How increasing carbon prices present new opportunities in the market

Written by
Nicholas Hawkins
Table of Contents

The Problem

According to the World Meteorological Organisation (WMO), 2011-2020 was the warmest decade on record and with the world seeing the hottest month ever in July last year, it seems very likely that 2021 will rank as one of the 10 warmest years ever recorded. These “records” are disturbing and leading us down a disruptive path which could lead to the breakdown of global systems.

Two Trends colliding together

One solution to combat this change that’s been gaining traction around the world is the pricing of carbon emissions through mechanisms such as the EU ETS. The idea is simple: put a price on carbon pollution to account for impacts caused by increasing greenhouse gas GHG emissions. Recently, carbon prices in Europe have been reaching new highs due to an ambitious climate policy and increased financial investment in the market. As such, the cost of polluting in Europe is becoming increasingly more important with a recent market survey by Refinitiv showing that 63% of companies consider EU ETS as being a decisive factor in their investment decisions, a trend which will no doubt continue. With this recent catalyst, in an already quickly changing business world, it’s vital that companies keep on top of their business development strategy to not only remain competitive, but also ensure a sustainable future. 

So what opportunities present themselves? A recent report by McKinsey has outlined the importance of improved farming practices in reducing greenhouse gases. Furthermore, Considering that 50% of all habitable land is used for agriculture, and 23% of that is used for crops, the potential to absorb carbon is significant. This has led to a growing number of big corporations such as Patagonia, Nestle, and DSM to invest in regenerative agriculture, a conservation and rehabilitation approach that helps decarbonise food and farming systems. 

Technology Innovation

This trend has led to a whole ecosystem of tech players with innovative solutions to enter the market. Indigo Agriculture, a company that has raised $1.2B in funding, has created a software platform that brings together buyers and sellers of grain grown through regenerative practices. Farmers are also able to monetise regenerative practices through the sale of carbon credits, with Indigo stating that they already have a long list of corporate buyers such as Barclays, JPMorgan Chase, Dogfish Head Craft Brewery committed to buying verified carbon credits. Nori, a company that has raised $5m in funding, is another carbon marketplace that has teamed up with Truterra, a farmer insights platform and has Microsoft as one of their first buyers. Lastly, Rabobank and Microsoft have teamed up to create a marketplace to connect corporations with smallholder farmers through a partnership with Renature, a Dutch agroforestry company. These are just a few examples of a bustling sector that’s growing by the day.

Investment opportunities

So, whether it be through venture capital, partnerships or M&A, it’s clear that there are opportunities arising in the market that can help us combat climate change. However, seeing an opportunity and seizing an opportunity are two different things. Furthermore, factors such as globalisation, tight R&D budgets and the speed of innovation means that finding these opportunities is becoming more complex. It’s therefore important that companies wishing to remain ahead, implement proper scouting and market analysis, as passively waiting for companies is no longer an option. 

That’s where Venture IQ steps in. Through our big data platform and skilled team of analysts, we are able to take on the challenging task of sorting through a messy landscape of players across a wide range of sectors and organise the necessary information in a digestible manner. 

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Article written by
Nicholas Hawkins