One To Watch: Belgrave Trust

Nicholas Martin Baily at the Wall Street Green Trading Summit

from on .

Hi my name is Nick Baily, and I’m one of the founders of The Belgrave Trust. First off, thanks to Peter Fusaro for again putting together an incredible conference, and for being an invaluable mentor and advisor over the past year.

We’re gathered here to talk about green trading. And I plan to do the same, though perhaps from a different perspective.

Bear with me, because before I start, I’d like to talk for a minute about that “other” green — money. Specifically, the world’s affluent.

Why talk about the affluent?

Did you know that the richest two percent of adults in the world control more than half the world’s wealth?

Did you know that top half of this group, the richest one percent — by themselves — account for over 40% of the world’s wealth?

The average carbon footprint of an American is about 2,000 times the carbon footprint of someone living in Chad. The average British person will emit as much carbon dioxide in a day as the average Kenyan emits in a year.

I’m sure you’ve heard that the top 20 percent of the world’s richest account for as much as 80 percent of the world’s greenhouse gas emissions. But did you know that just the top 7 percent of the world’s richest account for over half?

So even within the richest countries, it’s actually the wealthiest within those countries that make the largest contribution.

Now — I think everyone here can agree that global climate change may well be the great crisis of our time. That’s why we’re all here.

And I think we can all agree that meeting this challenge requires pulling together an unprecedented amount of resources.

So why go straight to the affluent? Becuse it’s precisely those who have had the most impact that have the means to create a solution.

Steven Pacala at the Princeton Environmental Institute says:

“It’s time to stop targeting countries, and start targeting people.The responsibiilty for emissions reductions does not travel with your national identity. It travels with your emissions, and your emissions go hand in hand with your income.”

We agree. It’s the relationship between affluence and emissions, and affluence and the resources to do something about it, that makes it essential to address this group head on.

It’s precisely why we created The Belgrave Trust as a way to live carbon neutral — the only service built to address the unique needs and values of this group.

But before I discuss those values, let’s talk a little bit about markets.

Retail markets, financial markets, and the market for carbon offsets.

Retail offsets services are hardly new. The market for retail carbon offsets has established players, and has been consistently tripling year over year. Consumer facing retail players are a notable component of this growth.

As we chart the future path of green trading markets, it’s interesting to note that no efficient financial market evolves without a significant retail component. This is as true in the market for offsets now as it was in the emerging market for municipal bonds in the past, and in the stock market before that.

Retail players in financial markets provide liquidity, stability, and the diversity that is essential for innovation and growth. We’ve seen repeatedly how regulatory uncertainty can destroy a market. While the voluntary market may seem like a sideshow just based on its size, its potential stability — and non-correlation to regulation may acount for an outsized, and positive, impact.

There’s been a lot of talk here about pending regulation. Now I don’t work on policy, or stay in a holiday in express last night. But I did grow up inside the beltway, and I know how fast things move down there.

As Bill Bumpers said eloquently yesterday, under the most ambitious scenario, the simple enaction of domestic cap and trade is medium term, and the landmarks are further out still. And lastly on this point, no cap and trade scheme I’ve seen has a cap of zero. For those that wish to reach carbon neutral status, the voluntary market will remain the only choice — for decades.

So, today outside of the compliance market we see four major groups developing:

1) The institutional financial players, traders, and speculators.

2) The corporate retirement market, as firms purchase offsets to address their core businesses, usually for marketing value.

3) And the down and mid-market retail players, which share several attributes.

- They’re typically non-diversified and fail to exploit market efficiencies. Often all their offsets come from a single project or schema.

- They’re typically transactional, for example let’s offset a plane flight, or a wedding.

- And they’re based on complicated, confusing, and time consuming sets of questions and surveys that lead to customer service inefficiencies.

4) We propose a fourth category. The high efficiency, comprehensive, sophisticated individual retail market geared towards high net worth individuals, and their staff, families, and contacts.

And just like no financial market is fully developed without retail, no retail market is fully evolved without a high end option.

We may view offsets as a commodity, many here trade them on commodity exchanges daily.

But traditionally even the most undifferentiated commodities have had a robust and vibrant high end option. I could name dozens of examples. Gasoline, or everyone’s favorite, coffee.

But how about we just consider drinking water — the most basic commodity of all — available at nearly every price point and level of customer service and brand imaging.

We started this project with direct original research, and focus groups with affluent consumers. Some could argue that the affluent are just interested in voluntary offsets to make a case against regulation. Based on what we’ve seen so far that’s not the case. We’d thought that many would only be interested in living carbon neutral if they could show it off, but in fact many of our users so far are anonymous.

What we did find as we talked to people, however, is that the affluent are deeply concerned about their legacy, and have sophisticated views towards social investment. If they are going to participate in tackling climate change on a personal level, they expect to be able to do it in a way that aligns with their values.

Based on this feedback, we founded The Belgrave Trust on three broad concepts: Ease through simplicity, innovation via markets, and strength from diversification.

The first concept, ease through simplicity, was in fact the genesis of the project. Have you ever tried to go online and calculate your carbon footprint? Have you been frustrated with how tedious it can be?

Does it matter if your BMW is a 325I or a 525I? Actually it doesn’t, they both have the exact same EPA figures for gas mileage. Does it matter how many miles a year you drive? Sure, but unless you can predict the future, there’s a little guessing involved.

We found that one of the biggest obstacles to going carbon neutral was the time and hassle it takes to calculate your carbon footprint. And we reject the “false accuracy” that comes from forcing participants to create a detailed profile that is based on loose guesses at best.

While the concept of a carbon footprint may be new, actuarial science and profiling is highly developed, and more accurate, than creating a profile based on a series of basic — and often irrelevant — questions.

There is a better way. Instead of asking people to dig out their utility bill or take a tape measure to the living room we ask a few basic pieces of lifestyle information to start, and use a profiling model based on actuarial principles. Even with just a handful of questions that people already know the answers to, we can estimate a carbon footprint in a way that’s actually more accurate — and most importantly, respects people’s limited time. More detailed options are also available for those that want it.

It’s a key change in values. We see the most important distinction as between doing nothing and bringing new people into living carbon neutral. Without making it simple and efficient this isn’t possible.

Similarly, by focusing on one’s entire life we make living carbon neutral a single point decision. By creating one whole-life profile, and making one subscription decision, our members are living carbon neutral all the time. Not just when they check a box while booking a flight.

We’ve also found that highly affluent households have unique attributes, many depend on staff to handle their affairs.

Their needs just aren’t being addressed. To take one simple example, most in this category travel via a mix of commercial and private jet travel. We’re the only carbon offset service that even recognizes this as an option when filling out a profile.

And whether their niche is yacht ownership or wine collecting, we’re the only ones that have a carbon footprint profile that can take this into account.

We believe in markets. Markets are global, and this is a global problem. We need innovation, the kind that only markets can deliver. And most of all, we need speed, this is a problem that needs to be addressed right now, and markets are responsive in near real-time.

On August 27, 1859, Edwin Drake struck oil in Pennsylvania and birthed the U.S. oil industry. In just weeks, dozens of other wells were in progress and by the turn of the century the oil industry was driving the course of history.

What drove this fundamental change was not the top-down command of authority, but spontaneous self-organization. Demand and the invisible hand move with lighting speed. At the time, oil was considered an environmental success story, hell it saved the whales, at the time near extinction as they were hunted to lamp oil.

So what does this have to do with providing carbon offsets to the affluent?

We believe that the same market-driven forces that got us into this situation can be equally powerful in bringing us to a new era.

It’s easy to be a pessimist, but we prefer to side with optimism and we believe that innovation, technology, and creativity, can ultimately move us beyond climate change. But, for markets to work there have to be incentives. Engaging this key group can help create those incentives.

We’ve created the only retail offset service with a diversified portfolio model as a founding value.

We found that the affluent instinctively understand the power of diversification to ensure that their contributions are being directed towards the most cutting edge and efficient emissions reductions.

It’s amazing that for all the sophistication in green trading gathered here — the retail market — still — is dominated by single source, unverified, or “feel good” offset certificates.

The offsets we retire on behalf for our members are “investment grade” and harness the capital markets. We diversify by region and project type, but we devote a significant minority to innovation projects, with riskier or harder to quantify prospects, but the chance of yielding paradigm changing solutions.

Diversification is a core value. We don’t have a staff of grad school interns flying to Costa Rica to take digital photos of trees for our blog. But we do use the power and innovation of the capital markets, and an advisory team with decades of experience in carbon trading, to intelligently allocate capital, create incentives, and spur innovation.

At root is a simple thesis — how can we have a robust voluntary market that really makes a difference — that drives innovation, harnesses markets, and efficiently directs resources — without addressing head on the one group that has the most involvement?

Is it really possible that the retail market has ignored the unique needs of its most important subgroup? Is it possible that in the retail space everyone’s been preaching to the choir? Targeting the Sierra Club members, those supporting conservation, and those already personally invested in climate change?

Is it really possible we’re ingoring a key group that can have a major impact right now?

Sadly it is.

Or rather, it was.

Despite incredible growth and all the attention, we believe that the retail offset market has yet to really reach out to its most important audience.

With the The Belgrave Trust, we’re doing just that, today. The Belgrave Trust was founded to serve a community that is traditionally relied upon for leadership in times of crisis. We hope you agree with our conclusions, share our faith in the continued importance of the individual voluntary market, and share our sense of urgency in engaging its most important segment.

Posted on October 17, 2009 · in USA