At a time of rapid evolution in both carbon and decentralised finance markets, enablers such as distributed ledger technology (DLT) and tokenisation are stepping in to offer service as part of the climate solution. Agreena has joined a cross-sectoral testing initiative under Denmark’s Financial Supervisory Authority (FSA) to take a first-mover position in the European DLT Pilot regime.
COPENHAGEN – Carbon farming scaleup Agreena is now stepping to the forefront of a synchronizing landscape – where climate meets fintech – to link its soil carbon certificates to novel smart financial instruments.
The company today announced its participation in a distributed ledger technology (DLT) partner test project, led by Deon Digital. Falling under the Danish FSA’s FT Lab, the initiative is one of the first of its kind to enter the new EU regime (DLT Pilot Regulation) which was adopted on 30 May 2022. The test project will lay the groundwork to create a “first” combined securities trading and settlement platform that will bridge tokenized assets to traditional financial instruments.
Agreena underlines the leadership of the Danish FSA to facilitate a safe space for the partner companies and institutions to test financial innovations in a regulatory sandbox, noting that real value and scaled mobilization occurs when enabling technology and regulatory compliance join forces.
“If we look backwards, where industries have had a sustainability makeover, it has often been pioneered and pulled to scale through the financial ecosystem,” says Simon Haldrup, co-founder and CEO of Agreena, “To scale the transition of agriculture to regenerative practices where soils can store carbon, it’s really important that we find ways to mobilize the wider financial institutions and ecosystem – whether it is banks, pension or insurance companies – to pull the weight in making that happen.”
One way to do that is to create the ability to issue and finance green bonds – which could help kickstart the finance needed for farmers to make a switch to regenerative practices which requires upfront investment. With Agreena, farmers are verified for actively performing a green transition, migrating to regenerative agriculture practices that reduce greenhouse gas emissions and turn soil into carbon sinks. The result is a third-party verified carbon certificate, equivalent to one tonne of CO2 removed from the atmosphere. But issuing bonds has high transaction costs, and it must fit into the structure of scale and efficiency of the transaction. This is where the technology steps in.
Enter DLT. Distributed ledger technology is essentially a way of keeping an efficient register that enables processes; blockchain is the most popularly known type of DLT. Building on the effect of the climate benefit, DLT financial instruments can make it easier for farmers to transition and for climate-conscious corporate buyers to get access to carbon credits.
“Here we have an immutable ledger which gives you the tracker and proof point of green impact in itself,” Haldrup exclaims. “And where we have a delineated digital asset that we can plug directly into the financing structures of the financial institutions.”
The DLT pilot project will be based on real-time high-performance software for financial infrastructure (securities registry, payments, contract state life-cycling, exchange/trading, regulatory reporting) platform for financial instruments. Agreena and project partners see this as an opportunity as a door-opener for the fintech solution to further accelerate the transition to a global green economy, particularly with carbon credits.
“A key aspect of EU financial regulation is passporting, which essentially means getting approval and licenses in one EU state, such as Denmark, opens the door to efficiently – quickly and cheaply – ‘passport’ the licenses to all the other EU states,” says Fritz Henglein, head of research of Deon Digital and leader of the FT Lab project, which also includes BEC Financial Technologies, the University of Copenhagen’s Department of Computer Science and Capital Market Partners.
Agreena’s financial solutions director Rasmus Bjerre-Edberg who leads the project says that beyond the potential for opening new financing tools and increasing automation, “The application of DLT provides a tremendous opportunity to serve as an enabler of the Voluntary Carbon Market, which is currently characterised by low liquidity, low transparency, and a high degree of broker dependency.” The technology solution offers means to address these market weaknesses. “In the near future, we hope to see the Voluntary Carbon Market regulated to the benefit of all market participants.”
McKinsey & Company estimates the market for carbon credits to be worth upward of $50B in 2030. “We see carbon as the currency of our climate future,” concludes Haldrup. And with nature-based solutions estimated to account for 65-85% of total credit supply – the future looks bright.
Founded by visionary agriculture and FinTech specialists and started as a digital trading platform intended to make grains trading more democratic and efficient, today Agreena is one of the first platforms across Europe to facilitate issuing and trading of carbon certificates for farmers and is now serving 14 countries, with 500,000 hectares under management. The AgreenaCarbon program follows the crop year and thus allows the farmers to reap the value of their climate efforts on an annual basis.
About Deon Digital and partners
Deon Digital is a high-tech international software technology and software development company specializing in advanced technology solutions and service digitalization for regulated financial services. Other partners in the test include:
- BEC Financial Technologies: a Danish full-service IT house
- Department of Computer Science at the University of Copenhagen: researches, develops and applies new fundamental knowledge in algorithms, programming languages and systems, machine learning, decentralised finance, etc.
- Capital Market Partners: a niche consultancy focused on the capital markets sector
About FT Lab
The FSA’s regulatory sandbox, FT Lab, aims to create a safe environment where companies can test new technologies and business models in the financial sector. Successful companies will be able to test their solution on a limited number of customers for a trial period of up to six months, within a framework set by the FSA. Companies will be subject to the applicable financial legislation at all times.