Swiss-based trading house Mercuria is investing $500mn into a new nature-based solutions business as it seeks to step up its involvement in the fast-growing market for voluntary carbon offsets.
The new platform will fund projects that plant trees, prevent deforestation and support biodiversity and sustainable forest management.
“We think it is a good time to come in, to help the market mature,” said Mercuria chief executive Marco Dunand. “This market is complex.”
The initiative is part of a trend of trading houses becoming more involved in carbon markets — including the market for voluntary offsets, which are less centralised and less standardised than the formal compliance markets for carbon offsets.
Demand for voluntary offsets is expected to grow, as companies will need them to reach net zero targets. However, the sector has also suffered several controversies, including projects that did not work as intended.
The new investment platform, Silvania, will be funded by Mercuria and its founders, Marco Dunand and Daniel Jaeggi, with the initial $500mn capitalisation disbursed within the next five years.
The goal of the new business is to maximise climate impact, he added, either by storing carbon or by reducing emissions. Some but not all of its projects will generate carbon offsets.
Other trading houses have been expanding their carbon market trading activities as they seek to capitalise on the energy transition.
Trafigura launched a carbon trading desk two years ago and is building its investments into carbon removal projects ranging from Pakistan to Colombia.
Vitol, has been working in this area for more than 15 years and is also expanding in this area, uses its portfolio of carbon projects to offer offsets to customers buying its energy products.
First established as an oil trading company in 2004, Mercuria has diversified into gas, power, emissions and minerals.
The company has built up an asset base that ranges from biofuel refineries, to battery start-ups, to coal mines in Indonesia and South Africa.
The new nature-based business will work in a range of countries including the US, Peru, Brazil, New Zealand, Mexico and Australia. Some of Mercuria’s existing nature-based projects will be transferred to it.
However, some academics say nature-based solutions risk being greenwash if companies do not also do everything they can to reduce emissions.
“We don’t get any solutions from nature, unless we reduce our emissions drastically,” said Nathalie Seddon, professor of biodiversity at Oxford university and founder of the Nature-based Solutions Initiative. She points out that as the world becomes warmer, forests are at greater risk of producing emissions themselves, for example through wildfires or through desertification.
“If they [Mercuria] are continuing to invest in activities like coal mines that contribute to warming, it undermines their effort,” she added. “They could invest all this in these amazing projects, but by the end of the century it could go up in smoke.”
Mercuria said its energy transition strategy is to invest in all parts of the energy sector, including fossil fuels, while the transition is under way and that this new investment would accelerate the energy transition.
The company says it has already met a goal for more than 50 per cent of its investments to be in clean energy and transition projects by 2025.
Mercuria’s scope 1, 2 and 3 emissions were 2.3mn tonnes of carbon dioxide equivalent in 2021, down from 3.5mn tonnes in 2020. It derives about 3 per cent of its revenue from its coal mines.