Fintech’s role in Paris Agreement success and restoration of nature at scale
According to the UNFCCC High-Level Climate Champions and the Marrakech Partnership Climate Action Pathways report published at the end of 2020, certain notable breakthroughs are moving key sectors closer to the 2050 zero emissions goal, in an attempt to avert the impact of climate change.
The report outlines the milestones required for limiting the global temperature rise to 1.5°C as per the 2015 Paris Agreement in the areas of energy, cities and other human settlements, industry, land use, oceans and coastal zones, transport, water and resilience.
In turn, this will provide a blueprint to coordinate climate ambition among cities, regions, businesses and investors in the run up to the UN Climate Change Conference in Glasgow in November 2021.
With a view that the restoration of nature at scale is crucial for the success of the goals highlighted in the Paris Agreement, emerging fintech Cultivo plans to deploy $1 billion into restoring at least 3.5 million hectares of land within the next five years, calling upon investors to utilise nature to protect biodiversity and capture CO2.
Dr Manuel Pinuela, co-founder and CEO of Cultivo, highlights how “nature-based solutions can provide at least 30% of the CO2 mitigation goals by 2030, yet receive only around 3% of the funding allocated to carbon capture.”
As a result, the fintech firm is on a mission to fill this “financing gap”, pushing the importance of natural restoration, carbon sequestration, and biodiversity protection.
Cultivo does this with “an innovative financing mechanism that connects financial institutions to NGOs and landowners in order to unlock investment into natural capital opportunities that restore nature, protect livelihoods, and deliver healthy financial returns to investors.”
The fintech uses proprietary algorithms and remote sensor technologies to identify high quality projects and forecast the natural capital returns, pooling investment products and providing financial institutions with a simple way to invest in sustainable projects, such as regenerative grazing or planting trees.
These generate carbon credits and other offsets that can be sold, providing a return to investors and a long-term reliable income stream to the landowners and local communities. One successful example involves startup TerViva.
Cultivo and TerViva are helping farmers finance the cultivation of pongamia, a tree crop used for thousands of years in Asian cultures. Pongamia produces oilseeds that have similar properties to soy and requires fewer chemical inputs, fixes nitrogen to regenerate soils, and sequesters carbon in the form of woody biomass. The proven sustainability benefits of pongamia can then be translated into carbon credits – this in turn creates a new revenue stream for the farmers.
Dr Pinuela says that “while the pipeline of nature-based solutions is large, one of the painpoints that institutions and corporations have is that it is difficult to find high quality projects.”
Defining what he means by high quality, he continues to say that natural capital should create a flow of ecosystem services, or “the ability to capture carbon and maintain biodiversity.” A distressed asset like a degraded forest, grassland or wetland must be considered, as the tonnes of CO2 captured, number of species protected, or amount of water captured could be substantial.
Therefore, fintech startups like Cultivo work with NGOs to connect financial institutions and landowners so that they understand whether their land can be restored using data. In the same way that all businesses now have a corporate responsibility to fight climate change consistent with the Paris Accord, there is no excuse for financial institutions not utilising sustainable data.
Dr Pinuela takes this one step further and states that while there is no excuse when considering the abundance and granularity of data available, humans are also on a tight deadline to restore the planet.
Alongside this, incremental changes such as planting trees are being made, but as Dr Pinuela explains, other landscapes need to be considered in line with the economic impact on rural communities.