Green businesses target billionaire market in Brazil – 03/11/2023 – Market

A few years ago, it was unlikely to think that a company focused on restoring forests could raise almost BRL 400 million from major investors, anticipating billionaire revenues from the planting of native trees in the Atlantic Forest and the Amazon.

But the activity, which used to be the responsibility of public authorities or NGOs, became the business model of re.green, a company launched in 2022 and which expects to earn money reforesting areas of priority biomes to solve the global climate crisis.

Bringing together names like João Moreira Salles, Arminio Fraga, Marcelo Barbará and Marcelo Medeiros, the company is part of a new and promising economic sector, which has been growing in Brazil with businesses focused on solving environmental problems without taking its eye off profitability.

re.green invested BRL 385 million, with the ambition of delivering 1 million hectares restored over the next two decades. The target total represents almost 10% of the official Brazilian goal of reforesting 12 million hectares by 2030.

To extract revenue from this process, the plan is to trade carbon credits from restored areas and sell sustainable wood.

A seedling nursery located in Piracicaba, about two hours from São Paulo, works on a full-time basis to supply raw material. By the end of 2023, Bioflora expects to deliver 2.4 million seedlings to re.green, just for the wood management strategy.

Currently, the nursery is cultivating species native to the Atlantic Forest, such as jatobá, pau-brasil and jequitibá-rosa.

But selling the wood will be a minor part of the business. re.green’s focus is on restoring to generate quality carbon credits, which are sold for a higher price in the market.

The company does not intend to plant trees at random in any degraded area. The proposal is to restore, at scale, the original ecosystems that will have the greatest impact on the environment.

One of the founders of re.green is Bernardo Strassburg, former director of the ISS (International Institute for Sustainability) and who is considered one of the authorities on the subject of forest restoration.

In October 2020, he published an article in the journal Nature showing that there are biomes that are global priorities for reforestation. Using artificial intelligence and algorithms, he identified areas that could increase the cost-effectiveness of the process by up to eight times.

“re.green’s mission is to deliver premium restoration. This premium is equivalent to the five-star standard of the International Society for Ecological Restoration, which is only achieved when restoring, in addition to the species composition and structure of forests, the processes ecosystems so that it has the capacity to renew itself and resist fires and droughts, for example”, he says.

In line with Strassburg’s Nature article, the company uses algorithms to identify locations where restoration will have the best possible impact on climate and biodiversity.

After identifying the area, re.green seeks partnerships with the landowners or purchases the properties. So far, two farms in southern Bahia have been acquired, which together add up to 3,000 hectares. According to Strassburg, they are located in an Atlantic Forest region that is considered a priority within a priority.

Also in the process of acquiring an area in the Amazon to reforest 10,000 hectares, which should become the largest restoration in the history of Brazil.

By the end of 2023, re.green has the goal of restoring 20,000 hectares, spending around R$600 million.

The investment value is high, but the return in the medium and long term is worth it. According to Strassburg, over two or three decades, the 20,000 reforested hectares should remove around 10 million tons of CO2 from the atmosphere, generating revenue of R$ 1 billion in premium carbon credits.

Timber management —which should take place in 20% of this area— has the potential to generate another BRL 600 million in the same period.

Thiago Picolo, CEO of re.green, says that today there is a greater search for quality carbon credits, which favors the company’s model.

“Customers are already looking for us. Instead of waiting for credits to be issued [de carbono, que devem demorar dois anos]they are interested in developing partnerships to have preferential access in the future”, he says.

Picolo does not reveal which companies are interested, but he adds that they are large companies —on the list of the 500 largest in the world—, generally North American and European.

“The type of business of re.green and other similar companies is a giant asset that Brazil has”, he says. According to him, the country is “sitting on a gold mine” and could be a world leader in nature-based climate solutions.

Green businesses grow around the world

Globally, the number of climate techs —tech companies tackling the climate crisis—has increased fourfold since 2010, reaching 44,595 last year, according to the Climate Tech Report.

The proliferation of the market is accompanied by greater interest from investors. In 2021, around US$ 111 billion (R$ 577 billion) were raised by companies in the sector.

According to a PwC report, funding for climate technologies accounted for more than a quarter of every dollar of venture capital invested in 2022.

The heating of the market is felt by Brazilian companies. Future Carbon was created in January 2022 and, in just over a year, it has already noticed the favorable wave.

The company operates mainly in the carbon credits market, participating in the stages of generation, management and sale of these assets.

To originate the credits, Future partners with landowners, renewable energy companies and agribusiness companies. The objective is to avoid new carbon emissions, either by controlling deforestation, replacing dirty energy with renewable energy or reducing the environmental footprint of polluting sectors.

“Future starts with a feasibility analysis —showing whether it is possible to generate carbon credits locally— develops the projects and submits them to international certifiers. When the credits start to be generated, we take one part and the partner takes another”, says Marina Cançado, CEO of Future Carbon.

The company then sells the credits to clients that are now mostly Canadian, American and European companies that want to offset and neutralize their emissions.

“We started in January 2022 with four people [na equipe] and this month we are reaching 100 people, in addition to 60 projects”, he says.

“We already have advance sales and we are, in fact, feeling this market very heated, mainly due to Brazil’s role in this story. Brazil may be the supplier of 50% of the global demand for carbon credits”, he adds.

Currently, the country represents only 12% of the voluntary market, but Cançado estimates that this proportion should increase quickly, especially with the transition to a government that raises the flag of the environmental agenda.

According to the executive, there is still important work to be done by the Executive and Legislative branches, and the sector hopes that important issues will be debated to further unlock the potential of green businesses.

Decisions on land issues, implementation of the regulated carbon market and definitions on payment for environmental services are some of the subjects on the list.

Despite the optimism, Cançado points out that the government needs to dialogue with the private sector to align priorities, divide tasks and find solutions.

Felipe Gutterres, founder of arara.io, also believes that the green business sector will be boosted in the coming months and years.

“It is a movement that is already happening and accelerates when there is a strategic vision of the government that is more aligned with the agenda”, he says.

arara.io is a company that combines ESG (environmental, social and governance) risk management with financial products.

Created in February 2022, the company offers a platform for businesses to carry out their self-assessment in the three pillars and invite their suppliers to use the tool.

With this, companies are able to visualize the ESG risks of the entire supply chain and individually of each supplier.

In addition to allowing a broad diagnosis of the business, the idea of ​​the macaw is to encourage the best ranked partners to have facilities when it comes to accessing financing, such as lower rates and anticipation of receivables.

“The platform ranges from risk management, managing supplier risks and using funding to encourage progress on the ESG agenda,” says Felipe Gutterres, founder of arara.

Currently, the company operates in Brazil, USA and India. According to Gutterres, the platform already has more than 900 companies, which are part of the supply chain of large companies in the retail, sanitation, engineering and pulp and paper sectors.

In his assessment, it is already possible to notice a paradigm shift in the private sector towards green business. “Sustainable product and service exchanges are the new commerce.”