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BlackRock-Temasek partnership backs Carbon Direct $60m funding round

© Shutterstock / rafapressPhone showing BlackRock logo.

Carbon Direct announced it received $60 million in its latest funding round, led by the BlackRock and Temasek’s Decarbonization Partners and Quantum Energy Partners’ Innovation Fund. Funds will be used to expand the start-up’s end-to-end carbon management solutions.

Science-based carbon management start-up Carbon Direct receives $60 million in funding, led by BlackRock and Temasek’s joint Decarbonization Partners and Quantum Energy Partners’ Innovation Fund.

Including science in carbon management is key to assess the real-world impact of net zero strategies.

High-quality carbon accounting is critical to increase transparency and reduce potential for greenwashing in the financial sector.

Combination of science and market expertise to manage carbon footprint

The “science-first” carbon management firm and software provider Carbon Direct have received the backing of investment heavyweights BlackRock (NYSE:BLK) and Temasek through the firm’s new collaboration Decarbonization Partners.

The partnership, announced in April 2021, commits a combined $600 million in initial capital to invest in next generation private companies that provide solutions and technologies which accelerate global efforts to achieve net zero.

The fund will also raise third-party capital from investors who are committed to achieving net zero and obtaining long-term sustainable financial returns, with an overall fundraising target of US$1 billion.

Dr. Meghan Sharp, the global head of Decarbonization Partners said: “Carbon Direct, Inc. brings together a unique combination and software, enabling organisations to implement highly effective climate action at scale … we see a significant opportunity to build on the company’s strong existing momentum”.

The other main backer of Carbon Direct’s latest funding round is Quantum Energy Partners’ Innovation Fund, a global provider of private capital to the energy transition and decarbonisation sectors.

“Organisations will need to significantly change how they manage their carbon footprint in order to meet their climate goals… we believe the combination of science and market expertise uniquely positions Carbon Direct, Inc. to enable organisations to operationalise carbon management” said Jeffrey Harris who oversees Quantum’s Innovation Fund.

Backing emissions reduction goals with science

Carbon Direct taps into the expertise of over 30 carbon scientists to develop high-impact carbon management strategies for companies across different industries. Their team of scientists research and develop solutions to measure, reduce and remove carbon emissions in a company’s operations.

“We are excited to see the growth in net zero commitments from leading companies and governments as well as recent policy momentum. Without scientific expertise, carbon commitments will have far less impact than they could” explained Carbon Direct’s CEO Jonathan Goldberg.

One of the unique initiatives that Carbon Direct has led is developing criteria for high-quality carbon removal in partnership with Microsoft (NASDAQ:MSFT). The criteria aim to establish clear guidelines for accounting carbon removal to address issues in the carbon removal credits market like additionality, durability and leakage.

Assessing high-quality carbon removal projects is often difficult, as there is a large emergence of credits available and can often be used by companies as means to reduce their emissions on paper, without actually reducing emissions in reality. The voluntary carbon offset market is dominated by the world’s largest emitters, as pressure to establish net zero strategies is pushing high emitting companies to take action.

Assessing the effectiveness of carbon credits

However, not all carbon removal solutions and credits are the same and many do not have much real world impact on reducing carbon emissions. Establishing principles and methods to better assess the effectiveness of carbon removal credits is therefore key to bring intent to remove emissions in line with actual impact.

Carbon Direct claims that their work with Microsoft has delivered millions of durable tonnes of carbon removal for clients, and they have built a client list representing nearly 60% of the tonnes transacted in the voluntary carbon market in 2021.

Microsoft’s focus on carbon removal is in line with their strategy to go from carbon neutral to carbon negative by 2030. While Microsoft may be ahead of the pack in moving towards carbon negative, it may push more and more companies to follow suit as the company requires its supply chain to align with their sustainability principles.

As the voluntary carbon market and carbon removal market ramps up to meet the demand of corporate net zero strategies, it will be essential to scientifically assess if these solutions can actually reduce and remove carbon at the scale needed to achieve net zero.

As part of its criteria, Carbon Direct requires all projects to provide transparency on the methodology they use to calculate and monitor carbon emissions and the durability of their projects, and compare these against widely accepted carbon science. 

High-quality carbon accounting is needed to avoid greenwashing in finance sector

Financial services companies will play a significant role to drive the world to net zero, as investments – or lack of investment – in different sectors and technologies will determine the speed in which the world can deploy the solutions needed to get to net zero.

However, many banks and investment firms claim to be committed to net zero, while still heavily financing high emitting sectors like fossil fuels – which is often not taken into account when calculating a financial services company’s overall contribution to emissions.

If an investment firm has significant fossil fuel assets as part of its portfolio and tries to offset these emissions with a low-quality carbon removal credit, this could lead to more emissions, instead of less.

The need for high-quality carbon accounting backed by science is therefore critical to better measure and report on the current carbon emissions profile of financial institutions, while informing a strategy that is transparent to achieve net zero. Anyone can set a target, but it is the science behind this target and how a firm plans to achieve and report it that is actually important.

As Carbon Direct expands its offering thanks to its latest funding boost, how its big backers like BlackRock and Tesamek roll out the start-ups science-based carbon management in its own operations and to its clients will reveal how serious the firms are for developing impactful strategies to reduce and remove carbon emissions.

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