ôThe carbon market is quite young,ö says Olivia Hartridge, the key architect of the Morgan Stanley Carbon Bank, a service the bank unveiled last week that is designed to assist clients who are seeking to become carbon neutral. ôBut the guys on our carbon trading team are practically ancient compared to others in the market.ö
Hartridge is referring as much to herself as her co-workers, as sheÆs a veteran who cut her teeth in the United KingdomÆs and European UnionÆs carbon trading regulatory system before joining the bank. While sheÆs based at Canary Wharf and commutes by bicycle, she says much of the team is scattered around the world now, with carbon expertise in Singapore, Tokyo and China, as well.
Although European corporations comprise a substantial proportion of the carbon bank's customers, the new service isnÆt just a Euro-centric idea; in Asia, it will likely appeal to Japanese, Singaporeans and Koreans, as well as Australians, albeit for different reasons.
Under the Kyoto Protocol, Japanese companies are already required to lessen their carbon footprints. Many South Koreans and Singaporeans expect their countries will be required to reduce their impact on the environment in the next upcoming treaty û perhaps as soon as 2012, so many in-the-know corporate citizens are trying to prepare for such expectations.
Meanwhile, in Australia, a country that like the US did not ratify the Kyoto Protocol, there are companies who feel they should take an extra step in attempting to be good green global corporate citizens, simply because their country did not ratify the programme, notes Hartridge.
So why turn to a bank? Hartridge explains that the regulated carbon credit market rarely draws complaints, itÆs the unregulated market that has come under attack in recent years. YouÆve probably heard of such criticisms û markets that sell credits for planting trees that die within a few years, or building dams that create more ecological havoc than they could ever hope to prevent. Hence the bank saw an opportunity in what it says is a dearth of quality service.
Morgan Stanley partnered with Det Norske Veritas (DNV), which is an international provider of emissions data certification. The new service provides both integrated carbon verification and offsetting capabilities in the voluntary market that are billed to be underpinned by standards as rigorous as any in the regulated market.
ôAlthough the regulated carbon market is based on environmentally effective and standardised procedures, it has been difficult for companies to find a high-quality, standards-based service to offset their emissions in the voluntary market,ö explains David Yarnold, executive vice president for Environmental Defence.
HereÆs how the programme works. Clients can compile their emissions inventory and calculate their carbon footprint by applying the monitoring standards of the Greenhouse Gas Protocol Initiative, which provides the accounting framework for many mandatory greenhouse gas programmes globally, including the EU Emissions Trading Scheme. DNV will then verify these emissions inventories and calculated carbon footprints. Morgan StanleyÆs commodities group then procures and cancels carbon credits equivalent to a clientÆs verified carbon footprint, in accordance to the standards of the Kyoto Protocol.
If youÆre inclined to stay active in the process, you can select your preferred sources of carbon credits. Carbon credits can be procured from various sources including from Morgan StanleyÆs own direct investments in emission reductions as well as those of MGM International, one of the carbon marketÆs largest developers of emission reduction projects. (Morgan Stanley last year acquired a 38% stake in MGM, so itÆs a logical partner.)However, Morgan Stanley doesn't invest in forestry products, due to such outstanding technical and legal problems.
Hartridge explains that for the bank, this product works like any other retail product. For example, Morgan Stanley takes on the risk of guaranteeing that the project it uses to offset the carbon footprint works out û so consumers arenÆt left worrying whether the actual verified emission reductions delivered by a project are less than those forecasted.
Ironically, for a green product, the analogy she uses to describe the other risks is one of a car manufacturer û Morgan Stanley takes on the design risk and the manufacturing woes of implementing a new low-carbon technology û and costs all that in, when determining the price of its service. (She was no doubt, talking about the design risk of creating some new-fangled, carbon neutral vehicle of the future.)
So the sales pitch goes: if you want to go green, and want to do it with the assurance of a regulated marketÆs standards in the unregulated market, Morgan Stanley is the place to turn. Indeed, clients utilising the service of the Morgan Stanley Carbon Bank will receive a ôcarbon zeroö certificate û hopefully on recycled paper û from Morgan Stanley and DNV.