Agreena, a Danish agtech start-up that sells carbon credits from farmers who transition to more regenerative farming practices, has joined a distributed ledger technology (DLT) test project that aims to incorporate tokenized assets into traditional financial instruments.
Under the auspices of the Danish Financial Supervisory Authority’s FT Lab, the initiative enables participating companies and institutions to test financial innovations in a regulatory sandbox.
Simon Haldrup, co-founder and chief executive officer of Agreena, says: “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 farmers raise funds to make a switch to regenerative practices.
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.
DLT financial instruments can make it easier for farmers to transition and for climate-conscious corporate buyers to access carbon credits. “Here we have an immutable ledger which gives you the tracker and proof point of green impact in itself,” Haldrup explains. “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. Agreena and its partners see this as an opportunity 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 licences in one EU state, such as Denmark, opens the door to efficiently – quickly and cheaply – 'passport' the licences to all the other EU states,” says Fritz Henglein, head of research at software firm Deon Digital and leader of the FT Lab project.
The project also includes BEC Financial Technologies, the University of Copenhagen’s Department of Computer Science, and Capital Market Partners.
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 characterized by low liquidity, low transparency, and a high degree of broker dependency,” says Agreena’s financial solutions director Rasmus Bjerre-Edberg who leads the project.
McKinsey & Company estimates the market for carbon credits will reach over US$50 billion by 2030, with nature-based solutions accounting for 65-85% of the total credit supply.
Agreena is one of the first platforms across Europe to facilitate the issuance and trading of carbon certificates for farmers. It is now operating in 14 countries, with 500,000 hectares under management.