Bernardita Díaz
Chief Project Officer
Sustrend
/
Insight

Methodology Helps Monetize Environmental Assets

Wed, 02/22/2017 - 10:52

The environmental benefits of investing in clean and efficient energy technologies are known to industry players but the economic benefits are not always crystal clear. The potential reduction in energy costs from these technologies is often seen as the only economic benefit but there are other ways in which companies can capitalize. They only need to follow the correct protocols, according to Sustrend, a Chilean environmental consultancy.

The firm saw a business opportunity in helping companies capitalize on their environmental assets, which are all those investments and properties with the potential to decrease a company’s environmental impact while contributing to the further adoption of sustainable processes and technologies.

“Our company can evaluate these environmental assets and monetize them through already established guidelines, or design a specific methodology according to international standards,” says Bernardita Díaz, Chief Project Officer of Sustrend. “The UN has developed a wide range of technical methodologies to account for environmental assets in different sectors, including CO2 emissions reductions. For those processes that are not on the UN list, a new methodology must be designed, adapting the guidelines already established for a similar activity. Other methodologies can be found in international voluntary carbon markets, such as the Carbon Trade Exchange (CTX), and most are based on the Clean Development Mechanism (CDM), which is a mandatory requirement for becoming a recognized market. We also use these methodologies to monetize our clients’ environmental assets.”

Díaz see an important opportunity for Mexican companies to monetize environmental assets through the carbon tax, a mechanism that was introduced to Mexico in 2014 with an initial price of US$5 per ton of CO2e. But to get access to these resources, companies need to record their emissions reductions through a certified methodology, such as those developed by the CDM.

Sustrend’s first successful project was for the Chilean tire industry, specifically retreading, a process that prevents the disposal of useful materials in urban landfills and uses 50 percent less energy than producing a new tire, therefore reducing carbon emissions and waste. “We adapted the CDM methodology of plastic recycling to 191 the retreading process with the objective of recording its environmental impact reduction, allowing us to translate it into financial assets. Now, we are in the process of certifying our guidelines in Japan since it is impossible to monetize environmental assets and participate in voluntary carbon markets without a certification by a recognized international entity,” explains Díaz.

To determine the number of assets that can participate in these programs, Sustrend makes use of the International Financing Reporting Standards (IFRS), which are a standardized way to describe the financial performance of an entity and which enjoys broad international acceptance. “IFRS is a useful tool for Latin American countries willing to optimize their processes and make them transparent. IFRS requires players to declare their environmental assets and allows companies to obtain preferential interest rates from international banks that are in line with OECD standards, such as KfW or HSBC. These usually provide rates to sustainable projects that are 2 percent lower than for projects with a negative environmental impact. The final rates, however, depend on the sector and the policies of the bank,” she says.

All industrial processes involving recycling or revaluation of materials are candidates to participate in programs for the monetization of environmental assets. Sustrend also looks to point companies implementing energy- efficiency programs or new technologies toward creating a methodology, allowing them to monetize their environmental impact reductions. Renewable energy projects, for instance, produce environmental assets, a fact that is usually ignored by project developers and investors. “Our goal is to show renewable energy companies that including environmental assets in their financial status can represent different economic benefits, such as a reduction in the interest rates offered by international banks,” Díaz says