StoneX Group Inc., a global finance leader, connects clients to over 36 exchanges and promotes sustainable markets. Led by Alfredo Nicastro, StoneX’s carbon market initiatives focus on decarbonization, supporting clients with green financing solutions that align with the global shift toward sustainable finance.
As the Global Head of Carbon Markets at StoneX, how do you see the evolution of carbon markets contributing to global decarbonization efforts?
Alfredo Nicastro: The carbon market is a crucial element in global decarbonization efforts, serving as one of the most effective mechanisms to finance climate action. We must accelerate the pace and broaden participation in worldwide carbon markets, encompassing compliance and voluntary markets. This is critical to scaling up financing and ensuring we meet the Paris Agreement’s climate goals.
According to the UN interim report released earlier this year, if we implement all current policies across various countries, we will likely witness a rise in global temperatures of about 3.2 degrees Celsius—a catastrophic scenario. Even if countries fulfil their Nationally Determined Contributions, we are looking at a potential increase of 2.7 to 2.9 degrees Celsius, which is still unacceptable. Thus, we must bridge the gap between these outcomes and the 1.5-degree target.
We have two primary pathways: either countries enhance their ambitions—which seems unlikely—or we lean on voluntary action. An active market is essential for achieving these critical climate goals.
How do you see StoneX’s efforts to reshape the role of carbon markets in global climate action?
Alfredo Nicastro: Our first initiative focuses on helping countries invest more in climate action by restructuring sovereign debt. We advocate for negotiating lower debt rates, with savings earmarked for climate initiatives. We leverage our connections with banks and multilateral institutions to promote climate action through these financial mechanisms.
Secondly, we are collaborating with market participants to enhance the Climate Smart Commodities initiative. As commodities traders, we incentivize producers—whether in metals or agriculture—to adopt climate actions. They can transfer part of these costs into the pricing of carbonized commodities, making it a critical risk mitigation tool. For instance, decarbonized commodities could incur lower taxes when exported to regions with stricter emissions regulations.
The third initiative involves providing transparent access to carbon markets through our digital platforms. The commodities market needs to be more cohesive, with various intermediaries and inadequate pricing information. StoneX aims to streamline this by offering more transparent pricing and reducing market noise, thereby increasing liquidity and transparency.
StoneX offers financial services in 185 countries. How do you navigate the diverse regulatory landscapes of different carbon markets worldwide?
Alfredo Nicastro: The fragmented nature of carbon markets presents a significant challenge. Today, various countries are developing emissions trading schemes similar to those in Europe and California, while others, like Mexico and Chile, are passing carbon taxes. This fragmentation complicates the regulatory landscape.
To address this, we focus on hiring local experts well-versed in regional regulatory dynamics. While a unified regulatory framework would simplify things akin to the Kyoto Protocol era, facilitating communication among markets is essential. We don’t necessarily need full convergence, but we must ensure that the regulations countries implement provide similar levels of transparency and quality. Nations must align their regulations with international standards, ensuring that the quality of carbon credits remains consistent across borders.
How important is it for companies to ensure the credibility of their carbon credits?
Alfredo Nicastro: Credibility in carbon credits is paramount; no one wants to be accused of greenwashing. Companies are increasingly concerned about their reputational standing, especially in light of recent controversies regarding specific protocols and types of credits.
When considering offsets or project development, companies must pay close attention to standards, quality, monitoring, reporting, and verification (MRV) procedures. At StoneX, we don’t dictate what clients should purchase but guide them on critical considerations such as the permanence of credits. Companies must assess technical and reputational risks associated with their projects to make informed decisions.
We approach carbon like any other commodity, emphasizing risk management. Effectively managing these risks can transform liabilities into monetizable assets.
What role do carbon markets play in emerging economies, and how can they be leveraged for economic development and climate action?
Alfredo Nicastro: Carbon markets present an effective and unique mechanism for financing climate action in emerging economies. These markets provide financial resources and foster cooperation between developed and developing nations, enabling technology transfer and capacity building.
Investing in carbon credits can yield significant returns for both sides. The location of emissions is irrelevant; climate impact is global. Mitigation efforts in emerging economies can benefit developed nations, reinforcing that investments should be directed where they yield the highest returns per dollar spent.
What innovations and trends will shape the carbon markets over the next five years?
Alfredo Nicastro: Over the past decade, nature-based solutions, particularly REDD+ projects, have dominated the landscape. However, we are witnessing a diversification of investments. Companies are increasingly looking beyond REDD+ to other removals, such as afforestation, reforestation, and carbon dioxide removal (CDR) technologies like biochar.
Another significant trend is the focus on sustainable agriculture. Decarbonizing food supply chains necessitates action at the agricultural level, leading to a heightened demand for credits from regenerative agricultural practices.
Regulatory changes could potentially inhibit renewable energy projects, which is concerning. As we consume around 60% of our electricity from fossil fuels, expediting the transition to renewable energy sources is essential.
In the next five years, we will likely see a shift towards CDR and agricultural investments while maintaining a focus on avoidance measures. The path to compliance with the 2030 emissions reduction milestones will continue to prioritize avoidance, but the market dynamics will shift post-2030 toward removal technologies.
What advice would you give to those interested in investing in carbon capture?
Alfredo Nicastro: Carbon capture is a critical technology with significant potential. If you’re considering investments in this area, start small. Focus on mature technologies through pilot programs or joint ventures.
Explore various carbon storage methods—biochar, geological sequestration, and chemical sequestration—and align your investments with your sector’s influence. For example, agricultural firms may find biochar projects most relevant, while oil and gas companies might focus on geological solutions.
Starting with proven technologies allows for learning and adaptation, and engaging with market and technology experts will help you navigate the landscape effectively. Leveraging existing technologies is key to making meaningful progress.
