As asset owners and managers seek to reduce their carbon footprint, Northern Trust is working to spur the voluntary carbon credit market by connecting them digitally with projects that offer carbon credits.
Test drives of Northern Trust's digital carbon credit platform have been successful, and the first official transaction between institutional buyers and developers of carbon removal and avoidance projects is expected to go live later this year.
The digital platform uses private ledger digital blockchain technology to purchase tokenized carbon credits that can be used to offset carbon footprints. Northern Trust worked with institutional buyers and developers of carbon avoidance and removal projects, including Go Balance Ltd. and ReGen III, to develop it.
A key value of the platform is giving buyers transparency and confidence in those transactions, said Justin Chapman, Northern Trust's London-based global head of digital assets and financial markets.
"What the platform does is give transparency into that process. It is a bilateral due diligence process, and you still need to invest in your own level of governance. We add that level of robustness," Chapman said. By creating an institutional platform, "you get assurance that a credit is not being sold multiple times," he said.
Northern Trust, with $1.4 trillion in assets under management, also will be working to ensure that the right level and quality of carbon-offsetting projects are offered on the platform, he said.
Interest in the digital carbon credit platform so far has come mainly from large companies and asset managers, with demand from sovereign wealth funds and pension funds picking up, he said.
"Pension funds and corporates are really looking at the best way to capture (carbon). The answer for most of our clients is to get as close to net zero as possible. Those conversations have definitely picked up," Chapman said.
A market that is currently worth $2 billion could hit $50 billion by 2030, and $300 billion with sovereign wealth fund participation. "There's a huge interest in terms of the opportunity set," Chapman said.