Origination: Investing in early-stage projects to capitalise on future credits

Businesses around the world are getting serious about sustainability and setting real net-zero strategies. As part of these efforts, many are considering project origination as an potential option to balance unavoidable emissions. By identifying and developing new projects that can help to reduce emissions, businesses can make a significant contribution to the fight against climate change along with their own specific environmental and social goals.

If project origination - the process of identifying, developing, and proposing new projects that align with an organisation's strategic goals - is new to you, you are not alone. It’s a new concept for most but there are many reasons why businesses are considering it. The specific reasons why you might invest in project origination will vary depending on the organisation's unique circumstances and goals. However, the general benefits of project origination make it a worthwhile investment for many businesses.

This blog addresses common questions that Heads of Sustainability and climate champions may have about project origination and if it should be part of their

net-zero efforts

.

Origination is the process of creating new nature projects. Instead of buying credits from different projects each year, with origination collaborate with project developers throughout its lifetime. You may plant a new forest, protect an endangered peatland, or protect a new stretch of coast with mangroves. You will reap the carbon, social, and biodiversity benefits of the project as the plants grow.

When you buy carbon credits on the spot market, you are paying for climate action which already happened. For instance you may be paying for carbon captured by a growing forest in the previous year. While this method allows you to compensate for your present or past emissions, it gives you no guarantee of having access to affordable credits in the future, introducing a level of uncertainty in your climate strategy.

Origination allows you to finance a project from inception - a project which might not have happened otherwise. You may, for instance, plant a new forest or create a new protected area. You collaborate and have input on the project design, and you are then entitled to the resulting carbon credits as the trees grow over time. This is a longer investment horizon, but it also means de-risking your carbon pathway, leading at the forefront of climate action, and achieving much lower prices.

Origination is most suited to companies with medium-long term climate targets, which extend at least 5 years into the future, and who want to secure future access to discounted credits. Origination often involves paying for at least part of the credits several years before they are issued, so it also requires companies to have enough upfront liquidity to at least finance the initial project activities (sampling, soil preparation, planting, etc.). Typically investments are in the hundreds of thousands of dollars.

For shorter term targets and lower volumes, Earthly recommends its wide range of carbon credits projects available for

immediate purchase

.

Origination is also best suited to companies who want to align their carbon budget with their corporate values and sector by shaping the specific co-benefits to be prioritised. A university may decide to originate a project with outstanding education benefits; a restaurant chain might prioritise co-benefits such as soil health and nutrients; and a healthcare insurance company might maximise benefits such as water access and quality and increased access to health clinics. In this way, the company can optimise its CSR budget and be at the forefront of project development.

The main risk involved in origination is the risk of underperformance or non-delivery. The non-delivery risk, which is associated with medium-long term investments in natural assets exposed to physical risks such as fire, can be covered by insurance. If anything happens to the project (fires, floods, etc.) the totality of credits purchased, or the totality of the sum invested, is returned to the investor thus safeguarding the client’s investment and decarbonisation plans completely.

Like all Earthly projects, origination projects are

assessed under 106 indicators of quality for carbon, people, and biodiversity

to identify risk factors other than physical risks such as social and policy risks. Earthly’s minimum standards require projects to go beyond requirements set by international registries and best practice guidelines. This is in terms of both risk assessment and mitigation. By only accepting the

highest quality projects

(>95% of projects in the market do not meet our minimum criteria), we ensure the highest permanence and also safeguard completely against the reputational risk associated with investing in projects that do not prioritise the interest of indigenous people and biodiversity.