• Xpansiv is the world’s biggest market for voluntary carbon trading
  • IPO plans are still under wraps at the moment
  • Chief Commercial Officer Ben Stuart talks to Stockhead about the rapidly growing business

Aussie investors could soon get their hands on arguably one of the most unique offerings on the ASX – the ESG unicorn called Xpansiv.

Xpansiv is a global company that runs the world’s biggest voluntary carbon credit marketplace.

Its trading platform executes at least 90% of all exchange-traded voluntary carbon credit transactions globally, matching corporates who want to buy carbon credits with suppliers who run projects that reduce greenhouse gases (GHG).

Although details surrounding a possible ASX IPO are still very much under wraps, we do know the company tapped the market for a $100m cap raise last year that drew strong interest from major investors like the CBA.

The voluntary carbon market has exploded over the last couple of years, mainly driven by the ESG thematic that has taken the world by storm.

Experts agree it’s a thematic that could dominate the financial markets for years to come, as the world rapidly undergoes a transition towards carbon neutrality.

Standardising the carbon market

Over the years, the carbon market evolved as the world moved to turn Co2 emissions into a commodity by giving it a price.

The Kyoto Protocol of 1997 established the first international carbon market system.

The market has now become mainstream, where units of carbon could be bought and sold just like stocks.

US-based Xpansiv, which was born out of a wedlock between itself and Aussie platform CBL in 2019, is a platform that provides that ability to trade the market.

CBL co-founder and now Xpansiv Chief Commercial Officer, Ben Stuart, told Stockhead he was surprised at how the financial markets, and not regulators, have driven the growth in carbon trading.

“I don’t think anyone would have predicted how much the capital markets have driven the uptake of carbon offsets, due to this whole trend around ESG in the last two years,” Stuart told Stockhead.

“It’s been mainly driven by shareholder pressures, which have been a far greater catalyst than any government regulation.”

Xpansiv was able to capitalise on this opportunity by standardising the whole contracting process.

And by creating an exchange, it was also able to create trust between buyers and sellers by effectively reducing counterparty risk.

“There was a critical need to standardise contracts because the market in carbon offsets is very polarised,” Stuart said.

“On the supply side, you’ve got the environmental organisations predominantly in the developing world. And on the other side, you have large institutional financial institutions buying them.”

World’s dominant player

That early foresight has enabled Xpansiv to grow into the dominant player within the physical exchange space of carbon offsets.

Last year alone, around 120 million tons of carbon were traded on the CBL platform.

“The data is quite hard to find, but I believe 120 million tons is around 35% of the whole market,” Stuart said.

On the CBL platform, clients can trade a broad range of individual carbon-offset projects from leading registries around the world.

These clients include large organisations – from mining and hedge funds, to airlines and financial institutions.

“If an organisation wishes to make a claim around carbon neutrality, or if they want to put something in their annual report about offsetting their operations, they have to buy the credit,” Stuart explained.

“And then they have to surrender that credit, in other words cancel that credit out against the claim.”

That process has been made simple with Xpansiv’s flagship standardised contracts such as the GEO, N-GEO and C-GEO — all designed to offer high-quality carbon offsets from projects that reduce GHG.

“We cover 90% to 95% of that exchange traded market, so we’re definitely the dominant player in that space in the world,” said Stuart.

Xpansiv has also built out quite an impressive vertical ecosystem, with adjacent businesses in data and registry that provide it with recurring revenues.

It has partnerships with major organisations like the CME (Chicago Mercantile Exchange) and S&P Global Platts. It’s also set to acquire a stake in US-based APX Inc, the leading registry provider for environmental markets.

“APX is like Computershare in equities, a registry that records underlying proof of ownership and proof of provenance for shareholders – but for the carbon market,” Stuart said.

A bit of recent controversy

Like everywhere else in the world, there is a growing demand for carbon credits in Australia.

Our carbon unit, called the Australian Carbon Credit Units (ACCUs), is issued by the Clean Energy Regulator (CER). ACCUs are currently not traded on private exchanges.

For a full explanation on ACCU, read this primer from Stockhead’s Jessica Cummins.

But Australia’s carbon market has recently come under fire as Professor Andrew Macintosh, the former head of the Emissions Reduction Assurance Committee, labelled the system a ‘fraud’.

McIntosh claimed that most of the ACCU credits represent no real or new cuts in GHG.

This accusation has put a spotlight on who exactly should be responsible for validating the projects behind the credits that get sold on exchanges.

“Xpansiv doesn’t trade ACCU at the moment,” said Stuart.

“We’re also not involved in the actual credit production, so it’s important to understand what role we play within the marketplace,” he explained.

“We are the infrastructure providers, and we’re very independent and separated from the actual people that generate the credits.”

Whatever may be the case, carbon credits will play a very crucial role in our transition to net zero in the years to come.

“Carbon offsets will be a part of the world’s zero commitments for a long time, and won’t go away in their entirety even post transition,” said Stuart.

When asked about Xpansiv’s plans to list on the ASX, Stuart remained tight-lipped.

“At the moment, we don’t have any timing or valuation targets. But we’re definitely keeping an eye on market conditions.”

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