Funding Nature: Profit-Oriented Ways To Protect Forests And Biodiversity

Eduardo: [00:00:00] In today’s episode, we have Michael Mathres. Michael is a world leading carbon market expert, and founder of FUND NATURE, an organization restoring nature, biodiversity, and ecosystems with finance currently bridging billions from the capital markets to stop and reverse deforestation globally. Michael, welcome. 

Michael: Thank you. Thank you for having me. 

Eduardo: Let’s start from the top. Talk to us a little bit about your journey and how did you get started? And how did you end up running initiatives to restore nature? 

Michael: Yeah. So I started in banking and I have an economics degree and then I wanted to apply my finance banking skills to restore nature and protect, nature and address the biggest problem that we’re facing our climate crisis. So I started doing this 20 years ago. I left UBS and that’s precisely what [00:01:00] I’ve been doing since then trying to figure out new business model new financial products so that we can raise and bridge the gap the trillions that we need to do all of that. 

Eduardo: FUND NATURE, Michael talk to us a little bit about what is FUND NATURE and what role does it play in this ecosystem of financing  nature?

Michael: FUND NATURE is trying to address the biggest problem. Right now, Which is the finance gap.

There is a huge multi-trillion dollar finance gap between the money that we currently have access to and the money that we need to effectively protect and restore nature. And unfortunately, people still think that conservation is not for profit exercise, it’s a philanthropic exercise, but actually it’s not. You have to value nature appropriately and correctly to be able to protect it. And that’s what we’re doing. We [00:02:00] act as the bridge between the capital markets where the money is and the nature markets, and for lack of better denominator, the first denominator is carbon.

And so carbon markets, we act as this bridge between the capital markets and the carbon markets. So that’s what we do. 

Eduardo: Well you mentioned an interesting concept of how do we go about pricing nature? There’s a lot of obviously services that nature provides to humanity, but pricing externalities has been traditionally such a problem.

How do you put a price on 

Michael: So that’s precisely why we’re focusing on carbon. Because that’s the one biggest externality that we haven’t properly addressed and internalized into our economy. The CO2, as you probably know there’s various models that you can use to properly address the price of carbon.

Many governments and [00:03:00] economists have come up with evaluation model. In the US, they use the social cost of carbon. In the UK they use the BEIS model from the department of business and industry. We have to realize that whenever you emit one ton of CO2 that price is somewhere around $80 to $160, based on the model that you use. And so you have to integrate that cost of pollution, that social and environmental cost of pollution into your economic model to properly address our climate crisis. And then of course with regards to biodiversity, it’s a little more complicated as you probably know, because biodiversity, by nature and no pun intended is diverse. And so it’s very, very difficult to apply a proper valuation model. At the moment we are working on valuing [00:04:00] one animal species, which is already hard enough and one insect species also within one country. And hopefully we’ll be able to demonstrate what those species mean in terms of economic value and then integrate it into project and carbon models that we have.

Eduardo: Deforestation has so many degrees of complexity and the whole system functions around deforestation right now. The economy of extraction, exploitation, and the fact that we’re valuing more the forest chopped and killed than a thriving one. This complexity has many, many levels.

From geopolitical, financing, knowledge transfer, local community involvement, overall market structure issues. How do we even get started with a problem like this?. 

Michael: It is highly complex when you look at it that way, it’s multidimensional, geopolitical, economic, socially, et cetera, et cetera.

But actually it comes down to [00:05:00] one thing and one thing only, and this is where even somebody has extreme as Bolsonaro would agree to it. And that you need to prove and value that a tree is worth much more standing than it’s being chopped down. Until you do that, then guess what Bolsonaro and all these other leaders from rain forest countries will chop them down.

That’s unfortunate, but they don’t have any other choices. And so we have to come up with a model, with a system, with a process whereby not only that you prove that the tree is worth much more standing up than chopped down, but that it’s constantly done in a sustainable way. That’s precisely what we’re doing at the moment.

I can almost guarantee you that if you gave Bolsonaro or the people in Brazil that are protecting the [00:06:00] rainforest $15, when they could get $10, chopping them down to grow soya or livestock, guess what? They will take the $15 and stop the deforestation. So that’s the economic incentive and pressure point that we’re working on.

And hopefully we’ll be able to demonstrate that with liquidity from the capital markets later this year. 

Eduardo: Michael I have heard numbers ranging from 400 billion to 700. Last night I was reading a paper by Global Canopy that nature protection and restoration can go up to 900 plus billion annually.

I was reading one of your articles in FUND NATURE and it mentions three problems associated with gathering the necessary funds. You mentioned knowledge and capital expended, are needed for nature based solutions. Second, the compilation of quality data and capital investment [00:07:00] across all sectors and all the major economies has proven challenging.

And then there are not enough financial institutions innovating, and creating new asset classes, and guarantees, and insurance, and creating attractive risk return products. Talk to us about how to tackle these problem.

Michael: Sure. firstly you’re correct. I think the three key problems and challenges are definitely the knowledge and education on the sort of capital that you need to be applied to nature. The compilation of data is a bit tricky because there are certain frameworks that provide enough data and there are some that don’t and I’ll explain that later. And then in terms of the financial institutions, it’s also correct. We don’t have enough investment bankers or bankers or central bankers that know how to innovate the current instruments that they have, whether it’s in debt or public or equity markets to apply it to nature.

This is why we are here. We are currently working at the moment, with one global investment bank to address all [00:08:00] these problems and to sort of translate a current existing product that is UN regulated. It’s called UN Red Plus into the financial and the capital markets language.

So we’re currently going through due diligence. It’s been four months now. But hopefully we will write a document or several documents that the capital markets will understand and that any investment banks or banks can present to either their clients or their institutional investors that they serve.

Eduardo: Most of funding today it’s under or around a hundred billion considering all sources. 

Michael: I cannot speak on behalf of all nature because that’s priceless.

But what we did was to try to evaluate one ecosystem, which is the rainforest. When we did our modeling and when we did our calculations, we came up with that number at a hundred billion dollars per year.

[00:09:00] And we can prove it. What’s important to note is that there’s two things: it doesn’t include the biodiversity value of the rainforest and it doesn’t include the soil sequestration of the rainforest. And as you probably know, if you chop down a tree in a rainforest, not only do you lose the carbon sequestration power of the tree, but more importantly, you lose the carbon sequestration power of the soil.

So what I’m trying to say is that the hundred billion dollar valuation per year is very, very conservative. And very, very minimal and discounted. I think you would have to use a multiplier of two to three. If you wanted to integrate both the biodiversity value and the soil value of the rainforest. 

Eduardo: Well, biodiversity in a sense, it’s invaluable. 

Michael: Of course, but you can always relate it to the economy of that country. We are currently [00:10:00] doing it for tigers for several reasons.

One is an endangered species and secondly, symbolically it’s the year of the tiger in Asia. And I’m also a tiger by the way. And so you have to show the country and the government, what that animal is worth. Otherwise they will just keep on killing them and poaching them, unfortunately.

You have to show why a tiger is worth much more when it’s alive rather than when it’s dead to the country’s economy, whether it’s in tourism and branding and the value that they add to the ecosystem, et cetera, et cetera, et cetera. So that’s what we’re working on at the moment when it comes to the biodiversity value.

Eduardo: Public funding is covering most, I believe of the restoration. Venture funding continues to be limited. I, I feel that there’s a lack of venture backable business models around nature.

 I saw John Kerry [00:11:00] say into Bloomberg, Hey, this investment needed is gonna have to come from private money because there isn’t just enough public sector money around the world. So what kind of capital do we need beyond carbon financing to make this work? 

Michael: Yeah, I would concur with John Kerry for once. Sometimes he says things that aren’t true and aren’t correct, but in this instance he is correct.

Look, if you want to bridge that gap, That finance gap of trillions of dollars per year, it can only come from one source and that’s the private markets. And that’s why we are addressing and we’re producing and sourcing and structuring products that are geared for the capital markets. First of all, historically, over the last 15, 20 years has it worked? No, look at the state we’re in. Deforestation Has risen by more than 20%. Carbon emissions have risen by more than 20%.

 It hasn’t worked. So you have to use a different model and you [00:12:00] have to target where the money is and the money is, guess what? In the private capital market. So that’s what we’re doing. I’ll just use one example, the debt markets are huge. We’re talking about trillions and trillions of dollars and you currently have, at least a trillion dollars in the debt markets that are a negative rates.

Why would you do that? It makes no economic sense with no financial returns for investors. When I can prove to you that, if you applied that money into the carbon markets and the nature markets… okay, I cannot guarantee you you’re going to make tons of money, but it will definitely be positive rather than negative.

So I think it’s a matter of shifting all these trillions that are misallocated and that are funding the wrong things to funding the right things. In this instance protecting our climate and, and restoring our nature. 

Eduardo: Let’s talk [00:13:00] about the bottleneck now to protect nature, we need mass adoption of these kind of solutions that you’re talking about.

Innovative financial products. And what I understand about the carbon markets today, both compliance on voluntary markets, go through this like severe bottleneck on the front end that really impedes scalability and speed. So how do we come around that?

Michael: Yeah, it’s a very good question. It’s the what I call the not the million dollar question, not the billion dollar question, but the trillion dollar question. That’s actually the amount that we need. We’ve done our due diligence on the carbon markets, both on the voluntary markets and the regulatory compliance markets.

I’ll just use a few numbers to explain the situation. Currently, if you look at the voluntary carbon markets, they only address 0.2% of the global emissions. Why? Well, let’s just say it’s between 40 and 50 gigatons of emissions are being released every year by humans. Either through consumption or production. Even [00:14:00] if you scaled that up by 10 times, it still would only address 2% of the problem. What we’re proposing is that you need to address the problem properly. Which is that you need to work with the countries and you need to work with what they have not with developing tens of thousands of projects locally in a country or, or many countries.

That’s where the bottlenecks are. If you want to unlock finance, you have to unlock finance at high level. Not from the bottom up, but from the top down just ask any global investment banks. Would they finance 10,000 projects? No, because they don’t have the people to look over 10,000 projects and doing the due diligence on 10,000 projects.

Can you provide, you know, billions to a country or countries? Yes. If the proper process is in place, the proper [00:15:00] parameters are in place. Then yes, that’s is possible. At the end of day, this is what they do in terms of sovereign debts. So how do you provide sovereign debt to a country? You look at the economy, you look at the assets that they have, you look at the risks, et cetera, et cetera.

Well, guess what, it’s the same for nature, and it’s the same for carbon. You look at the carbon that they have. This is why we’re using the UN Red Plus system, because it has a track record, it’s has results, and it has the right framework that you can translate into a financial speak so that any investor or banks would understand that it’s going through their correct due diligence, verification, and monitoring, and reporting so that anybody can see what has happened, if they invested or bought a carbon credit from the UN red plus.

 We call that concept [00:16:00] sovereign carbon and we will hopefully have a first document that explains sovereign carbon from an investor’s perspective later this year, hopefully first draft in September and then a full final draft by COP27 in Egypt. And then hopefully we’ll be able to make banks and investors understand what this product is about so that we can unlock the right amount of billions and trillions to address the climate crisis and the carbon markets.

Eduardo: Does this address only public lands, Michael? Is private land outside of this scope?

Michael: If I go to Congo, can I go into that country, find oil and I dig, into that land, wherever it is, whether it’s public or private, and then it becomes mine. And I don’t tell the government and I don’t go through the government.[00:17:00] The answer is no. You can’t do it anywhere. It doesn’t matter if you find gas oil in the US or Canada or Congo or Brazil or Indonesia.

It’s the same. You have to go to the government if you want to extract oil and gas. Well guess what? Carbon will be the same and it is becoming the same because it’s part of the country’s NDC national determined contribution to the Paris agreement. And so countries are waking up to the fact that it’s fine that the voluntary markets have proven that you can monetize carbon from A to Z by doing a project in that country, but ultimately it doesn’t address the country’s NDC and more importantly, the Paris agreement.

So that’s why you’re seeing a lot of moratoriums this year from countries such as Indonesia, Papua New Guinea, honduras [00:18:00] who have realized that they need to protect that asset, that carbon asset, so that if you did come into a country, you go through them and then you’re part of it. So to answer your question, everything belongs to the go. Whether it’s oil and gas or carbon, because it’s the country’s asset. And so you have to play with that asset. You have to understand that that’s how you play with that asset.

And that’s how you build that market and that’s how you scale up the money that’s necessary to protect that carbon within that country.

Eduardo: It does require I guess the establishment of new structures within governments?

Michael: People still don’t understand that there has been an agreement signed by 196 countries.

It’s called the Paris agreement. Every year, all these countries have to fulfill their NDC. If you’re not part of the NDC, then you’re part of a problem you’re outside of the NDC, which is where the voluntary carbon markets are. They’re outside. They’re not [00:19:00] inside the Paris agreement, they’re outside.

And so the structure is already in place. And I invite anyone to read the Paris agreement and especially article six, which basically states that any country now can be part of the carbon markets. They have the right to issue and trade carbon credits.

There is a structure in place. There is a process in place and those countries have the right to own their carbon and they have the right to issue carbon and trade them.

And that’s what we’re about. That’s what sovereign carbon is about.

Eduardo: Since we touched on Brazil earlier, let’s just go back to the Jair Bolsonaro case. He’s looking for compensation, right?

To protect the Amazon. Basically that’s what, we’re talking about here. So is he right?

Michael: Everybody’s bashing Brazil and rightly so and wrongly so. Let me explain Brazil before Bolsonaro actually did quite a good job at decelerating and [00:20:00] reversing deforestation within the Amazon. And then when Bolsonaro came into power, he looked at those numbers and then he was like, well, we did a good job and no one paid us so guess what? Let’s continue to deforest then get paid.

So until you reverse that model and provide the necessary capital to protect the rainforest and, and reverse deforestation, then you have to provide the right amount of capital. It seems so stupid, but it is it’s as stupid as simple as that.

I’m not Brazilian, I’m not Bolsonaro, but I can almost guarantee you that if you provide an amount of money that’s higher than the current amount of money that’s given to them to chop down their forest, they will not chop the tree down.

Eduardo: Well, we have another case right now in Congo. DRC is opening 27 blocks for drilling exploration and three blocks for gas. The country’s leadership is [00:21:00] obviously walking a very fine line between, Hey, what do I do?

I need to provide the means for livelihoods to improve, I have all this resources. But also we need to protect the natural capital. Why are billions of dollars not flowing into DRC right now? What what’s blocking it

Michael: Well, because we’re going through a massive economic transition where we’re trying to internalize carbon within a country and value it and sell it properly.

In the Congo case, in DRC case here is a typical example to show what has not worked. What was announced at COP26 in Glasgow and what still hasn’t worked. So let me explain at COP26, Boris Johnson, the UK government, and several other governments signed an agreement with the president of DRC and many other rainforest countries that said, yep, we’re gonna stop and reverse [00:22:00] deforestation.

And we’re going to commit to provide you with billions of dollars to do that. This was in November, 2021. Okay. So that’s nine months ago. Nothing has happened since then. I think those countries they’re tired of this and I understand them.

They’re tired of every year and at every COP, nothing is being done. It’s a political commitment that’s announced. It’s a typical PR exercise that’s announced at the COP, and then there’s no follow up.

There’s no one that’s leading it. And in the case of DRC, the minister of an environment presented the value of their rainforest to all the governments there and still it couldn’t get the attention of finance ministers to provide the right amounts of money to protect the Congo. There’s two things at play here.

One is that of course the president of DRC is not stupid. He wants to protect the rainforest. He knows [00:23:00] it’s an asset that he has, but at the same time, he wants to provoke people and he wants to say, listen, you’ve said this, you don’t do it. I have oil, I have gas. That I can sell immediately.

So guess what? I’ll do that instead. Until once again, somebody proves to the president of DRC that it’s worth much more to keep his rainforest up than down then it’s his right to, to provide these concessions to these horrible and dirty oil and gas companies.

Will he succeed? Will it be hard? Yes. But once again, if we came up with sovereign carbon and showed it to him, hopefully at COP27 and the capital markets start to put the money into the trees rather than into oil and gas. [00:24:00] Guess what? Those concessions will never come to exist. So I think it’s both a political and economic game that he’s playing.

I think he’s in a way right to do it. To wake people up and say, listen, if you don’t wanna provide me money to protect my rain forest, then guess what? I’m gonna chop that down and provide oil and gas to provide revenue, build my economy and make sure that my population is rightly served.

Eduardo: If you were to choose a geography, to focus efforts to begin having a significant impact which geographical regions would you choose to go for first and why? 

Michael: We only have one place and it’s earth the pale blue planet.

People speak in terms of geographies and so forth. No people have to start thinking about earth as ecosystem. There’s one ecosystem which is earth and then there’s several ecosystems within [00:25:00] earth that you need to protect the two biggest ones that provide our existence. And that we’re not paying for it, are rainforest, trees, vegetation, and the oceans every single day, we’re not paying for it.

And every single day we’re destroying it. And until you understand that you need to protect, in the worst case scenario, those two ecosystems, then not only all biodiversity around the world will die, but the human species will not be able to survive simply because the oceans will become hotter and warmer and more acidic.

And the land will not provide the oxygen and the soil that we need to sustain ourselves in terms of oxygen, air, and food. I don’t see the earth as geographies. I see the earth as ecosystem. [00:26:00] And one good example is the coalition for rainforest nations. The coalition for rainforest nations protects one ecosystem. In terms of oceans, we have to do the same. Of course there’s many countries that have more oceans than others. I mean, who knows that France, for example, is the largest owner of oceans around the world?

We need to get all these countries together. Call it the coalition for ocean nations and apply the same methods and same process to produce what the rainforest countries have done, which is the Red Plus mechanism.

We call it the blue plus right now, but we’re working on that. 

Eduardo: So in practical terms you have thousands of people doing projects locally.

How can everybody play in a scenario where sovereign is working and is adopted by governments?

Michael: Yeah, this is where the main tension is.

On one other hand, you have the volunteer markets with lots of [00:27:00] entrepreneurs and private project developers. And on the other, you have the country that wants to do the right thing for its NDC and for the Paris agreement. And that basically owns the carbon. If you think about it I think, those two worlds will merge. At the moment it’s much easier to fund the country, simply because all the mechanisms are in place and I’ll use the UN Red Plus as an example, but of course somebody has to do the work. Those two will fuse but it’s not that the sovereign carbon will come to the voluntary markets.

It’s more that the voluntary markets will go towards integrating themselves into the Paris agreement. Why not fund what already exists and make sure that that is financed properly and let the voluntary carbon markets figure it out themselves.

Eduardo: Is this a matter of creating legislation and law that, I mean, you have to come this way? 

Michael: At the end of the day, there’ll be 2 choices.

[00:28:00] One choice is already being put into place. And the other way to go is just to say, if you don’t understand that this is our, our carbon, then we’ll just ignore you.

And at one point you will become illegal. So either you do it correctly with us or you don’t. In the best case scenario, I think it requires the legislation so that people understand where the country stands on, on its carbon assets. But it doesn’t take a rocket scientist to understand what I just explained in terms of the oil and gas concession.

If you want to have a carbon concession, guess what you have to go through the government. I think people will understand that, and I think that will get rid of the current bottlenecks of sovereign carbon. 

Eduardo: Well, that sounds good.

Rapid five. First one top author or book. 

Michael: I have a confession to make. I’m not a big reader. And in fact, it’s not because I don’t love books it’s because I have a bit of an impediment. I’ve got [00:29:00] a bit of ADD so it’s hard for me to focus on, on a book. However, having said that, I can tell you that there was one book that I devoured and read from start to finish in literally a week or maybe a few weeks. And that was Nelson Mandela’s autobiography. It was so unreal what he had to go through that you wanted to read every page. 

Eduardo: What climate leader do you look up to or inspires you? 

Michael: Ooh. Wow. This is this is a tough one. I look at all the scientists.

I look up at all the scientists who work every day and every year to prove climate models and provide us the right data to make sure that what we’re saying is correct. Is there one climate scientist that I looked up to? James Hansen from NASA is probably the name that comes up off the top of my head.

Eduardo: If you had a magic wand, what would be the one thing you [00:30:00] will change or problem you will fix today?

Michael: It’s simple solve the, the climate and biodiversity crisis. And then I think we’ll all be fine. 

Eduardo: Who do you think we need to have in the podcast?

Michael: You should speak to Kevin Conrad the executive director of the coalition for rainforest nations. And he’s arguably the top, one of the top, negotiators in the world. So he knows that world, like the back of his hand because he’s done it for 15 years.

Eduardo: Number five and last one is, do you think we’ll make it? 

Michael: I’m an optimist. Otherwise I wouldn’t be here and I’ve been doing it for more than 15 years now. So there’s the pessimist in me that says, well, why do you keep on doing this when nothing works? At the end of the day, will earth still exist?

Yes. Will nature still exist? Yes. As a matter of making a concrete realization and concrete and conscious realization about what needs to be [00:31:00] done over the next five, 10 and 20 years. And if we do that, then I think we’ll make it. Yes. 

Eduardo: Great. Thanks so much for being with us today, Michael. 

Michael: Sure. No problem.