24 May 2022
Scaling Carbon Markets
Between September 2021 and March 2022 BeZero took on £17m of capital to build a global carbon ratings agency.
Our £2m seed round was led by Illuminate Financial, with Contrarian Ventures, and our £15m Series A was led by Molten Ventures, with Norrsken VC and Extantia also participating.
These investments, and our active board, have been invaluable to our progress to date.
Building a content-led product company, inventing a new risk language, and hiring the team to deliver it isn’t cheap and isn’t easy.
In the spirit of the transparency the market needs to grow, here are some of our reflections, the hurdles we face, and some insights into how we are delivering since launch.
Back in March - Focus on Ratings - we talked about how we had been refining our business model to bring a global carbon ratings agency to market.
Our philosophy for how to build carbon markets is very direct.
We believe that markets for ecosystem assets need to scale urgently, starting with carbon markets. The challenge is to make these instruments as recognizable as tradable assets, as measurable as financial securities, and as investable as other asset classes. Capital must flow into the environment at scale to deliver climate action.
Efficient financial markets allocate and manage risk based on effective price mechanisms, and this relies on access to credible information. The sooner we deliver new information rails that support all market participants and provide risk and ratings analytics for all sectors, the faster carbon markets can scale.
Carbon, as with all other markets for ecosystem services, requires a new risk language for this information flow.
This is extremely exciting, and the stakes couldn’t be higher. Linking conservation outcomes to prosperity and seeing the economy through the lens of ecosystem services is perhaps the biggest economic shift since the industrial revolution.
No other asset is or has been like it. We are at the birth of a whole new system of capital formation and wealth creation, positively geared to sustainable outcomes. The path ahead hasn’t been trodden.
Understanding ecosystem services spearheaded by today’s voluntary carbon market is not a one industry task. It requires a hybrid of policy-scientific-financial skills. All factors, macro and micro, absolute and relative, need to be considered.
The team to deliver information infrastructure products for this market must be fluent in all these skills, and they need a common language.
At BeZero, we see this as one big translation exercise. It requires careful fusion of the know-how of leading professionals and academics, turned into a new alphabet; then writing its dictionary, and finally setting about educating everyone on how to use it (internally and externally)...all at the same time.
There are many ways to set about building this infrastructure, and much needed companies in this space are starting to emerge. We are one.
The path we have chosen is based on our convictions for how to scale carbon markets:
Public-markets based rigour in processes;
Relentless transparency in methods and conclusions;
Promoting carbon ratings as a carbon-only assessment;
Going beyond binary issuance to see quality in probabilistic terms;
Being humble about the role of ratings as a credible opinion, not a source of ‘truth’;
Reinforcing the great work of accreditors while setting a minimum standard for assessment between them;
Incentivising developers towards a public disclosure agenda;
Investing in a multi-disciplinary team of experts;
Embracing a diversity of established and cutting-edge tools - from remote sensing to chemical testing to ground-truthing - while retaining a healthy scepticism for false precision or blinkered conclusions;
Encouraging users to embrace our competitors and use multiple data points;
Always being open to collaborate with carbon 1.0 market players but also wanting a seat at the table;
Focusing on an adoption-first go to market strategy;
Partnering with marketplaces and exchanges to bring ratings to consumers;
Collaborating across industry and academia to bring new products to market;
Building a culture of intellectual agency and honesty amongst our colleagues.
Success for us means unifying all market segments via credible, risk-based data and analytics with genuine research utility. The Voluntary Carbon Market’s (VCM) reputational issues stem from friction in the flow of credible information, not from maleficence. Actors need systems at their fingertips that allow them to operate with better insights, better risk tools, and so deliver better outcomes.
For everyone at BeZero (and we thank everyone for their tireless efforts), and no doubt everyone else dedicated to building carbon markets, this can all too often feel like sprinting a marathon.
We are market building in real time, and every market has its origin story…dating back from Thucydides all the way through to Keynes.
Perhaps the most common question we get asked by future investors, market players, potential clients, and almost everyone in the market is: “How will BeZero build confidence and credibility for the sector?”
Achieving this all starts with transparency.
Our criteria, methodology, and processes are and have always been public. We are a glass box.
A game-changer for the market was to make all our headline letter ratings and ratings summaries freely available via our website.
This means the VCM now has more than 230 (and growing) ratings data points, across all sectors and major accreditors, representing more than 50% of credits outstanding. In other words, market participants now have a risk reference point for more than one in every two credits circulating in the VCM.
Our subscription-based platform contains our full ratings assessments and analytics features. Scores of major enterprises across the carbon market value chain are signing up, or trial users of BeZero Carbon Markets, or hosting our ratings via API. We see the what as a service to the market, and the why as the added value we bring to our clients.
Maintaining and covering so many projects is thanks to the outstanding work of Dr Kirti Ramesh and her team of ratings analysts. They have been hard at it for more than 2 years. So unstandardised are the data, so heterogeneous the sciences, and so wide-ranging the data points, it takes the team anywhere from a few weeks to several months to rate a project. We have dozens on the go at once. And once live, our ratings are dynamic and require constant maintenance.
But time, as everyone that creates research knows, is no measure of acumen.
That’s why we are investing so deeply in data science, remote sensing and engineering systems, ground truthing networks, macro and micro-economic frameworks, leveraging academic reviews, and ensuring our analysts challenge each other via constant debate, to ensure collective agreement for every project we publish.
Much of our internal work is spent identifying the natural networks in our processes that benefit from automation or machine learning, and maximising the use of human capital to add analytical value.
We are not the finished article, nor will we ever be. This type of research has never been attempted before at this scale.
We are learning, listening to feedback, and improving our processes across data collection, data interrogation, different types of remote and ground analysis, ratings, risk reviews, and on-going monitoring.
After transparency, it’s all about the team…after all we are in the business of selling risk-based opinions.
BeZero has grown from 45 to 95 people since December and that number is still rising. These hires cover the multitude of areas we see as mission critical. To cover every sector, we need a wide range of specialisms, all talking a common language.
We are lucky to have more than 50 research and ratings analysts, most of whom are published researchers from universities, research institutes, governments, banks, commodity houses, or think tanks.
Outstanding professionals who have joined our ranks include:
Mani GV - our President - is a global pioneer in the credit ratings industry;
Camille - our CFO - applies Private Equity know-how to run our business;
Pascal - our CPO - joins from Standard & Poors to lead our product vision;
Gabs - our VP Commercial - left ICE to build our enterprise sales engine;
Louisa and Elena - our Directors of Research - lead our firmwide research council;
Dr Phil Platts - our Director of Earth Observation - blends field and remote sensing work with geostatistical modelling, having spent 15 years in conservation research.
Dr Niels Andela - Senior Remote Sensing Scientist - pioneered near-real time monitoring systems at NASA, and joins our growing team of remote sensing and geospatial experts.