A $6 Billion Fund Manager Offers a Way to Boost Climate Spending

After 40 years of trading stocks, Richard Lawrence thinks he understands markets much better than many of the ecologists he frequently deals with these days.

The founder and chairman of Overlook Investments, which has $6 billion of properties under management, now spends a few of his time focused on raising money for tasks that offset co2 emissions. It’s part of a complex, de-centralized market where buyers can struggle to know if they’re getting a great offer.

Lawrence, 64, has created part of the service, something he calls the “Seller’s Pledge.” It’s a one-page, lawfully binding document that the purchaser and seller of a carbon offset would sign to determine how much the seller can make in revenue. It’s a reasonably simple step that might help include transparency and reinforce faith in a market that’s rapidly getting interested as a short-term method for some of the world’s greatest corporations to reduce the environmental impact of their carbon footprints.

“The planet needs a voluntary carbon market to work,” Lawrence said by phone recently from his house in Marin County, California. “Without trust, it’s not going to grow. With trust, it can make a significant effect.”

Carbon offsets have become a $300 million annual market for people and companies to pay to compensate for their carbon footprints. Each credit is supposed to be supported by activities that minimize emissions like forest preservation or the promo of cleaner-burning wood stoves. However, those tasks are so diverse that it’s hard for buyers to determine the value of carbon saved from various initiatives. It’s also unclear how much cash goes to the pollution-saving pursuit and just how much goes to the broker that sells the offset.

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Lawrence’s strategy could make that public. The Seller’s Promise obliges brokers to disclose the fees they take so that the buyer understands how much money is going to balanced out the activity and just how much is for the intermediary.

For Lawrence’s organization, Cool Impact, that’s a 9.87% charge, which it states goes to cover the costs of things like looking into jobs, payment processing, and administrative expenses. If the document were to become a market requirement, it might make a difference, stated Kyle Harrison, an analyst who covers the carbon offset market for BloombergNEF.

“This would create a much better data structure in the market,” he said. “The biggest shortage of the marketplace currently is transparency due to the fact that there’s little information on what an excellent price for a balanced out is.”

That added level of openness 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 countless heaps of carbon emissions in the coming years.

“There’s extremely plainly a correlation between openness and volumes,” Bill Winters, the chief executive officer of Standard Chartered Plc who likewise chairs a committee established by Mark Carney to examine and propose modifications to broaden the carbon-credit market, stated in an interview earlier this year. “When transparency goes up, expenses of dealing go down and volumes increase.”

Lawrence began focusing on the environmental crisis on top of his daily task of stock selecting about 13 years ago. With financing assistance from his friend Jeremy Grantham, co-founder of Boston-based cash manager GMO LLC, Lawrence, and his partner Dee began Proyecto Mirador, an initiative to develop more effective stoves in Honduras to reduce the quantity of wood being burned and smoke in the air.

Lawrence, later on, began offering the positive effect the stoves were having on the environment to people who wished to minimize their own emissions. Those credits have assisted fund the construction of more than 200,000 ranges in Honduras, Guatemala, and Nicaragua.

The Lawrences, later on, founded the non-profit Cool Impact to recognize jobs worldwide that they could confirm have an impact. Those jobs are mostly funded through the sale of carbon offsets. About a year ago, the need for the credits took off and Cool Impact has since begun a collaboration with American Airlines.

With the launch of the Seller’s Pledge, Lawrence wants to help avoid the worst impacts of climate change. And there’s an opportunity that the proposition could remove. Renat Heuberger, CEO of South Pole Group, a company that boasts the world’s biggest portfolio of carbon offset tasks, believes it seems like an excellent idea.

“You can have a broker in between increasing credits like insane,” Heuberger said. “This would eliminate the concept that something could be untransparent.”

While Heuberger said that circumstance is reasonably rare, he believes it could end up being more of a problem as demand for offsets grows.