Interview with Klimat X: "The market for CO2 certificates could increase tenfold by 2030"

Our approach is to develop solutions that generate CO2 certificates. There are primarily two ways to do this. Either we reforest forests or mangroves, or we protect them from deforestation. We do this in Sierra Leone, Ghana, Suriname and Mexico, which we consider our primary focus areas. But there are also cases where we combine our core business with agricultural projects. One example is our coconut water business, which in Guyana can be optimally combined with the protection and reforestation of forests. In this way, we generate additional income streams and positively impact locally by creating jobs, for instance. Particularly when we reforest projects that do not initially generate as many CO2 certificates, additional income streams help us to put the financing of individual projects on a solid footing.

That certainly happens. When we arrived in Suriname, the good reputation we had earned with our coconut plantation in Guyana had already preceded us. The decision-makers in Suriname wanted us to replicate this model and have an economic impact on the region. From this perspective, agricultural projects can certainly be a door opener. However, our core business, which also offers significantly higher returns, is with CO2 certificates.

We only operate in countries where we have strong roots and existing contacts. In Sierra Leone, we connected our activities to an existing sustainability project, making it easier to get started. In Yucatan, Mexico, a former colleague put us in touch with the Governor several years ago and then joined the team. We discussed their mangrove forests, and the officials were quickly convinced they had great potential in many ways. The advantage of our projects is that we can support all our claims with scientific arguments. It is essential to emphasize that carbon credit generation through forest management offers a compelling economic outlook. We can predict returns reasonably accurately.

There is, of course, the tangible economic benefit. In Sierra Leone, our involvement has resulted in direct investment worth a mid-double-digit million sum. This capital typically flows into rural areas that are very impoverished and has a significant impact there. Many people there live on less than one US dollar a day. If we put that into perspective, we can make a lot of difference with our projects. Once our projects have reached the break-even point, we give the surrounding communities an additional revenue share. This ensures that a long-term partnership is created.

Thanks to the market for CO2 certificates, which is projected to grow by a factor of 5 to 8 by 2030, according to a study by Shell and the Boston Consulting Group, new potential is emerging in these regions. Some studies even predict a tenfold increase in the market for CO2 certificates over the same period. We use our know-how in the management of forests and mangroves to generate CO2 certificates and benefit from this growth potential.

In addition to local economies and investors, the environment and climate also benefit: Mangroves can cope with rising sea levels and store large amounts of CO2 - around four times more than forests in Canada. Almost every major industrial company is looking for a partner like us. Since every CO2 certificate is an important contribution to global climate protection and we also have a positive impact locally, there are only winners in the Klimat X business model.

We have approached companies ourselves in the past and received positive feedback, particularly from the raw materials industry. The response from large tech companies has been somewhat slower. But the bottom line is that there is a lot of demand for CO2 certificates and projects in which companies can participate directly. Sixteen different companies submitted bids for our last project.

I expect interest to increase over time because the benefits are clear and as our first projects start to deliver credits. We ourselves also provide good arguments. We present our projects to potential customers in great detail and provide key figures and extensive data. We also focus on equipping our projects with sensors, for example, to monitor growth and other parameters even better. When the numbers are so evident and plausible, it is easy for any entrepreneur to decide in favor of a Klimat X project.

We would implement such a deal through an off-take agreement or a pre-purchase agreement and use projects in our pipeline. If customers want a certain amount of CO2 allowances and are willing to pay for them, we can guarantee that amount. We currently have 43 million metric tons of carbon credits in the pipeline and could accelerate the growth of our projects with investments of around an additional USD 15 million. In Sierra Leone, we have invested USD 2 million and collected USD 2.5 million through pre-purchase agreements. This investment generates annual revenues of USD 10 million. So, our business model is very robust, and we can also manage our growth well beyond that.

The best news for our shareholders is that we do not have to undertake equity financing to acquire our projects. Our customers, who receive CO2 certificates in return, provide the funds for this in advance. So, there is no unnecessary dilution of the share structure. Another important point to note is that Klimat X retains ownership of all its projects. We sell CO2 certificates that we generate thanks to the quality of the projects and their professional management. Certificates for which there are no buyers yet, we can sell on the free market. The CO2 prices there are rising continuously. These income streams also help us finance the further growth of our business.

We go into great detail and show potential customers the costs and the income side of the equation. We take into account machinery and their operating costs as well as costs for personnel and other expenses. On the revenue side, we have an ecological model that helps us accurately forecast growth and, thus, the return on CO2 certificates. Our customers are often surprised by how fact-based our business model is. The key differentiator here is our experience. We have all accumulated experience in forest management over many years. I myself, for example, played a role in making the 2010 Olympic Games in Vancouver CO2-neutral. Forest management has been based on science for many decades, and new technological possibilities are emerging in the wake of digitalization. When professionals manage forests to generate CO2 certificates, yields can now be planned in the long term just as they can in a modern factory.

From the beginning, it was important to us to have control and contribute 100% of our expertise. We also have complete flexibility this way. Large companies want to have an influence on which projects they support and which forests and plants are ultimately involved. Thanks to our direct involvement in projects, we can meet our customers' wishes in the best possible way.

In the market for CO2 certificates, it is not the demand that is decisive - this is significantly higher than the supply. Ultimately, it will be a matter of developing new projects to meet the demand, which, in my opinion, would justify even higher growth rates. We have the experience to manage large areas and have established fruitful contacts in attractive regions. We are a solid partner for companies looking to invest in CO2 certificates.

The largest provider is the unlisted Swiss company South Pole. They focus on advising on CO2 projects without a direct investment and operate worldwide with a large team. We deliberately keep the number of our advisors small and rely on external expertise where necessary. The only listed companies in our industry are streaming and royalty companies. This approach has worked well in recent years and has flushed large amounts of capital into the coffers of these companies. However, projects are so rare today that this business model has little chance of success. Those with suitable projects to offer today will quickly find partners willing to buy. The detour via streaming and royalty companies has become unnecessary. There are still companies, such as Imperative Global Partner and Permagen, whose business model is similar to ours, but they are not listed on the stock exchange. On the stock market, Klimat X is unique in its approach of directly investing in promising projects.

It is very positive that the continent is working together on climate issues and that there are investment commitments of USD 400 million. Such an initiative also benefits us and draws attention to a good cause. Beyond the announcements of political summits, however, actors are already taking action today. The commitment of companies that have announced their intention to become climate-neutral has achieved more in the past four to five years than in twenty years of negotiations within the United Nations. Two-thirds of all companies have yet to commit to carbon neutrality. So, the potential is enormous. Our figures show that investments in CO2 projects can be highly profitable and do not require subsidies. Many companies have already recognized this and want to collaborate with us. I am convinced that the market for CO2 certificates on the African continent and in all other regions of the world will gain momentum.

Things are a little different for us. We offer all our partners very fair framework conditions. Our influence on local economic structures and infrastructure is also positive. Regardless of this, the CO2 certificate business is very different from commodities. We do not exploit the Earth, and we do not export anything. Without us, no CO2 certificates would be generated, and no capital would flow into the respective project regions. It makes no sense to confiscate one of our CO2 projects because it would no longer generate CO2 certificates without our involvement. For these reasons, I consider the political risks significantly lower than in other sectors. Nevertheless, we analyze potential projects very carefully and remain true to our resolution that we will only operate in regions we know well.

We are an experienced team of biologists, experts in environmental projects, lawyers and bankers. For example, our Director Neil Passmore is a long-time investment banker and has worked for institutions like JP Morgan. Today, he is CEO of the investment bank Hannam & Partners. He helps bridge the gap between us and potential customers. Additionally, we work with individuals who have a deep understanding of the regions where we operate. For instance, Kevin Godlington, who currently manages our partners in Sierra Leone, played a role in stabilizing Sierra Leone years ago while serving in the British Army. We also have proven experts in Guyana and other Latin American countries in our team. In this constellation, we have already proven what we are capable of and are looking forward to future growth.

We are currently working on several projects in parallel and, at the same time, experiencing significant demand from potential customers. By the end of September, there could be news from our project in Suriname, followed by further developments regarding our property in Yucatan in the following weeks. We will also be upgrading our technology in the coming months and will report on this in due course.