Emissions house of the year: Macquarie Group

It has been an interesting year for voluntary carbon, with some aggressive price moves across the sector alongside company balance sheets being squeezed by inflation and high energy prices. Although this has meant that some corporates have been less focused on the sector over this period, Macquarie Group has stood out as it continues building its voluntary carbon business, and focusing on the quality and integrity of the projects it backs, rather than supporting any project that comes to the market.

Andrew Gaballa, Macquarie Group

“There have been more questions than ever from corporate buyers around integrity this year, so we are trying to help clients in this regard by spending a lot more time originating primary projects with high degrees of project integrity, via due diligence and quality assessment,” says Andrew Gaballa, head of global carbon, origination, structuring and commodity sales, commodities and global markets, Macquarie Group. “This is in contrast to simply providing voluntary buyers with credits that may be out there from existing projects, which can present more risk to corporate buyers who may be retiring the credits than to traders.”

In April 2022, the S&P GSCI Nature-Based Global Emissions Offsets Index surged to $16, before losing most of its value to end up at under $2.

At the same time, many companies found they have less money to play with this year and concluded they might be better off delaying their carbon offsetting until a later date.

The energy transition process also appears to have played a role in this: companies may be less willing to voluntarily offset their carbon footprint if they know mandatory rules are just around the corner.

“Voluntary carbon has fairly low entry barriers and, because of that, we have seen the attempted registration of many poor-quality projects with Verra [a non-profit organisation that maintains a number of climate standards],” says Gaballa. “This has caused Verra to spend a lot of time scrutinising such projects, and has also created a backlog of projects waiting to be registered.”

Macquarie has been able to use its global footprint and deep knowledge of the markets to focus on projects that are really bringing value to the energy transition process.

“We have the full value chain: technical analysis, business development, sales, structured origination and trading/market risk management,” says Gaballa. “We also have an appetite for long-term capital so, in addition to the short-term positions others may be able to take, we can also be a lot more competitive in the mid- to long-term space.”

This allows Macquarie to be more creative when designing carbon trading solutions. Gaballa says the feedback from clients has been very good: “Because of our involvement and the level of scrutiny we apply to these projects, we have been getting positive feedback from clients.”

 

Northern Australia

One example of a carbon compliance project in which Macquarie has been investing heavily is a project to promote responsible indigenous environmental management in northern Australia. 

“When we take fairly large positions, we tend to try and look for methodologies that are part of nationally determined contributions [NDCs], because this gives us a really good structural position in the market,” says Gaballa. “In this case, the investment in northern Australia helps reduce the country’s NDC under the Paris Agreement on climate change.”

 

Household appliances

While most corporates look to nature-based credits when trying to offset the carbon-based footprint, Gaballa points out that focusing on household appliances can have a similar impact on emissions, as they reduce deforestation and social drudgery in the least developed countries.

As a result of this preference, pricing within the household appliances market has remained comparatively stable. This has placed Macquarie in a good position.

“We have a strong exposure to household appliances, and we have made a continued effort to build out this side of our business in the context of a quality voluntary portfolio. Of all the markets for offsetting carbon, household appliances is the only one in which we haven’t really seen pricing come off, so our focus on strengthening this business may be paying off,” says Gaballa.

 

Asian footprint

While the business for carbon trading is global, there have been some developments in the Asia-Pacific region this year, which have fed into Macquarie’s strength as a regional powerhouse.

Singapore, for example, has recently passed a bill to raise the level of carbon tax it applies to corporates, which increases the incentive for those on the market to offset their carbon emissions. At the same time, South Korea has been improving its emissions trading scheme, while the Malaysian government has said that carbon trading will start next year (initially in the state of Sarawak, but other regions could eventually follow).

“This represents a fantastic opportunity for Macquarie, and we’ll certainly be looking to work across all of these countries, and the entire region, in 2023,” says Gaballa.

Sponsored content