Tom Montag, CEO of Rubicon Carbon, has a storied background in finance, having held key roles at firms like Bank of America and Goldman Sachs. In a compelling discussion, he reveals why he shifted focus to carbon markets, highlighting the vital role of carbon credits for businesses. Montag delves into the challenges of building trust in these markets, emphasizing the need for genuine credits and innovative solutions. He also addresses the complexities companies face in their sustainability commitments, advocating for collaboration to navigate the evolving landscape of carbon finance.
Tom Montag transitioned from finance to carbon markets, inspired by personal connections to environmental issues and the urgent need for climate action.
The current voluntary carbon market faces trust and infrastructure challenges, limiting corporate engagement despite significant commitments to net-zero goals.
Rubicon Carbon aims to enhance market confidence by offering a structured approach to carbon credits, emphasizing scientific integrity, transparency, and high-quality project assessment.
Deep dives
Tom Montag's Transition to Carbon Markets
Tom Montag, former CEO of Rubicon Carbon, shares his compelling journey from leading financial institutions to focusing on carbon credits. His career spans roles at prominent organizations like Bank of America and Goldman Sachs, which has endowed him with deep insights into finance. Montag's connection to the environment is personal; his family's wood-burning stove production sparked a realization of the ongoing carbon impact. He was drawn to Rubicon Carbon after being introduced to the voluntary carbon market by colleagues involved in TPG’s Rise Fund, recognizing it as a significant opportunity for positive global impact.
Current State and Challenges of the Voluntary Carbon Market
Today, the voluntary carbon market represents a small fraction of the total carbon emissions, around 300 million tons retired annually against approximately 40 gigatons emitted globally. Major corporations actively pursuing net-zero goals generate a demand for carbon credits, yet many remain tentative due to trust and execution uncertainties. Montag highlights the disparity between corporate aspirations and actual market activity, indicating that while there are major commitments in place, the actual retirement of carbon credits remains limited. He emphasizes the need for infrastructure and standardization to enhance market confidence and engagement.
Innovative Structures for Carbon Credit Offerings
Rubicon Carbon aims to be an institutional-grade counterparty in a landscape filled with startups, offering a structured product that resembles an ETF for carbon credits. They curate a portfolio that diversifies risk for companies looking to offset their emissions while ensuring the credits are of high quality. Montag explains their approach to assessing projects, emphasizing scientific integrity and transparency, which helps clients navigate the complexities of various carbon credit types. This framework not only instills confidence in buyers but also addresses concerns over the credibility of carbon offset claims.
Navigating Financial Risks and Market Dynamics
Montag draws parallels between the nascent carbon market and the early stages of derivative markets, noting that the absence of standardization and transparency can stifle growth. He points out that the current inability to short carbon credits restricts market liquidity and risk management capabilities for companies. As companies face increasing pressure to manage their carbon footprints, the establishment of reliable measures and standards is vital for both trust and investment in carbon credits. The fear of not meeting stakeholder expectations can deter companies from actively participating in the market, highlighting the need for supportive mechanisms.
Looking Ahead: The Future of Carbon Credits
Montag is optimistic about the potential growth of the voluntary carbon market, suggesting that increased regulatory clarity and corporate engagement will drive demand. He envisions a future where companies not only invest in carbon credits but can also leverage them financially, much like assets in other markets. Potential shifts in corporate behavior, prompted by accountability measures and public expectations, will foster a stronger commitment to sustainable practices. Ultimately, the holistic integration of quality carbon credits into corporate strategies could significantly advance global climate goals and mitigate carbon footprints.
Tom Montag, CEO of Rubicon Carbon, joins us to discuss the world of carbon credits. Tom has had an illustrious career, previously serving as Chief Operating Officer at Bank of America, President of Global Banking and Markets, and a member of the executive management team. He joined Merrill Lynch as Executive Vice President and Head of Global Sales and Trading in 2008, just before its merger with Bank of America. Before that, he was with Goldman Sachs, co-heading the Global Securities Business and serving on its management committee. He currently serves on the board of directors of Goldman Sachs Group Inc. and is a board member of Northwestern University, NYU Langone Medical Center, the Hispanic Federation, Deschutes Land Trust, and the Japan Society. He is also a former BlackRock board member.
In this episode, we dive into why, after such an accomplished career, Tom chose to dedicate his next chapter to carbon markets. We have a fascinating conversation about the current state of voluntary carbon markets and how Tom views them in relation to the financial services industry when he started his career in the 1980s. We explore why carbon credits matter, the circumstances under which companies should use them, and the origin of Rubicon Carbon, including the role of TPG’s Rise Fund. Tom also discusses Rubicon's approach to bundled credit offerings and addresses some of the trust challenges facing the carbon markets today, as well as where he believes they are headed.
In this episode, we cover:
[2:19] Tom's financial background and career pathway to Rubicon
[5:21] The state of the voluntary carbon market, including its size and growth potential
[7:41] Parallels between the early derivatives market and the current carbon markets
[11:41] Challenges around additionality, financial hedging, and trust in the carbon markets
[13:41] An overview of Rubicon Carbon
[20:55] Regulatory and compliance considerations around carbon markets
[26:30] The need for more standardization and risk adjustment in the VCM
[33:44] Examples of Rubicon Carbon's projects and partnerships
[36:08] Role of oil and gas in the future of VCM
[40:12] Bull and bear cases for the future of carbon markets
Episode recorded on Aug 22, 2024 (Published on Nov 11, 2024)
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