Hi guys. Welcome to the Fintech Coffee Break. I’m your host, Isabelle Castro, and today I shared my coffee break with Jahed Momand, co-founder and general partner of Cerulean Ventures.
Cerulean Ventures is an investment firm that believes natural assets will unlock the next $50 trillion in growth while incentivizing the regeneration of Earth through new technologies with a particular focus on web three and blockchain.
We delve deep into the world of carbon credits and the climate crisis. And why decentralized financial tools have the potential to make an impact where ESG Investing is lacking.
Isabelle Castro – Hi, how are you doing?
Jahed Momand – Good. Good to see you again.
Isabelle – Yeah, good to see you, too. It’s been a while.
Jahed – Yeah, it’s been a few months. Right. A lot has happened.
Isabelle – Yeah, a lot has happened. So to start off, I want to know what gets you up in the morning?
Jahed – Oh, that’s a good question. I could say, my son maybe gets me up in the morning. And literally, I think, more figuratively, I do think just getting out there and meeting people who are trying to do something against the climate crisis with either open source tools or sometimes blockchains? or what have you. Aggregating capital for really important causes all that that gets me up in the morning? I love it. I do it every day.
Isabelle – Well, it is a good cause. I mean, it’s one of the biggest issues right now. Right? Why? When did you decide that this was what you wanted to focus your life on and kind of go into VC investment focus towards that?
Jahed – I think it was around the time, you know, I was working with a platform cooperative, a technology cooperative that was basically working on sharing the fruits of their labor with their cooperative platform with all the participants. And I just got to see really, you know, up close, what happens when you share the upside with the people who are also doing the work. And I was just thinking like, how do you actually start a VC fund that does this because cooperatives are really powerful, but they have problems with financing and a bunch of others for very obvious reasons, which we won’t get into.
Then I started to look around and say, like, who else is doing stuff like this? Who was experimenting in, you know, stakeholder incentives, stakeholder governance, and getting people to participate in big things by innovating on governance, and a lot of that stuff is happening in open source software and Web3 and what have you.
So for me, it ended up being an interesting, sort of final focus for me. And then the climate crisis is not only just a technical issue, it’s not a technological one. It’s a social and political one. And it’s a problem of coordinating large and small bodies of people to do things. And so that ended up being the clincher for me, I was like, well, if people are building new tools that help people coordinate around issues, incentivize people, and try to drive toward collective outcomes. Well, that seems like a good spot to focus investment on.
Isabelle – Yeah, absolutely. I agree. And so is that the reason why you focused on Web3 technologies? Because you already saw it there? Or what was the move to Web3?
Jahed – I think it was definitely that because it’s the opportunity for you to leave behind a little bit of the, like, financing baggage that cooperatives have. Because when you’re talking about you can… of course, this could change any day now, depending on how the United States and the SEC feel about it…. But basically, if you’re able to look at when design incentive systems around tokens, and accounting systems that basically say, you know, what do we value? How do we value it? How does it how is value exchanged? With who, under what policies KYC? What have you? that I thought was a really fascinating idea. And I saw a lot of people experimenting with that. And both, I would say, we have for this audience to be clear, like 98%, bad experiments, things that if you’re just taking a minute to read history, there’s a reason even recent, and you could have avoided some really obvious mistakes.
But at the same time, I think there are some really interesting new innovations happening in incentivizing upside for hard coordination problems. And so that was really what made me think, yeah, this looks like an interesting place. Because essentially, not only on incentives, you can just do a lot with a data bus here that the infrastructure people are building for data, that data provision, and then you look at climate. Some of the climate problem is also a data problem. Like we literally don’t know a lot of things about biodiversity, biodiversity collapse, ocean health, the air quality. We know these things on a global level, it’s hard to know them on exactly like pinpointed local level and then also be able to tie value and outcomes to that. And so I think that’s really the problem with a lot of this stuff.
Isabelle – And so Web3, I mean, I remember your talk that you were talking about Web3 ability to kind of focus on the smallest scale. Let’s have a look at how that works, especially with regenerative, regenerative finance.
Jahed – Sure, I think like, you know, where does it have the most impact? Where can you kind of see it, there’s a number of places, there’s a lot of activity in the carbon markets. And I think, actually, this is a great time to talk about it too. Because, you know, like, I’m not sure if your listeners and Fintech Nexus might be paying attention to it or not. But just to the background, the context for this is that in the previous three to four weeks, there were a number of investigative journalism pieces that were focused on the, you know, if you want to know if you’re called fraud necessarily, this is a really difficult measurement problem, it’s actually a difficult scientific problem to say how much carbon did a tree capture. But then, in some instances, there are some things that you could say are approximate.
So for us, you know, we looked at this and said, this is actually a great opportunity. Because whether or not it’s fraud, there’s a situation here where you can use new technologies, not just Web3, we’re talking about things like, you know, new machine learning algorithms that can tie together, you know, soil data, Landsat data, flood risk, fire risk, and give you more of an accurate picture about what’s going on the ground with a new nature based solution, and, you know, plantation or what have you.
So for us, you know, looking at the carbon markets, there’s a lot of really obvious impacts here. And the impact is measured by how much net new supply of carbon credits that are being brought either on chain or to market, and power.
How are we building trust in those? How are we building monitoring technologies that can look at these things and incentivize actors on the ground to say, hey, are those trees still there? Right, Sounds funny, but that’s an actual thing that happens with the greenwashing in this market. So we were like, Hey, we planted a bunch of trees. I know, we went back 11 years later, and those trees are 90% are gone but the carbon has been sold.
So yeah. And so this is a real space where you can say, hey, what if instead of sending, you know a few people a few times a year with clipboards and measurements, and various verification verifiers, right, verifies your standards. So this is a very complicated space right here, our project developers, there are corporates who are purchasing things, there are standards owners, there are verifiers of those standards. It’s very fraught, right. But you know, the zooming out here, if you can automate some of this stuff successfully, even show it as a proof of concept. And then also, for the purchaser, say, Hey, here’s a, here’s a thing that represents the credit you purchased that with provenance that will be constantly updated with monitoring technologies that tell you if the thing happened or not. That’s a pretty interesting space to be in. So I think that’s where you can actually have a lot of impact by saying it’s not just about the blockchain, it’s about what you’re putting on and how and who are the parties that are in participating in that new generation of social facts. But with science, of course.
Isabelle – Yeah, Just to kind of like scale back a bit. A lot of your focus is on the carbon market. Why don’t you kind of give in layman’s terms, a kind of overview of what carbon markets are for our listeners, and how it differs to kind of carbon offsets or things like that?
Jahed – Definitely. Well, basically, the carbon market, you can say is basically made up of carbon offsets. So we’ll talk about a number of things.
A credit represents a tonne of carbon avoided. So basically, and the avoided it’s all in the avoided part. It could be that it was captured by a newly planted tree, it could be that it was captured by a tree that you kept around, avoided deforestation, that has a number of classifications.
And then, you know, I mentioned the parties to this market. There are the standards owner so I’m talking about people like Vera, gold standard. But the voluntary carbon market, there’s an entire other carbon market called the Global compliance market, which is approximately, I’d say 200 times bigger- much bigger. But both of them, they operate in somewhat similar ways. It’s just that at the end of the day, and one of them they’re heavily regulated and in the other they are not there kind of self policing.
And so going back to it, you have your standards owners, then you also have other people who are verifiers, they’re either employed directly by the standards owners, or that’s outsourced to a local group. So sometimes we’ve seen cooperatives, you know, community-based land trust people like that, who are on the ground who are employed to go and verify some of these things. And then you have corporations who are, you know, polluters, for the most part, who were interested in purchasing offsets credits to say, Hey, we are legally required, or, or not, we actually just had a commitment. And do we want to know how much we emit. No, that’s also a difficult thing to point is to figure out. And so because we claim that we have made it this much, we’re gonna buy this other amount of credits on the open market and the voluntary carbon market.
And then you have project developers, these are the people who build various projects of different types, there’s about four or five major types. So you can go out there, and you can turn, you can turn coal into biochar, there’s, there’s the that’s one of the major methodologies is basically how do we take our leftover burn stuff and capture it with put it somewhere where it can capture carbon and hopefully haven’t do it for a long time. That’s called Burn minutes. And then there are other folks who are using thing, there’s a group, there’s a number of groups working on something called enhanced rock weathering, which is just taking baths, all rocks, spreading them on fields, making them wet. And when they are wet, they absorb carbon dioxide, then we use those rocks to regenerate agricultural, basically, regenerative agriculture, farm, stuff like that.
And then what you can do is there’s also nature-based solutions, which is where all the controversy is right now, that’s pretty blunt, right? And so there’s a lot of variables there, too, you can do a monoculture, you can do a native indigenous culture, you can do a bunch of things here. And then there’s avoided deforestation, which basically you’re saying, Hey, there’s this national park, this crap tonne of trees here, we’re gonna protect them, we’re gonna make sure you don’t get cut down. And by doing that, they’re gonna capture this much carbon. And this is one of the things that’s being a little contentious, because this, this was the primary focus of that article, in some ways, because people, there’s a number of other providers in this supply chain, right, and there’s value chain of carbon, one of them. So one group that provides monitoring, reporting, and verification technologies. And so these, this is MRV. And there are a couple. They claim in these articles is that people were basically sitting, nobody’s incentivized to retract credits from the market. So when they observe things in satellites and go, Hey, because those trees aren’t there anymore. People are like, Hey, shut up, just move the polygon over here. And we’ll just pretend that the trees are still there. Right. So this is the activity at its worst, right? I’m not saying people did this, this is just like, you know, people wonder why the polygon has changed, right? And so I’m not accusing anyone in crimes here, just kind of a summary of summarising quickly, you know, go out there and read the Guardian posts and the original documents yourself, you’ll kind of see like, that’s kind of the picture that’s forming. Right? Yeah, those are the current market players. We’re not only concerned in the carbon markets is a lot more than carbon. That’s important. But that’s just kind of that carbon market burned down.
Isabelle – Yeah, because you guys are also I mean, refi regenerative finance is a big focus for you. And carbon markets kind of goes within that, right.
Jahed – I think like for us, you know, just to give you the regenerative finance thing, I don’t really know if this thing will be around in a year or so. This is a new movement. What it really is trying to do is make the economy pay its full rent, if you kind of put it that way. Right, because there are a lot of since we had the division into the public, private sphere of ownership, you know, property rights. There are large actors, states, there are other large actors, private landowners, and corporations what have you who have certain rights that right along with their property. The problem with that is that no one is really incentivized to have common ownership around the externalities that result from economic activity.
Of course, you can regulate them. Some are saying they’re not fair enough. You know, you’re in the EU, a lot of these things are regulated. But it’d be even better if you could build a system that does what a lot of the EU parliamentary members and all the folks who talked about circular economies would have you actually understood what are the inputs and outputs of the economy? And how do we make them illegible to not maybe you get a central actor, just a number of people who could say, hey, there’s a gigantic amount of plastic runoff in this part of the economy. Can we incentivize the creation of you know, a organisms that that remediated? Can we find funding for those things? Can we close that loop?
So regenerative finance is really all about saying, how do we make a more circular economy how do we price externalities and how We make sure that anyone who’s building products, taking them to market doing all the things that an economy does, pays for its full impact on the economy on the air we breathe on the freshwater, we are dependent on all that kind of stuff.
Isabelle – You mentioned the controversies. There’s obviously a lot going on in America as well against ESGs. Are you concerned about this? And how is this affecting what you do?
Jahed – I’m not terribly concerned about it. Because I think that like America? Yes, in some ways, it does like to set them it does make the weather as they say, right, like, it kind of sets the tone for the world in a lot of ways.
I think it’s going to catch up to ESG. Honestly, there’s just a small cabal of right wing. I don’t want to insult all of them. But there’s a small cabal of right wing servants, who are very, you know, he was scoring Ivani, as you would have.
Look, here’s the thing, I actually, in many ways agree with them. Because I think that if ESG movement is top down, led by capital only, it will not end up doing the things that should. And I think that’s a problem. However, I don’t think that any of the people who criticise this are doing it out of good faith. They’re not interested in reducing emissions, and they’re not interested in environmental degradation. They’re not interested in the biodiversity crisis, they just want to make sure that business can control on goes on, as usual. Right. So I basically don’t pay any of those criticisms of mine, because I don’t think they’re in good faith.
However, for people who are interested in in good faith critiques of ESG, there are plenty, right? Like one is that the G is maybe in my opinion, the most important one, and it is the least thought about, in my opinion, you know, when you start to look at the ESG frameworks out there, it’s like, oh, well, gee, like is your for the G and ESG? Is your is your board half? Right? Like, you know, and I would have, it’s like, it doesn’t really get at the core incentives of the principal agent problems of boards and companies like that, like you. And what I mean by this specifically, is that you’re seeing in the US, which is why I think the US I still have hope for it is very recently, they just basically made it illegal for you to sue board members directly for things like environmental degradation and labour rights abuses. That I think is really important, because it addresses the principal agent problem, you can’t just write it off, like, oh, yeah, whatever, like, let’s just go do that thing that everyone knows is bad. And I’m on the board, I don’t care, I’m shielded from the companies that are bound by limited liability.
So I think like, things like that are important. And, and I think that ESG, while maybe he’s having a bit of a crisis moment, I think it needs to change for sure. And I think he needs to focus more on incorporating more people with more voice and more. Not just voice like they need to be able to actually, for us, you know, as a fund, we think about net new demand, we think about net new supply, right for carbon credits, eco credits. And net new demand, are we originating? Are we making a clear case of trusted audible case for purchasing these credits, and when people come to them, or corporations come and do that.
The third one for us is really important when he talks about impact is, how much of that money goes to the hands of the people who are actually doing the work. And kind of going on a rant her but I’ll give you an an example. One of the major players in this space is South Pole. South Pole is a carbon project developer. And one of the biggest and there was a recent study done on I think it was a group mean, you can I can send you the right study for it afterwards. But they were looking at a project of South Poles, I believe in Paraguay. And in Paraguay, what they had done was basically they had issued something like 440 40 million credits or something for an avoided deforestation project. And when they went and kind of ran the numbers, I’m not going to get into the other controversies of the polygons when they just ran the numbers on like, what were the CO benefits co benefits is stuff like creating jobs for women biodiversity, increase all this kind of stuff. What were the CO benefits on the payments to the land owners and workers side of approximately half a billion dollars, that revenue that that project, but out about 110k went to the hands of the people on the ground. So we think that’s like a shame, right? Like, it’s just embarrassing.
So for us, we think that this is a key part of what we’re talking about here is making sure that there’s governance and economics, that right along with a lot of the systems that are being built here and with three and so we’re seeing better numbers than that, by the way on chains, through things like Tucan Protocol, Regen Network, all these other people who are, you know, actually closing deals with people like Microsoft. There, you’re seeing there something like 20% to 43% of the money and being able to handle the people who actually do the work, who have the land who are scraping together the people to do the nature based solutions themselves, right?
Isabelle – Yeah, no, I mean, everything that you guys do, and I remember seeing you talk as Barcelona, I was kind of very, very hopeful. After hearing what you said, and what there is a possibility to do. I know we don’t have that much time. So I’m just going to ask you a couple more questions. What’s one piece of advice that you have received that you would give to someone else?
Jahed – Oh, that’s a good one. You know, it’s funny. I think it goes back to one of your questions, and you’re like, why did you decide you want to focus your life on VC investment? Honestly, I haven’t. Who knows? Who knows if I’ll be doing this in 10 years. But I think like, one piece of advice that I give someone else, man, I’d say, like, always be open to always be able to change.
That’s been the one key thing in my life, right? Like when you say, Oh, you want to focus your life on this? And the other. I’m like, yeah, that’s, that’s right now, right in, I came to this from technology was working in Africa, you know, seven or 10 years. And then I was like, wait a minute, like, this isn’t the real problem, right. And if you are fortunate enough to the one piece of advice, I’ll give you that if you are fortunate to be born in a Western country, or one of these, you know, quote, unquote, developed countries, do not just go work for some technology company that, you know, moves numbers from one spreadsheet to another, or puts out another form solution or something, please, like we almost have, I’d say you have a responsibility to achieve something better than that for yourself.
And you know, climate right now is a really great place to be $35 billion of new funds raised in 2022, for earmarked for climate investment, there’s going to be an absolute tonne of new jobs a tonne of new interventions, we don’t know if this stuff is going to work. But why work on farms when you can, you know, a CRM is or something where you can actually do something like this, especially if you were lucky to be born and born and one of the places like the US or the you know, the UK, what have you like I was?
Isabelle – And I’m gonna end with a curveball question. Who do you admire the most? And why?
Jahed – Oh, crap for that. Question. Who do I admire the most? And why? Let me think about this one, who do I admire? Honestly? This is a hard one. You know, actually, I admire people who come from plenty and who realised that either they didn’t do anything to earn it, or that they should be doing, they should Blaze their own path.
So one person I think, too in this regard, one of my favourite people is a he was a late 19th century naturalist Peter Kropotkin. evolutionary biologist before there was one. And was he made really keen insights, discovered really keen insights on cooperation in biology and in amongst animals that persist to this day, he was born a prince, right. And in the, in the course of his life, he renounced all of his titles realised how absolutely British it is to be royal, and, and became a scientist and basically, worked in solidarity with people who were, you know, ostensively, not princely for the rest of his life.
I really admire that. People who have that kind of self-awareness, and reflexivity, And go, I’m not just going to talk about I’m going to do it. Right. I’m really honoured people like that.
Isabelle – I am with you on that one. How can people get a hold of you?
Jahed – You can find me on Twitter @againstutopia, and you can message me and ask me what it means. I’m happy to tell you what the Twitter handle means. But if you message me or what have you, and you can also find me on LinkedIn and your head moment. I do a lot of …Are we allowed to cuss on this podcast?
Isabelle – Yeah, sure.
Jahed – I do a lot of LinkedIn shitposting so you can see me there. I’ve been loving this very controversy if you find me there. So if you’re interested or curious, find me. They’re happy to chat with you.
Isabelle – Yeah, I follow you. And I enjoy your posts a lot. So thank you keep doing it. Awesome. All right. Well, thank you so much for your time. I really enjoyed our conversation.
Jahed – Yeah, as always.
Isabelle – As always, you can reach out and chat with me or my personal LinkedIn or Twitter at @IZYcastrowrites
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That’s it from me. Until next time, enjoy your downtime.
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