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Deutsche Bank and Coalition for Rainforest Nations Release White Paper on Nature-Based Sovereign Carbon

Following UNFCCC guidelines, REDD+ ‘sovereign’ carbon credits are generated by slowing and eventually reversing rainforest deforestation. Their purchase allows institutional investors and corporates to align their Net-Zero targets with the Paris Agreement

  • Through UNFCCC REDD+, multiple gigatonnes of nature-based carbon credits are generated annually, their sale has the potential to become a multi-billion-dollar market
  • Sovereign carbon offers co-benefits that come from reversing deforestation, such as biodiversity, progress toward meeting Sustainable Development Goals (SDGs), and climate equity for Indigenous Peoples, and Local Communities.

October 11, 2022 (London/Washington/Frankfurt) – Today, Deutsche Bank and the Coalition for Rainforest Nations released a white paper entitled, “UNFCCC REDD+ and the Power of Sovereign Carbon”. It aims to educate investors on how they can reverse deforestation at scale through the capital markets.

In a seminal 2019 report, the Intergovernmental Panel on Climate Change (IPCC) concluded that it is impossible to meet the Paris Agreement’s 1.5°C target without rainforests, as they are the largest land ecosystem removing carbon emissions globally. Reversing deforestation and forest degradation can save over 6 gigatonnes of carbon dioxide equivalent emissions, annually, versus an annual global emissions run rate of roughly 60 gigatonnes per year.

In their current form, the Voluntary Carbon Markets (VCM) have not been able to provide the necessary scale (they represent carbon credits equal to just 0.2% of global emissions), integrity (emissions reductions are not accounted for within the Paris Agreement), and transparency (carbon price and revenue allocation) required by institutional investors. Nor do they unlock the hundreds of billions of dollars needed each year to reverse global rainforest deforestation. Sovereign carbon is a new institutional asset class that seeks to bridge that gap, offering institutional investors and corporates the ability to reverse deforestation at scale, through Paris Agreement-Compliant carbon credits.

“Nature-based solutions have the potential to address some of our challenges with climate, biodiversity, and ensuring a ‘just’ transition. UNFCCC REDD+ sovereign carbon credit represents such an asset, evidencing carbon sequestration and supporting entire ecosystems, and thereby allowing capital to flow where it is most needed.” Claire Coustar, Global Head of ESG and Sustainable Finance, Deutsche Bank Investment Bank – Fixed Income and Currencies

The Article 6 rulebook drafted at COP26 in 2021 determined that countries may issue carbon credits under the framework of the Paris Agreement. In that context, sovereign credits are considered Internationally Transferred Mitigation Outcomes (ITMOs). UNFCCC REDD+ sovereign credits issued under Article 5 in the Paris Agreement, generated from 2021 onwards, are considered ITMOs. Those issued prior still work seamlessly with Paris Agreement national greenhouse gas accounting.

The Sovereign Carbon White Paper aims to:

  • Introduce sovereign carbon credits and highlight their institutional advantages over purely voluntary carbon offsets.
  • Educate financial markets about how sovereign credits can be purchased and used in a Paris Agreement-compliant manner.
  • Explain the biodiversity, poverty alleviation, and risk management benefits of sovereign carbon credits.

“Nature-based solutions are an important part of climate mitigation and adaptation. Without nature’s help, we won’t be able to combat climate change. The systemic value of nature must become an integral part of macroeconomic policy and incorporated into markets and business decision making.” Markus Müller, Private Bank ESG Chief Investment Officer (CIO) and Global Head of the CIO Office, Deutsche Bank

The potential dollar size of the market for sovereign carbon is in the multi-billion-dollar range, the white paper finds, as multiple-gigatons of carbon credits generated by the five REDD+ activities are available through the UNFCCC REDD+ system.

“Rainforest Nations need properly functioning markets if they are to continue their work saving forests. REDD+ sovereign carbon units have the capacity to transparently position institutional and corporate stakeholders on a faster route to climate neutrality while delivering immediate sustainable development dividends to the developing world.” Federica Bietta, Managing Director, Coalition for Rainforest Nations

“The billions necessary to reverse rainforest deforestation will only come from one source: the capital markets. Investors and corporates can use them to meet Paris Agreement targets and their Net-Zero plans.” Michael Mathres, Founding Partner, REDD+ Capital

The Coalition for Rainforest Nations welcomes institutional investors and corporates to learn more about purchase and trading of sovereign credits. Sovereign carbon will be the focus of several upcoming industry events -- in London, Washington, D.C. (at the IMF’s Annual Meeting), and at the Rainforest Pavilion in the UN Blue Zone at COP27 in Egypt.

For further information, contact: Info@rainforestcoalition.org

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