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A $6 billion fund manager offers a way to boost climate spending

Lawrence later began selling the positive impact the stoves were having on the environment to people who wanted to reduce their own emissions - Representative image (Bloomberg)Premium
Lawrence later began selling the positive impact the stoves were having on the environment to people who wanted to reduce their own emissions - Representative image (Bloomberg)

  • Lawrence, 64, has come up with part of the solution, something he calls the 'Seller’s Pledge'
  • It’s a one-page, legally binding document that the buyer and seller of a carbon offset would sign to dictate how much the seller can make in profit

After 40 years of trading stocks, Richard Lawrence thinks he knows markets better than most of the environmentalists he often deals with these days.

The founder and chairman of Overlook Investments, which has $6 billion of assets under management, now spends some of his time focused on raising money for projects that offset carbon dioxide emissions. It’s part of a complex, de-centralized market where buyers can struggle to know if they’re getting a good deal.

Lawrence, 64, has come up with part of the solution, something he calls the “Seller’s Pledge." It’s a one-page, legally binding document that the buyer and seller of a carbon offset would sign to dictate how much the seller can make in profit. It’s a relatively simple step that could help add transparency and bolster faith in a market that’s rapidly gaining interest as a short-term way for some of the world’s biggest corporations to reduce the climate impact of their carbon footprints.“The planet needs a voluntary carbon market to work," Lawrence said by phone recently from his home in Marin County, California. “Without trust, it’s not going to grow. With trust, it can make a meaningful impact."

Carbon offsets have become a $300 million per year market for individuals and companies to pay to compensate for their carbon footprints. Each credit is supposed to be backed up by activities that reduce emissions like forest conservation or the promotion of cleaner-burning wood stoves. But those projects are so varied that it’s difficult for buyers to determine the value of carbon saved from different initiatives. It’s also not clear how much money actually goes to the pollution-saving pursuit and how much goes to the broker that sells the offset.

Lawrence’s plan could make that public. The Seller’s Pledge obliges brokers to disclose the fees they take so that the buyer knows how much money is going to the offset activity and how much is for the intermediary.

For Lawrence’s organization, Cool Effect, that’s a 9.87% fee, which it says goes to cover the costs of things like researching projects, payment processing and administrative costs. If the document were to become an industry standard, it could make a difference, said Kyle Harrison, an analyst who covers the carbon offset market for BloombergNEF.

“This would create a much better data foundation in the market," he said. “The biggest shortfall of the market currently is transparency because there’s little information on what a good price for an offset is."

That added level of transparency could help the market scale up at a time when companies such as Procter & Gamble Co., Delta Air Lines Inc. and Apple Inc. have said they will pay to offset millions of tons of carbon emissions in the coming years.

“There’s very clearly a correlation between transparency and volumes," Bill Winters, the chief executive officer of Standard Chartered Plc who also chairs a committee set up by Mark Carney to review and propose changes to expand the carbon-credit market, said in an interview earlier this year. “When transparency goes up, costs of dealing go down and volumes go up."

Lawrence started focusing on the climate crisis on top of his day job of stock picking about 13 years ago. With financing help from his friend Jeremy Grantham, co-founder of Boston-based money manager GMO LLC, Lawrence and his wife Dee started Proyecto Mirador, an initiative to build more efficient stoves in Honduras to cut down on the amount of wood being burned and smoke in the air.

Lawrence later began selling the positive impact the stoves were having on the environment to people who wanted to reduce their own emissions. Those credits have helped fund the construction of more than 200,000 stoves in Honduras, Guatemala and Nicaragua.The Lawrences later founded the non-profit Cool Effect to identify projects around the world that they could verify have an impact. Those projects are primarily funded through the sale of carbon offsets. About a year ago, demand for the credits took off and Cool Effect has since started a partnership with American Airlines.

With the launch of the Seller’s Pledge, Lawrence hopes to help prevent the worst effects of climate change. And there’s a chance that the proposal could take off. Renat Heuberger, CEO of South Pole Group, a company that boasts the world’s largest portfolio of carbon offset projects, thinks it sounds like a good idea.“You can have a broker in between marking up credits like crazy," Heuberger said. “This would take away the notion that something could be untransparent."While Heuberger said that situation is relatively rare, he thinks it could become more of a problem as demand for offsets grows.

This story has been published from a wire agency feed without modifications to the text.

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