BRIAN KENNY: Today on Cold Call, we’ll talk about something we all have, but many of us have no clue what it is. I’m speaking of a carbon footprint. It’s a term that helps to describe the total amount of greenhouse gases, primarily carbon dioxide, released into the atmosphere because of human activities that contribute to climate change. Your footprint includes emissions from things you do every day, like driving, heating your home, eating, and shopping. The average carbon footprint in the US is the equivalent of 16 metric tons of carbon dioxide, which is about three times the global average. The good news is that you can reduce your footprint by simply doing less of those things. But if that’s not an option and you want to make a big reduction fast, you can turn to carbon credits. Global carbon markets are valued at nearly $1 trillion and growing fast. As organizations and nations race to comply with carbon reduction goals, it’s a complicated and chaotic landscape. Today on Cold Call, we welcome Professor Mike Toffel and guest Duncan van Bergen to discuss the case, “Calyx Global: Rating Carbon Credits.” I’m your host Brian Kenny, and you’re listening to Cold Call on the HBR Podcast Network.
Mike Toffel’s research examines how companies are addressing climate change and other environmental and working condition issues. He’s also a fellow podcaster as creator and host of HBS’s Climate Rising. Mike, welcome.
MIKE TOFFEL: Thanks so much, Brian.
BRIAN KENNY: Haven’t had you on the show in a while. It’s great to have you back.
MIKE TOFFEL: It’s great to be here.
BRIAN KENNY: And today we’re really pleased to have the protagonist in our case, Duncan van Bergen, who is a co-founder at Calyx Global, who previously worked at Shell and McKinsey, and he is a graduate of Harvard Business School. Duncan, welcome.
DUNCAN VAN BERGEN: Thank you. Thanks so much for having me.
BRIAN KENNY: I felt like I had to explain carbon footprint at the outset because I don’t understand it, and I’m going to assume a lot of our listeners don’t either. I actually made an attempt to understand what my carbon footprint is, and I’m embarrassed to say that it’s not 16. It’s like 23.4, which to use a Boston slang term is wicked bad, I think.
MIKE TOFFEL: Yeah, it’s probably driven by flights, is my guess.
BRIAN KENNY: So today we’re going to talk about carbon credits and the carbon market, and Calyx is at the center of that discussion. It’s complicated, right Duncan?
DUNCAN VAN BERGEN: It can be a bit complicated, indeed. Yeah.
BRIAN KENNY: We’re going to get into some of the details of what makes it complicated, but Mike, I thought I would start with you. I always like to ask our faculty what inspires them to write a particular case and why they think it would make for a good discussion in the classroom. What was it about Calyx?
MIKE TOFFEL: Yeah, that’s a great question. The voluntary carbon markets is a really interesting space because when we think about the need for companies and countries to reduce their carbon footprint, we often will think about organizations making investments in-house to, for example, change their heating from natural gas to electrified heat pumps. And procuring renewable energy to power that, or other attempts like that. Those are certainly important. They also can take action in their products to make them more energy efficient, but at the same time, there’s lots of expensive items after they get through the first few. And so what carbon credits do is they give you the opportunity to pay others who have cheaper methods of reducing their carbon footprint, and then you get to claim credit for it. There’s a definite number of activists and other concerned people who don’t view this as equivalent in the carbon space. And part of that reason is that there’s been a number of scandals that have shown that those who are taking the action, whom you’re paying to reduce emissions, are not necessarily doing the calculations correctly, they’re exaggerating, or there’s efforts to reverse. Sometimes there’s a forest fire or there’s subsequent development that might take out some trees that you’d planted, that they’d planted on your behalf. And so there’s been some controversy around this.
One of the interesting arbiters of this to enter the market to try and help buyers figure out which of these carbon credits are more legit than others are carbon credit rating agencies. Calyx Global is at the center of that, along with a few other companies. And I met Duncan a few years ago at a HBS reunion where he sat on a panel that I moderated about climate change. And that was the first I’d really heard of this market. And the first I’d met Duncan, and subsequently I’ve met him and his colleagues and it’s a super interesting space.
BRIAN KENNY: Yeah. Duncan, let me turn to you for a minute, and I’d love to hear more about Calyx, about why you were involved in founding it and what were some of the things you were trying to solve by getting involved in this space?
DUNCAN VAN BERGEN: My co-founder, Donna Lee, and I basically came in our own very separate ways from a place of what I’d say is firsthand understanding of just how complicated it can be for a buyer of carbon credits. And a lot of the buyers are companies to know which credits actually deliver on the claims the credit makes. And just to get that out of the way, the core claim a carbon credit makes is that it stands for one metric ton, of removed or reduced emissions. Just like Mike explained, they buy this credit on the belief that, hey, it really stands for a ton, and I can compensate for a ton of my emissions for this one credit. And we knew firsthand, we had seen and lived firsthand, that it can be quite complicated to know which credits actually fulfill that claim and which don’t. And we both come from a place where our core assumption is that buyers want to have real impact, that this is more than just window dressing, and that they want to be able to make the right choice. And the flip side of that is obviously also true, is that companies don’t want to be called out for having bought junk credits and claims of greenwashing, follow that, et cetera, et cetera. But again, it can be a little bit complicated to separate the wheat from the chaff in this market. And that’s where we come in with Calyx Global. We want to make it easy for companies to make a choice for more real impact with carbon credits.
BRIAN KENNY: Yeah. Mike, maybe you can give our listeners a better understanding of, we’ve got the voluntary credits and then we’ve got the mandatory credits. How are those different and where does Calyx fit sort of in the landscape of the voluntary credit space?
MIKE TOFFEL: Yeah, so the origin of carbon trading really comes from the regulatory space and the UN treaties that allowed countries to meet some of their goals by buying credits from other countries, whether that’s within the EU for example, or globally across less developed countries, investing in projects, selling to more developed countries. So that was the origin. But then the diffusion and the spread of countries signing up for goals to which they would be held legally accountable in a somewhat weak international framework, really didn’t take off beyond the EU and a few other countries. In response, a lot of countries and even cities and organizations like Harvard have said, “We think this still needs to happen.” And so they’ve sort of filled in the breach with this voluntary carbon market. And so, you see net zero targets or science-based targets, a whole litany of voluntary commitments, other commitments just say, we want to reduce our carbon footprint by X percent by a given date. Harvard University has said that we want to reduce our fossil fuel emissions to zero eventually. And in the short term, we want to reduce our fossil fuel emissions. We want to neutralize them having net zero fossil fuel by 2026. That means not only reducing our carbon but also reducing the health impacts of fossil fuels.
And so for that, we’re trying to figure out what are the right actions internally and externally to figure out the package of activities to pursue. So, for example, and this is an area where I’m working with our university colleagues to try and help figure this out. We recently announced that we are investing in some new renewable capacity across the US to try and offset, we don’t call it offset there, but we say neutralize, the power, the fossil fuels associated with the power production, the electricity that we purchase.` But then we have fossil fuels that we combust on campus for heating and for the buses and trucks that we operate. And we’re trying to figure out how much of that and how rapidly do we decarbonize those shift to electric in most cases, versus thinking about `what type of carbon credits should we procure? And for that process having, we actually have a contract with Calyx, we’re a subscriber to their service so that we can see their take on various carbon credits, and we have access to their experts. We’ve had many conversations with Donna, Duncan’s colleague, about how to think about the market. So I’m not only writing a case about them, but I’m also getting a perspective from, yeah, the client perspective and from a team that’s trying to figure out how do we meet these goals.
BRIAN KENNY: Yeah, that’s a great transition to a question I have for you, Duncan, which is, as you’re thinking about the rating system, can you tell us what makes for a high-quality credit? What are the sort of biggest red flags that you see where it comes to low-quality credits?
DUNCAN VAN BERGEN: For starters, let me perhaps emphasize that we look at three different dimensions of quality when we say we rate credits. The one that everybody thinks about is what we call greenhouse gas integrity. Does this credit really represent one ton? And that’s definitely one area that we focus a lot on, but there’s two others. One is what we call SDG impact. And SDG impact looks at when credits make claims of having impact on one or more of the UN sustainable development goals, is there substance behind that claim? And often people think, Hey, that’s just a little layer of marketing on top of the credit, but we believe that it’s possible to analyze that as well. And third, we look at something called environmental and social risk in terms of, does this credit in any way present a risk of harm to the community in which the project is operated or the environment where it takes place?
But let me go back to that first one, which a lot of people ask about is okay, well, how do we assess greenhouse gas integrity? It’s really a three-step process. First, we assess the carbon crediting program, so the set of the infrastructure, if you will, that is used to create credits. There are a number of standards that have been used for a decade or two like this around the world, and we rate these standards, if you wish, in terms of as a setup, as a structure, as an infrastructure. Do they actually work with enough transparency, with enough scientific content, et cetera to really be able to guarantee the delivery of good credits?
The second step is we conduct a very in-depth review of the methodology used to create the carbon credits. So as you can imagine, credits from capturing methane coming off landfills are very different in nature than what Mike was talking about before, planting trees or some of the more advanced technology approaches like things like enhanced rock weathering or biochar production or things like that. They’re all very different and each has their own methodology. So we review those methodologies.
The third and final step is reviewing the actual individual projects that create carbon credits. So that individual project where methane escaping from a landfill, you can almost imagine it, is being captured and either flared into less heavy greenhouse gases or is captured to produce electricity from. And so we look at that project and we look at a whole series of risks. And these risks are fairly commonly accepted in the space. They include additionality: would this project have happened without carbon finance? Because the principle is if a project would have happened anyway, then you shouldn’t get credits for it. Things like permanence. Mike was referring to it earlier, what type of mitigations are in place to make sure that if reversals happen, that those are properly accounted for? Things like linkage: are the emission savings or removals not just being displaced to another area when say we protect a piece of forest, how do we make sure that protecting this piece of forest doesn’t lead to more deforestation a hundred miles to the east or west? There’s a number of risks like that, and those are certainly some of the more well-known ones that we assess as part of this process.
BRIAN KENNY: Yeah, and you’re not the only ones doing this, right? The case talks about some other people in the space or organizations that are in the space. I’m wondering how alike or different are your ratings from theirs, and how does this sort of shape the impact of the market?
DUNCAN VAN BERGEN: Yeah, you’re right. There are a couple of other raters in the space, and I think it’s a good thing that there’s choice in this space. And I think it’s an important point because sometimes I go to conferences and people try to challenge me and say, well, hang on. Not everybody even agrees on what quality means in carbon credits. And I’d say, “I think that’s wrong. I think everybody’s pretty much aligned.” And I would point to the core carbon principles of the ICVCM, the Integrity Council for the Voluntary Carbon Market. As 10 really good principles that outline what a carbon credit must comply with or the standard that should be met. And I can say, I think all the ratings agencies approaches are plugged into those core carbon principles. I’d say beyond that, yes, there are some differences. Some of the risks that each of us assesses are we assess them a bit different, and that can lead to different ratings for a similar project. And it also means that say a double B in one rating system doesn’t mean exactly the same as a double B in another system. It’s a young industry. I expect that gradually there will be convergence as we all become more and more transparent about how we do it, and we get to benchmark our approaches. I’m sure there’s going to be some learning going in all directions.
BRIAN KENNY: And we know technology has a big impact, and the advent of AI is impacting pretty much everything. I’m wondering what you see as the future of technology in credit and carbon ratings.
DUNCAN VAN BERGEN: I’m going to immediately lose every shred of credibility that I’ve built up in the last couple of minutes. I’m going to launch four or five buzzwords in one go and then defend that they all apply. And when I say digitization it’s kind of an obvious one, but then I’m going to say remote sensing and geospatial, then I’m going to say blockchain, then I’m going to say AI is the cherry on top. But I think they all are relevant. And I’d start with digitization. I’d say this ecosystem is still in a process of digitization. Many parts of this chain that are being done with PDFs and some fairly basic methodologies. There is a very commonly used process for measuring the girth of trees. It’s called measurement at chest height. And a lot of the documentation is being handed from one player in the ecosystem to another by using PDF documents that are uploaded and downloaded onto registries. That’s obviously not the way it’s going to be. This is going to become more digital. Every player is going to have the digital record out there, and we hope and look forward to being able to plug into a more digital version of this ecosystem. Remote sensing and geospatial is much talked about in the space, and the advances have been tremendous over the last couple of decades. And the availability, the ubiquity of geospatial data, has also just exploded. We use it extensively. We make the case that you can’t do away with all aspects of quality analysis just by saying, “Hey, I’ve got satellite data.” But we think it’s a very useful tool, and both developers and ourselves make extensive use of it.
And then you get to things like blockchain and AI. I’ll just mention it because if you think about what blockchain is good at, it’s about making sure there is a clear chain of custody along a whole series of players, and you need to be able to make sure that whatever changes are done, that there is a clean record of it. Now, I think that’s kind of almost the textbook case for that type of distributed technology, and I haven’t yet seen anybody really crack how it would play a role here, but I have to expect that that’s going to be the case. And then finally, AI, I think is going to play a big role in terms of helping accelerate things like data ingestion and interpretation. And we are heavily experimenting with how we can deploy that smartly, both in our own kind of back-office process as well as for helping our customers. But I’ll say one thing on that and then I’ll stop my buzzword fun fair.
BRIAN KENNY: I’ve enjoyed it. I’ve enjoyed the buzzword-
MIKE TOFFEL: Buzzword Bingo.
BRIAN KENNY: Yeah.
DUNCAN VAN BERGEN: I wonder where I learned that, but I was listening to another podcast—not quite as good as this one—
BRIAN KENNY: Thank you.
DUNCAN VAN BERGEN: —of The Economist the other day, and it was about the importance of data in the whole AI revolution. They were saying there’s three things, right? There’s compute power that’s increased tremendously. Algorithms and data. And what we find ourselves sitting on at Calyx Global is one of the biggest troves of deep insights into what makes certain methodologies work and not work, what makes certain project types work and not work. And so we’re really focused on making sure we continue to curate that best and biggest set of information around how carbon credits work, how carbon crediting projects work, how quality works, how these different standards and methodologies work. And we think that’s a key piece of how this technology landscape will shape up.
BRIAN KENNY: Yeah, that all makes great sense. Mike, I want to come back to something you were alluding to earlier, and this is more about the central theme that runs through the case, really addresses the challenges to integrity. And maybe you can for our listeners lay out a little bit what some of the biggest risks are to integrity for firms like Calyx as they try to establish themselves in this place.
MIKE TOFFEL: Well, I think one of the biggest risks to Calyx or any rating agency is their need to be viewed to be and to be viewed as fair arbiters of the analyses that they’re conducting. And this is true for inspectors, that’s some of the work I do is inspectors who are going to look into global supply chain factories to let the brands know how the factory is doing. They share a similar need for integrity. They need to be viewed as straight shooters who are going to tell the truth no matter who pays them. And there’s some evidence in that space that who pays them actually influences their reports, which is problematic. In financial ratings of bonds, for example, it’s usually the bond issuer who pays the financial rater, this Moody’s or S&P or Pitch to do their rating. It’s not great from an optics perspective that a municipality or a corporation is paying someone to assess the integrity and bankruptcy risk of their own entity. But that’s the way the world works in financial ratings.
Think about auditing, right? Financial auditing, same thing. Ostensibly the board hires the auditors, but usually with the assent of the corporate managers to audit the firm, you’re like, that doesn’t seem great, right? They’re supposed to be working for the shareholder. So anyway, there’s all this background of sort of potential conflicts of interest and enter the carbon credit rating space, a fairly new space, as Duncan mentioned, they’re adding value to many players. They’re adding value to buyers, whether it’s Harvard or Microsoft or whomever who want to know which of these carbon credits have more integrity than others. They’re also adding value really to developers of high-quality ratings. Because eventually, as these ratings get incorporated in pricing, developers who offer high-quality projects are going to get higher prices for their credits. And those that have lower quality projects will get lower prices. Like that’s the way it’s supposed to work.
So you can imagine, well, one of the questions is if you’re adding value to a variety of players, who should you try and sell to? Like who should you actually collect revenues from? And what’s interesting in this space is just because you’re creating value for a bunch of players doesn’t mean it’s the right thing to do to try and capture that value from those players. And what Duncan and Donna and Calyx have done so far, as I understand, is they’re really very much focused on this and focused on earning revenues from buyers. That’s their main play. They have a subscription model they say although we add value for developers too, we’re going to focus on the buyer side. Now, some of the competitors are making different decisions because you can imagine when do you rate? In this case, they’re rating after the carbon credits are issued, or at least technically perhaps once the project is registered and ready and available to sell credits.
And so if Harvard University wants to decide to buy credits, we can look on Calyx’s website through our subscription and see which projects are highly rated, which ones are poorly rated. So far as I understand, they’re not selling to developers. Others in this space are selling to developers. And again, you can see why, because developers of high quality want to be able to advertise that. But then you’re like, hmm, there might be a perception at least of a conflict of interest. And so I think that’s a super interesting question that we’ll debate in the classroom. This is what drew me in. I’m interested in the context, but I think what’s going to be so interesting in the classroom besides talking about the attributes of carbon credits that make them more legitimate or more authentic and credible, is this question of business strategy and who do you sell to? What are the consequences? What’s the upside? What’s the potential downside?
BRIAN KENNY: Yeah. Duncan, does this all ring true to you? I’m wondering how do you think about navigating the conflict of interest issue? Were there other models that you looked at? I mean, you’re still a young firm. What were some of the things that you maybe thought, well, we don’t want to do it that way, we want to do it this way?
DUNCAN VAN BERGEN: Yeah, it absolutely resonates and is probably has been and continues to be a core topic of discussion between Donna and myself and others in the team. How do we make sure we fulfill our mission? Our mission as a company is to try and make carbon markets stronger, make them better, and have more impact both for the planet and for people. Donna and I both have been in this space for quite a while. I have been in carbon markets for coming on a decade. Donna has been in climate and carbon for over two decades, but we started the company in 2021 when carbon markets compared to today were absolutely booming. Demand was growing hand over fist, and Donna and I were both in a position where we had seen firsthand that there was actually a very big variability in quality in the market. There were junk credits and there were really high-quality credits.
And we were also aware of some of the questions being raised by media and civil society around integrity and around some of these credits and the issues with them. I wouldn’t quite go so far as that saying that we predicted this crisis of confidence that’s been in the market for the last couple of years. But we definitely were aware of the problems. And when we looked at the core issues behind these problems, we saw a lack of transparency and misaligned incentives as key to why those problems existed. And Donna actually wrote an interesting blog on this topic not long ago. It’s called, “Carbon Credits as Credence Goods, Why That Matters.” And indeed, they are credence goods. You have this really big imbalance between what a developer knows about carbon credits and what the buyer knows. And that means you have to be more careful. And looking at these incentives, it’s fair to say that a number of parties in the ecosystem, including the standards bodies, including the verification and validation bodies, the auditors that are paid in this space are paid for volume. They’re paid for the number of carbon credits issued, and that makes the developers their customers. And I’ll be the last one to say that any party in that exchange is trying to do the wrong thing, but it makes the developer your customer, it makes volume, your objective function. Yeah. More volume, more money for everybody. And we made a fundamental choice that we thought the role we wanted to play as that independent arbiter, that independent advisor, that we could best play that if we avoided that conflict altogether by not selling ratings to developers. So today, you cannot, as a developer, pay us to conduct a rating for you either before the credit’s being issued or after the credit’s being issued. We oriented our business model entirely to the buy side.
So yeah, it’s been a question that we’ve revisited a number of times, but every time we have believed that orienting ourselves to the buy side is indeed the viable model. And we believe still looking at the market today, that independent view on quality continues to be a value. And that as a matter of fact, beyond the quality question, there are plenty of other frictions in this market where we think we can provide, as an independent party a great service almost as an independent trusted gateway to the market.
BRIAN KENNY: This really seems like a key theme throughout the case. In fact, the case references the Guardian article as sort of an indicator of the way the media has reacted to this. There’s a lot of skepticism, perhaps understandably, because people don’t really get it, they don’t really understand it deeply enough to know whether or not it’s valid know. How has Calyx, the role that they’ve played here trying to educate the market, how has that worked?
MIKE TOFFEL: I would say the skepticism doesn’t so much come from a lack of understanding. I think it comes from the fact that the industry is vulnerable to shaky-quality credits. And there’s a number of efforts underway to try and kind of shake out of the market such credits, carbon rating agencies like Calyx is one of those plays. There’s others, Duncan had mentioned the ICVCM, the Integrity Council for the Voluntary Carbon Market. That’s a relatively recent nonprofit that’s come out to try and make public its decisions about what necessary components are for the quality of credits and the programs that are also called standards or registries. These are companies like the Gold Standard and Verra and so on, who had been the sole arbiters really, of what qualifies for being called a credit and whose methodologies were attacked, for example, by that Guardian article. And by subsequent articles as well, they are also facing this pressure and tightening their belts and updating their methodologies and updating their oversight over the third parties they hire at the project level called verifiers and validators, third-party organizations that are involved with ensuring the projects meet these programs. So there’s a lot of players here. So they’re both trying to increase the stringency of their standards and their oversight of these verifiers. So there’s a lot of movement right now afoot.
What would be interesting to see as you look at snapshots over time from Calyx’s ratings and from its competitors’ ratings, is the distribution rising right? Are we seeing fewer low-quality credits on the market and more high-quality on the market? That would be sort of good evidence that actually this market’s moving. I’d be interested in Duncan’s perspective, but from my view of some recent reports by Calyx and by BeZero and others in this space, they’re still showing very few high-quality and lots of low-quality carbon credits on the market. So there’s lots of work to be done in my view. Although I do think we’re moving in the right direction. I don’t think we’re a year or two away from this being resolved. But Duncan, can I cold call you to ask you your take?
BRIAN KENNY: Yeah, you said you like cold calls.
DUNCAN VAN BERGEN: I’m not sure you were supposed to tell everybody that, but look, it’s the right question, Mike. Is the market improving? We recently launched a series of indices, we call it the Calyx Carbon Integrity Index. And we have two one on the issuance side, which is a bit of a leading indicator, and the other one on the retirement side, which is a lagging indicator. And really what it measures is the average quality of carbon credits being issued improving? And the short answer is if you look from, we have the index all the way back to 2021. Till the end of 2024, you see a significant improvement. The index has doubled. But this is where the detail, yes, Duncan, doubled from what to what? It’s an index out of 10. And it was call it a round two, and it is now four plus out of 10, four out of 10, not yet great. But a doubling is very meaningful and we know where it’s coming from. It’s coming from less of certain very high volume, lower quality credits being retired, and at the proportionately more of the good stuff.
So what I’m going to be watching very intently over the months to come, is that trend continuing? Are we going to go up to four, five, six and above? Because I think that is the key metric to follow to see whether the carbon markets are going to revive. Better average quality will lead to greater confidence in the market, will lead to some companies that are kind of watching this space thinking, Hey, yes, I would need it, but can I trust it? Is it on balance? Is it actually more dangerous than not for me? I think increasing that number of average issuance quality is going help a lot. Now the other thing that I find super fascinating is we launched the retirement index, by the way, is the one that is more of the lagging indicator that one’s going up, but much more slowly, which is really evidence that the market is still digesting some of the old, and I’m just going to say the old junk that has been issued, and this is a call for me to the market to say, stop selling the junk. Stop buying the junk. The market will get better much faster. But the other one I wanted to mention is an index we developed together with a partner called Clear Blue Markets. And that’s an integrity price index. And so it combines the elements of price and quality and it basically has three tiers. Tier one or R, AAA, AA, single A rated credits, tier two are the Bs, and tier three are C and D. And what we can see is that from the end of 2023, tier one credits have kind of broken away from the pack and trade now at about a one and a half to $2 premium over tier two and tier three, which is fantastic news because what happened is before 2023, those indices were all over the place, tier one, two, and three. As a matter of fact, you could get at that time tier one quality below the price of tier two and tier three. But what this suggests at least is that there’s correlation between quality and price. Hopefully it also means that quality is being recognized in price discovery. So Mike, I agree there’s road ahead of us. There’s progress yet to be made, but I think these are some hopeful signs.
BRIAN KENNY: Does that factor into the where to buy feature that you’re considering launching? It sounds like that’s a good sort of pathway to giving your customers advice on where to find high-quality credits.
DUNCAN VAN BERGEN: Yeah, and look, this is the beauty of having a SaaS startup, right? You can listen to your customers and based on what they’re saying, you can actually start inventing new products. And what we had is a number of customers, and I dare say that perhaps Harvard was one of those.
MIKE TOFFEL: I was one of them. Absolutely.
DUNCAN VAN BERGEN: Who said, “Hey, it’s really cool that you have this rating system and you guys seem to be technically and scientifically quite on the ball.” But now we want to find where we can buy those highly rated credits, those A-rated credits. And it’s not so easy. Because what you have to bear in mind in this market, it’s not as if every market intermediary carries the whole market inventory. Everybody kind of has their 10 or their 15, or in some cases there are 50 or so projects, but there are thousands of them out there.
What we started doing in the beginning is we just kept a PDF of, hey, these people carry a number of these highly rated credits, and that caught on. And so we decided to make a page on our platform out of it, and that’s going to evolve a bit more, but it did cause questions on that very important topic of neutrality, independence, and transparency. And so we set it up as a directory of sellers. We don’t charge the seller to be on there.
BRIAN KENNY: Yeah. And if their placement on that list ties back to the science and the data and the rating structure, then it should, that in and of itself should give people confidence.
MIKE TOFFEL: Calyx had evaluated all this information from the registries, and in some cases I presumed knew either through their contacts or their contacts of contacts, like how one might get their hands on purchasing these, or at least had a headstart. But they were so careful about not wanting to be perceived as an on-ramp to developers that they were quiet about that for a long time and now they’re moving in a different direction where they’re saying, “Okay, if we provide that information without getting any revenues from it, without charging any fees, without favor,” then that actually is mission aligned with their goals, as Duncan said, of trying to strengthen the carbon market. Because at the end of the day, the way that happens is by buyers leaning in to favor higher quality projects. And if it turns out that Calyx was impeding the ability for purchasers to make that choice, then we’re like, well, okay, there’s sort of a conflict in our policies here and which way do we want to go? But that’s my interpretation.
BRIAN KENNY: This has been a great conversation as I knew it would be, and I feel like I’m much smarter about carbon credits than I was before we started talking. We’ve got time for one more question for each of you, and I’ll start with you Duncan, because I always give the case writer the last word in these conversations. But let’s look ahead a little bit. As you look at how the market itself evolves, how do you see Calyx’s role in the industry and how do you see both Calyx and the industry changing over the next five years or so?
DUNCAN VAN BERGEN: Yeah, looking ahead, I think for us, and it won’t surprise you probably after this conversation, that for us, credibility and independence is going to continue to be crucial. It’s going to continue to be at the very core of what we do, and we think it’s also going to be core to how this market evolves. Will it grow to a really strong and impactful piece of the puzzle for all of us in society, for corporations, for governments and others in doing something about climate change? Yeah. Credibility will be crucial to that. I think our role as a company, we’re going to continue down the path of being a friction reducer. It has been too complicated for companies to find and buy carbon credits and especially to find and buy carbon credits with good information about whether these credits are going to have impact or not.
And I think if you take a five, ten-year look, I think we’re headed towards a world where companies will have that dual P&L and balance sheet, one around finance and one around impact on climate, impact on some other dimensions as well. And I think what we are working on is going to play a role in putting a value on that balance sheet on both the asset and the liability side, but that’s for the medium term.
BRIAN KENNY: Yeah, we’ve even seen some firms that are in their annual reports that are starting to really include this as an indicator of the company’s health.
DUNCAN VAN BERGEN: Yes. I wouldn’t be surprised if we saw more and more of that. I think that’s a long-term trend that notwithstanding any near-term volatility is bound to only get bigger.
BRIAN KENNY: Yes, yes. So Mike, let me turn to you for the last question. I always ask, you know, what’s one big idea you want our listeners to take away from the case? And here, you know, I feel like we’ve talked so much about integrity and trust and transparency. That’s certainly one of the things you want people to think about. But how do you think about it in the context of this and the broader space itself?
MIKE TOFFEL: Yeah, I guess I would say two things here. One is, I think that’s a really interesting space for thinking through how do you add value and to whom? Just do a whole stakeholder analysis. We’ve talked really only about two players so far, the buyers and the developers. But there’s also investors in, for example, in carbon credits. So you’re adding, if I were going to invest a million dollars in a carbon-credit project, whether it be a new technology or an existing technology in whatever country, I wouldn’t mind having a little third-party due diligence do some work based on their expertise to help me figure out with some predictive accuracy, how good will this project be rated if the developers do everything they say they’re going to do? Where does that fall in Calyx’s sense of ensuring integrity of their own reputation? Is that an area that they might pursue? That’s different in two regards. One is it’s a different stakeholder and also it’s different timing because what I described is like before the project even gets started, whereas they’re focusing on buyers after the project’s completed.
One of the things I’m really looking forward to in teaching this case is I think students are going to come up with a whole host of ideas of areas that they might add value. That’s the first part. And then the second part is where should they try and capture that value? Where does the gains of that not have this negative spillover that will cannibalize markets, for example, in their buyer side? And I think that’s going to be super fun. I guess the last thing I’ll say is I love organizations like this whose, if you think long term, if they’re super successful, they’ll probably be out of business. Because what I would define as, sorry, Duncan, what I would define as super successful is that you get this almost grading like eggs, right? Like you go to the supermarket, it’s right on the package. Is this double A, triple A size? Is it grass fed? Is it organic? Eggs are a good analogy because-
BRIAN KENNY: I don’t know if they’re good because I get confused when I go to the grocery store to buy eggs.
MIKE TOFFEL: Yeah, but more A’s is better than fewer A’s, right? I mean, you have that basic idea. So you know, on the one hand, eggs are a commodity, but not really. That doesn’t mean that they’re all interchangeable. There’s a gradation system that is right there on the package that’s government regulated and government enforced. And by my way of thinking, like that’s what success would look like. And you can’t sell eggs below a certain quality because we just regulate them out of existence. And maybe that’s where this is all heading. And if so, then you know there’s no market for private ratings of eggs because the government does it for you. And so I want to get students’ perspective on that as well.
BRIAN KENNY: Sounds like there might be a B case down the road. I don’t know.
MIKE TOFFEL: For sure.
BRIAN KENNY: Yeah. Mike, Duncan, thank you so much for joining me on Cold Call.
MIKE TOFFEL: Thanks for having us.
DUNCAN VAN BERGEN: Thank you so much.
BRIAN KENNY: If you enjoy Cold Call, you might like our other podcasts, After Hours, Climate Rising, Deep Purpose, IdeaCast, Managing the Future of Work, Skydeck, Think Big, Buy Small, and Women at Work, find them on Apple, Spotify, or wherever you listen. And if you could take a minute to rate and review us, we’d be grateful. If you have any suggestions or just want to say hello, we want to hear from you, email us at . Thanks again for joining us, I’m your host Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School and part of the HBR Podcast Network.
