to these commitments, tens of millions of hectares of forest should be restored in the coming years. This is great news - we have capital, brains and focus on this problem. But if the world is to achieve these goals, we need to find ways to reduce the cost, efficiency and speed of reforestation projects. If planting trees costs less, more projects will be financially viable and more hectares will actually be restored and reforested. And with the growing demand for reforestation, we'll need more tools to make it actually happen in the time frame society needs, with all the associated benefits that come with it. And seeds... if we're going to plant trees and forests on this scale, we need to make sure we have enough seeds to do so.
This will be achieved by investing in innovation and technology, and we still need to see more capital flowing to these solutions that will scale up reforestation with as strong social impact as possible.
As an investor in over 100 tech startups that benefit the environment and communities, what message would you like to convey to companies purchasing carbon credits?
When purchasing carbon credits, prioritize quality and long-term sustainability over cost. Investing in carbon credits is not just about offsetting emissions; it's also about contributing to sustainable development and biodiversity conservation. Look for projects that are thoroughly audited, transparent in their operations, and contribute positively to local communities. Remember, the goal isn't to buy the cheapest credits but to invest in projects that genuinely contribute to a sustainable future.
How much should a company spend on a high-quality reforestation credits?
The first thing a company should decide before buying reforestation carbon credits is “What is the impact we want to make? What is the story in which we want to be part of?”. Once that is settled, pricing becomes secondary. The main question becomes: is a project helping out a local community, promoting biodiversity, and making sure the trees they plant today are still there decades from now or is it just about planting as many trees as possible, with little regard for long-term survival or ecosystem health?
Then, it is all about choosing between the best projects that create the most sustainable and positive impact (considering location and social externalities, verification of trustworthiness, biodiversity, and survivability). When all is taken into consideration, the ratio of “money spent per unit of positive impact created” is far greater than the usual approach of picking the lowest price projects.
What makes a carbon credit free of greenwashing?
Carbon credits are not greenwashing proof. It depends on how the buyers use them as part of their net-zero implementation agenda and how they source it.
On the sourcing side, it’s all about whether buyers do their homework before spending vast amounts of money on unknown credits from unknown projects. The homework involves cross-checking the project's credentials and ensuring it contributes to a wider sustainable development cause, besides checking for additionality, permanence, and leakage. In a world where proper due diligence is made, there is no space for shady projects in the market. This would solve the greenwashing problems when well-intentioned buyers end up acquiring not-so-well-intentioned projects’ credits. When the buyer is not well-intentioned, the homework falls into the hands of third-party entities, which should verify and closely monitor the projects, providing transparent and checkable data throughout the project life for anyone interested.
Again, we do believe that technology can be transformative, by bringing more transparency, trust, and liquidity to the market, ensuring buyers and sellers understand additionality, quality and are able to verify what is actually being done on the ground, bringing more standardization (when possible), and decreasing costs for doing all the Due Diligence work. We have seen great projects and companies addressing those issues, and do believe the market is going in the right direction.
Would you recommend companies to invest in tokenized (i.e., NFT) carbon credits?
If it does bring a benefit to the buyers (liquidity for example), why not.
But as mentioned before, tokenized or not, before buying CC, investors and corporations have to do the proper sourcing and checking of carbon credits credentials and ensure good quality and credibility of the underlying projects.
