1. Carbon market investment
2. Sustainability finance partnership
3. Goldman Sachs carbon trading
Former Goldman Sachs managing director, Jim Bunch, is teaming up with law firm Linklaters and nonprofit Scope 3 Climate Capital to develop an alternative to carbon credits. The focus is on reducing private-sector reliance on carbon credits to meet net zero pledges. The product, known as a sector-transition acceleration contract (STAC), aims to reduce actual emissions in corporate supply chains. This direct transaction between companies and suppliers rewards emissions cuts and can be used as collateral. With the voluntary carbon market shrinking, efforts are being made to address risks and create legally defined financial instruments like STACs to aid decarbonization. Wall Street is also keen on monetizing corporate emissions reduction efforts.
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In a world where climate change is becoming an increasingly urgent issue, the way we approach carbon emissions is evolving. As buyers and sellers of carbon credits face challenges in a shrinking market, innovative solutions are emerging. One such solution comes from Jim Bunch, a former managing director at Goldman Sachs Group Inc., who has joined forces with law firm Linklaters and London nonprofit Scope 3 Climate Capital to develop an alternative to traditional carbon credits.
The focus of this new approach is on corporate supply chains, which often make up a significant portion of reported emissions. By targeting these emissions at the source, the group aims to reduce the reliance on carbon credits as a means to achieve net zero goals. Bunch, who co-founded climate consulting firm Impact Delta, believes that this shift in focus can help institutional investors address climate risks that traditional diversification strategies may not be able to mitigate.
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The product at the center of this initiative is called a sector-transition acceleration contract (STAC). Unlike carbon credits, which offset emissions through environmental projects, STACs facilitate direct transactions between companies and their suppliers. Companies using STACs incentivize their suppliers to reduce emissions by allocating funds earmarked for credits into escrow accounts, releasing them once specific climate milestones are met.
Alex Shopov, head of ESG structured finance at Linklaters, explains that they have leveraged structured finance and securitization techniques to create STAC certificates that suppliers can use as collateral with their banks. This innovative approach not only encourages emissions reductions in supply chains but also provides a tangible financial incentive for companies to take action.
The shift towards STACs comes at a time when the voluntary carbon market, where carbon credits are traded, is facing challenges. Controversies surrounding greenwashing and the integrity of carbon credits have led to a 22% decrease in the market size last year. In response, efforts are underway to address these risks and restore confidence in the market, including new guidelines from the US government and regulatory bodies.
Financial institutions like JPMorgan Chase & Co., Bank of America Corp., and Barclays Plc are actively exploring ways to monetize corporate emissions reductions, whether through carbon credits or other financial products. STACs are part of a broader trend towards developing legally defined financial instruments that support supply chain decarbonization efforts.
While STACs offer a promising alternative to carbon credits, there is still a role for traditional offsets in the transition to a low-carbon economy. Chris Perceval, a senior engagement director at S&P Global, emphasizes the importance of finding a balance between emissions reductions within supply chains and the potential for carbon removals as part of a comprehensive climate strategy.
In conclusion, the collaboration between Impact Delta, Linklaters, and Scope 3 Climate Capital represents a new approach to tackling emissions in corporate supply chains. By shifting the focus from carbon credits to direct emissions reductions, this initiative aims to create a more sustainable and transparent pathway to achieving net zero goals. As the world grapples with the challenges of climate change, innovative solutions like STACs are paving the way for a greener future.