Richard Focken on how German pension funds are investing significantly in sustainable agroforestry

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How can we scale agroforestry to have the impact we need in terms of climate, biodiversity, social impact and food and fibers? We need the biggest investors in the world to invest and to follow the examples of the renewable energy industry which grew from very small projects here and there 20 years ago to a massive investable and bankable industry.

In this interview with Richard Focken, CEO of 12Tree, we explore the 4 year due diligence which led to a German pension fund investing 200M into agroforestry.

LISTEN TO THE CONVERSATION ON:

In this episode together with Richard Focken, co-founder and current CEO of 12Tree, we talk about how make agroforestry investable and bankable, the barriers for institutional investors to invest and the successes they achieved after years of research and hard work. 

12Tree’s Theory of Change

12Tree’s Theory of change has two focal points:

  1. they transform finance for professional and large scale investors because they made sustainable nature or soil based as a real asset class
  2. it is accessible and can deliver on sustainability issues and operational issues.  

“Improving the way that forestry and sustainable agriculture is being done today, and to marry that into the financial world in such a way that all stakeholders benefit.” – Richard Focken

Investing in Agroforestry 

Learning from the investment sector in renewable energy, Focken was able to raise attention to find serious capital for agroforestry. Having good management and good operational discipline allows to achieve sustainability goals without losing profit. 

“The key challenge is this marriage between the impact objectives on the one side, and to still achieve sufficient profitability that allows pension funds to pay their pensions. This is completely achievable.” – Richard Focken

Barriers for Institutional Investors 

Agroforestry is in the process of moving from small scale to large scale. The concept is unknown for most people. There are not enough people thinking about agroforestry. That is why there is a need to engage people, educate them in the wonders of agroforestry, and how it will benefit everyone. 

“They don’t know that it exists basically, that it’s just not an asset class yet. When they do the asset allocation, nobody is thinking of agroforestry. It’s our job to get it into the radar screen and to create successful cases. Here, today’s sustainability drives. It’s happening now.” – Richard Focken 

Communication with Investors

The process of communication starts from their side by presenting their case to the consultant that helps their pension funds to manage their money. At first, they are not convinced unless the return is double-digit, but they tried again to engage people, to pick people’s interest in sustainability. 

“I like to apply energy, making good things, work better and bigger and get more impact, more traction. This is what they (investors, ed.) saw. They saw this energy and trusted us to create this opportunity, every investment that we do. – Richard Focken 

Returns in Agroforestry

Agroforestry is a long term business, it took and will take years to see improvements. Years of research and gathering information, implementation of cases and proposals. However, the net asset value can still be measured reasonably. There can still be an increase of value established by independent experts, both on the biological forestry and on the financial side. 

“Being part of a professional investment management process, we have a quarterly assessment. Once a year, there are physical controls of everything. So we know that we are developing reasonably well.” – Richard Focken

To learn more about Richard Focken and investing in agroforestry, download and listen to this episode. 

Guest Bio: 

Richard Focken is the co-founder and current CEO of 12Tree, pioneer in making sustainable forestry and agriculture projects investable at a large scale. 

Links: 

12tree

12tree Sustainable Report 2019/2020

Oliver Hanke’s interview

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TRANSCRIPT OF THE INTERVIEW

SUMMARY KEYWORDS

agroforestry, invest, soil, projects, pension funds, investors, people, create, investment, podcast, question, year, world, carbon, investable, forestry, sustainability, problem, return, forest

SPEAKERS

Rickard Focken, Koen van Seijen

Koen van Seijen 00:00

Do you want to learn more on how to put money to work in regenerative food and Agriculture? Follow our video course via investinginregenerativeagriculture.com/course, or in the links below. Now, on to the podcast. How can we scale agroforestry to have the impact we need in terms of climate, biodiversity, social impact, and food and fibers? For this, we need the biggest investors in the world to invest in it. So how can we make agroforestry investable and bankable? And how can we follow the example of the renewable energy industry which grew from a very few small projects here and there 20 years ago to a massive investable and bankable industry. This interview we explore the four year due diligence which led to a German pension fund investing 200 million into agroforestry. Welcome to another episode of "Investing in Regenerative Agriculture: Investing as if the Planted Mattered", a podcast show where I talk to the pioneers in the regenerative food and agriculture space to learn more on how to put our money to work to regenerate soil, people, local communities and ecosystems while making an appropriate and fair return. Why am I focused on soil and regeneration? Because so many of the pressing issues we face today have their roots in how we treat our land, grow our food and what we eat and it's time that we as investors, big and small, and consumers start paying much more attention to the dirt slash soil underneath our feet. In March last year, we launched our membership community to make it easy for fans to support our work and so many of you have joined as a member, we've launched different types of benefits, exclusive content, Q&A webinars with former guests, ask me anything sessions plus so much more to come in the future. For more information on the different tiers, benefits and how to become a member, check gumroad.com/investinginregenag or find the link below. Thank you. Welcome to another interview today with Richard Focken, co-founder and current CEO of 12Tree, the pioneers in making sustainable forestry and agriculture projects investable at a large scale. We interviewed Oliver Hanke, chief project officer in March this year, but I wanted to dig deeper in how 12Tree manage to get a German pension fund to invest 200 million euros in agroforestry. Welcome, Richard.

Rickard Focken 02:13

Thank you very much for the introduction, Koen, I'm delighted to participate in this series.

Koen van Seijen 02:18

Don't be scared, you mentioned this is your first podcast, and I'm sure you're gonna like it. But I want to start with a personal question, which I think is easy to answer, but might be quite extensive. What brings you to soil? Why are you doing what you're doing?

Rickard Focken 02:29

Yeah, I mean, it's a fundamental question. It's a long story, but I'll try to make it short. First half of my life I was focused on more commercial businesses. This second half of my life, and given my age that maybe explains why I haven't, haven't been involved too much with podcast yet, I've focused on climate change mitigation for like the last 15 years or so. And to me, that is the one big thing that humanity has not managed to come to grips with. And it doesn't, to me it doesn't look like we immediately will. That's my behind motivation that have you start looking much more seriously at forestry and agroforestry in the context of large scale investments and making it accessible to investors. Now, where does soil come into play here? Soil, of course, is the key to everything. All our nutrition is based on it. And from a climate change mitigation perspective, soil is super interesting, because our soil holds about three times as much carbon as the whole atmosphere, and about five times as much carbon as in the world combined. So soil is a prime carbon sink. And especially the organic soil components. I don't want to necessarily educate everybody about soil, but a good soil is composed mostly of what we call humus, so it's mostly funny microbes that transform plant matter into soil, other organic matter. And at the end of the day, for us all projects are really soil management and soil health projects. So good soils give you amazing growth. They take away the disease pressure, they make for healthy plants, healthy trees, and we see ourselves as guardians of the soil for future generations. So for us soil is the key to land based carbon sequestration.

Koen van Seijen 04:22

And do you still remember when you, I mean this is a very profound insight that I think many people in the podcast they agree - and definitely write me if you don't - like they share that. And we share that. Do you remember when that came about? Was there one moment, was that a number of pieces where you went from basically climate change, carbon in trees, or trees have a lot of carbon to soil as well? Like that didn't happen overnight, I think. Do you remember where and how that triggered that insight?

Rickard Focken 04:51

Yeah, the frustration actually, for me, the moment came when the Kyoto Protocol collapsed, when Canada exited the Kyoto Protocol and the carbon price went from what was above 20 euros per tonne to down to something like 2 euros or something per tonne. So the right to pollute... basically pollution was free once more. You didn't have to owe up to the carbon pollution in the atmosphere. And it made a lot of the projects I worked on collapse. I was engaged already in the Kyoto Protocol in creating carbon emission reduction projects, very real projects, all over the world. And I said "No, you know, the carbon credits is not the answer here, I need to do something more tangible." And to me the most tangible project then was forestry and what later, with a very deep interest in agroforestry, I also come from a forestry background, my family has a long standing tradition of foresters and are very close to nature. So we've been a little bit pre-exposed from the first time we saw the light of day, when we were born and brought up an house in the middle of the forest without electricity or running water to today. So basically that circle close for me at that point in time and I said "No, this is the point in time were I have to do something more concrete and I need to engage directly with forestry and agroforestry systems." That was the click moment for me if you want.

Koen van Seijen 06:17

And just for the listeners who haven't listened, which I will definitely link below to the interview with Oliver, what is in a few sentences, what is 12Tree? What are you leading? What is the 12Tree project or company you're leading at the moment?

Rickard Focken 06:30

Okay, our theory of change, if you want is two sided, we have two focal points. One is to transform finance by creating sustainable nature or soil based investments as a real asset class for professional and large scale investors who are also looking for climate impact and return at the same time.

Koen van Seijen 06:51

And large scale, what are we talking about? These are hundreds of millions at a time, right?

Rickard Focken 06:55

Well, these are pension funds and insurance companies primarily. These are the biggest investors in the world. And for those today this asset class is not really accessible given their regulatory frameworks, given their need to be very conservative and their obligation to not lose money for their pensioneers or for the insured population. And we wanted to change that. We basically want to make this accessible, with a view to making agroforestry systems as investable as solar energy or wind energy is today. To achieve that same kind of bankability, that is our long term vision for the financial side.

Koen van Seijen 07:38

And you see that as absolutely essential to get to the scale of impact we need, like we're not going to get there with private individuals investing, with high net worth individuals, we need to - like in your theory of change - we need the largest pots of money basically we can get our hands on to invest seriously in this space like they're investing in renewable energy now.

Rickard Focken 08:01

Yes. I mean, maybe before I answer that one I would like to expose the second part of our theory of change, because, as I said, it's kind of two sided. And the second part is the actual subject matter. In order to make this accessible, we felt that there was a lack of skilled operator who can de risk the business for these institutional investors. So we decided to create an operational company that can deliver and walk the talk on sustainability issues, but also on all operational issues. And that is the second piece, it's basically improving the way that forestry and sustainable agriculture is being done today and to marry that into the financial world in such a way that all stakeholders benefit. This is kind of the second piece.

Koen van Seijen 08:50

And that the risk piece is key, obviously, to the institutional world. And you're saying they've seen maybe the space as too small and thus, or maybe and, too risky to place their large investments that are placing elsewhere in real estate and renewable energy, etc. So there's hardly so far I think, you've been the only one able to raise from a pension fund these amount of serious capital for an agroforestry investment. Is that correct? You think there have been others?

Rickard Focken 09:20

I think there are some others, but they are more on the North American or Canadian side. And their motivation is still a little bit more classical, let's say, more purely profit driven. But traditionally, they have been timber investments and also agricultural investments, that not necessarily with a sustainability and impact objectives that we have today. And the key challenge is to, as I said, is this marriage between the impact objectives on the one side and to still achieve sufficient profitability that allow pension funds to pay their pensions. And this is completely achievable actually. It's a myth that this doesn't work. It is a question of good management and of good operational discipline and have a certain one long term view also. But those are some of the problems that I guess we may come to that in a little bit more detail.

Koen van Seijen 10:08

Oh, absolutely. I would love to unpack. So because you already answered actually a question I was asked at the end, like what do you believe to be true about regen ag at other's don't? Definitely inspired by John Kempf and I think the myth here - you might have another answer and we can get back to that later - but the myth that it is possible with good management and a long term view to get good returns. And these are not just financial but actually also the impact. I think that's something fundamental because otherwise we cannot expect pension funds and insurance companies to even get into the space, or even look at it, if we cannot get the returns that they, not because they want to but they need to, literally, in their system. It's built into that.

Rickard Focken 10:46

Yes, and pension funds don't even look at agroforestry, they don't know that it exists basically. It's just not an asset class yet. When they do the asset allocation, they just, nobody is thinking of agroforestry, I can assure you. So our job is to get it onto the radar screen and to create successful cases. And here, with today's sustainability drivers, it's really happening now actually. I've looked at this for many years, and people have politely nodded their head but they've never engaged, but today people engage actually. They're really interested, they really want to go deeper and to have more impact and get a bigger bang for the buck as possible.

Koen van Seijen 11:28

Yeah, let's explore that because you... I mean, we've known each other for a number of years and I've seen from the outside, let's say, the process. Because I think the first is always the most difficult one. In this case, a German pension fund that agreed to invest 200 million into 12Tree, or into agroforestry through 12Tree. How did that come about? I mean, this is a very open question we're gonna unpack that, but what did the first contact look like? Did you contacted them? Did they contacted you? What was that process of getting a behemoth, basically, to actually look at it as an asset class and look at it as in series investment, and not just something philanthropy they might put 500,000 to compensate something. No, they actually made an investment. So how did that started?

Rickard Focken 12:07

It was initiated from our side, basically, or from my side to be concrete, by presenting a case to the consultant that is helping our pension funds to manage their money. And the first time around, they looked at me and said, "Yeah, sure, come back when you have a definitely a double digit return. And anyway, what is this?" Then a year went by and I tried again, talking to different people and by that time the interest in sustainability had increased to such a stage that it was taken seriously and I was heard, basically. A proposal could be made. And then we're building political support for this over the course of a year roughly.

Koen van Seijen 12:52

Political meaning in the pension fund? Or political in the country?

Rickard Focken 12:55

Within several pension funds. Yeah.

Koen van Seijen 12:58

And how did you do that? Did you bring them to the field, to the forest? How do you get support in these boards?

Rickard Focken 13:04

We already had a precursor organization and we basically, they asked independent experts and consultants to visit what we have been doing before. To visit farms and forests and to do due diligence on site in Latin and Central America on the quality of the operations and all kinds of aspects that you can imagine for about six months.

Koen van Seijen 13:27

So there was a track record, there were farms and forests to visit of the previous work, basically, you've done so it wasn't completely: these are some renderings, this is what we may be going to do, no this is what we're going to do but larger and look there are the examples.

Rickard Focken 13:42

Yes, there was some previous work on a smaller scale and we were basically proposing to scale that up. And there was a certain leap of faith there, I guess, to trust us to manage that scaling up. But then, personally, I've been involved in other companies before and you know, my passion is definitely scale. It really is fun to scale things up, I find. You know, I don't have to have all the original ideas myself, and I definitely don't, but I really like to apply energy to making good things work better and bigger, and get more impact, more traction. And this is what they saw basically, they saw this energy and trusted us to create this opportunity. Every investment that we do, I mean, yes, there is a certain willingness to investut then every single project that is presented can also be rejected, right?

Koen van Seijen 14:35

It's piece by piece.

Rickard Focken 14:36

It's piece by piece. So it grows over time and today we have commitments of about 270 million and we've invested most of that, but it's 12 different projects with a few more coming this year, in seven different countries. And every single one of them can be of course rejected, every single one of them has to fulfill all of the criteria, there is a very extensive professional asset management, investment managerment process going on very intensive due diligence processes, etc. that makes sure that everything we propose is double tested. And there's independent experts for just about every aspect of the business being heard. And only if they approve, only if they concur with us will a project go ahead?

Koen van Seijen 15:19

And how long did it take from I mean, you mentioned the year went by from like the first connection that you connected with some other people, and then six months, I mean I remember from your stories and being on the outside and seeing very little ovbiously that it was a long process. How many hoops that you have to jump through basically? Logically, obviously, because they're investing not their money but I can imagine from your side, did you think many times you were there, and then actually, there was another face in the decisions that emerged out of nowhere?

Rickard Focken 15:47

The real total length of the process, from the first contact to somebody from these pension funds to the actual start of the project, we're looking... the first contact was in 2013 and then a long time nothing happened, that's when the relationship started to build and then we actually executed and signed contracts, March 2017.

Koen van Seijen 16:10

Wow, just to give people an understanding of when you first do something, because for everybody it was new, and the length and time it takes for institutional investors to put money to work. People have an idea of, okay, three to four years is nothing in this space, basically. But now with the second one, I'm imagining, I hope that it goes faster or not? You're laughing.

Rickard Focken 16:32

Yes, and I really must say that we have been very blessed with fantastic support from our investors, they've really helped us grow, and they've babysat our growth, helping us to develop into professional asset management. So that we could also focus very much on the operational side. It has really been like a partnership of developing this together that has worked very well for hopefully both sides so far.

Koen van Seijen 16:58

And in terms of I mean, returns obviously, it's early on, but what have you seen in the assets that you've bought, like, our they performing as the models or as the predictions have predicted? Like, is the investor going to be happy, or is the investor happy? Or what have you seen over the last years in terms of what you planned, and what's actually happening?

Rickard Focken 17:19

Yeah, even though we are in the long term business, you can still measure reasonably precisely the ongoing so called net asset value, which shows you the increase in value, the implicit increase in value in a given project. And that is established by independent experts as well on the biological forestry side, as well as on the financial side. And so being part of a professional investment asset management process we have a quarterly assessment, basically, once a year, there is physical controls of everything. So we know that we are developing reasonably well. Out of a portfolio of projects, I would say there are a couple of projects that are performing clearly below expectations. There are a couple of projects that are performing above expectations. And there are some projects that are performing kind of in line with expectations. So you kind of have a typical statistical normal average. But the good news is that we have invested more than 150 million euros so far into this project, and we can show already that most of that is working quite well.

Koen van Seijen 18:29

In terms of returns, you mentioned something unless there's a double digit return these investors are not even coming to the table. And you also said it's perfectly possible to have a good return. Well, you didn't say double digit. Is there a tension you see in your projects between the return they want, the investor, they being the investor, and the focus on sustainable and let's say towards regenerative, which I think you mentioned very nicely, I will link it below as well in your impact report. Is there a tension you see between the return that some of these, and maybe also the speed like the time that some of these investors need or want or have in their system, and to focus on sustainability and regeneration? Yeah, there's several answers to this. My first answer at a high level is there's no real tension between return expectation and sustainability, as such, if you have enough time. That is very important. If we take a step back then you know you look at the classical way to invest in agriculture, or that is invested locally in Latin America or in Africa, etc. is fairly short term with the locals investing they have like a 20% return expectation or more for they wouldn't even consider an investment. And pension funds basically need to deliver today, back to the investors probably would be happy to deliver 4% or 4.5% percent. So in order to get there and to compensate for their own cost structures, etc. the very minimum you have to deliver across everything is somewhere between 6-8%. Having said that, there are individual project types that deliver more. Greenfield projects, where you have a higher risk, they have to deliver above that, because the risk is higher. And brownfield projects where you basically take over existing, already planted ecosystems, and that already have some returns would fall into that category. And then we have long term forestry, where we really have like an evergreen type of investment, where you don't have to exit and there you can deliver like 6% or so over the long term, then you can stay in and never have to exit because your investors happy with that. And these returns for these different types of projects and different types of risk are possible, that's what you're saying? Yes, those are the ones we are seeing and as we get more experienced, I think we also getting better at making correct and realistic assumptions about some of these parameters. Getting more and more experienced. So there is a tendency for increasing profitability over time in our projects. If you look at the first projects that will be less profitable than the projects we're doing now. Yeah, you're learning. Obviously. Yeah, we are on a pretty good learning curve. Once you've done that, 3-4 years with one - and obviously a lot of education on your side and a lot of education on the side of the pension fund - I don't know if you're at currently talking to other large scale investors, but do you see... I mean, the world has changed as well, obviously, over the last years, but is the second one or would the second one, if you're not talking yet, going faster you think? Or is it any way a very long process if you want institutional capital to come on board? Because it's not that they can compare you to 10 other renewable energy funds or renewable asset managers? Do you see there a potential speed up, or you have to go through a 3-4 year process again? No, there will definitely be a speed up and there's several factors that work here, actually, that due to certain established base we already have some other investors now that are investing through our fund, brownfield fund, our Cacao agroforestry fund. I'm sure Oliver talked about that in his podcast because he's managing it. So we have somewhere investors in there, and we are now also, we're opening up in the business development to also work with large off-takers who are interested in sustainable supply chain. So on the strength of our farming and operational capacity, they are interested in securing sustainable supply, for example, for cacao, sustainable cocoa production which is one of our specialities. And they're willing to invest potentially in the forestry as well to get access to this level of quality and quantity.

Rickard Focken 23:01

Yes, because there is a scarcity of supply of truly sustainable production in that space. And we basically decided at the beginning of our company to jump in there and to create that a position in sustainable cacao production but also in other products like coconut, for example, sustaianble bananas, dates and other fruits. But right now, the emphasis is to find a way still in sustainable cacao production. And that's also opening up quite a big field that is at least as big as institutional investors, and possibly bigger actually.

Koen van Seijen 23:35

Wow, yeah and more aligned because you need the offtakers, like you need someone, someone needs to buy obviously the forest produce, agroforestry products coming off your farms and your projects. Yes, it's part of this de-risking that I mentioned earlier. Our job is to bring together key players in this value chain. And the better the partners, the less risk is inherently left for everybody. Yeah, of course.

Rickard Focken 24:01

So they, our partners on the supply side, on the demand side are very interested in having pension fund money co-investing into this project, because the cost of capital is lower simply. And it works both ways. It works for the offtakers because they have to only invest a small piece or a certain part of that. And because they really want to have the sustainable produce. And it works for the pension fund because it really secures, if you have like a 10 year or 15 year offtake agreement at an attractive rate, then that really secure as a whole deal.

Koen van Seijen 24:35

It's really similar to renewable energy where we were maybe 15 or maybe 20-15 years ago. Like the offtake, which obviously were the power purchase agreements, and then slowly the institutional money coming in, etc. etc. And the asset managers in the middle trying to make it work. Yeah, and we don't see a lot of specialization yet. So we have to reach out to all directions and create this sustainable middle element that ties everything together. And I mean, I asked the question often but in this case it fits very well: how far off are we, or what would happen if you would have a billion dollars to invest, let's say, tomorrow morning? I mean, you have two more doubles going from 250 or 270, you're almost there with two more exponential growth steps. But what would you focus on if you had a billion dollars to invest? And just to be clear, with the conditions you would like. It's an investment portfolio, but the timing you can choose and also the return? What would you focus your energy, in this case your resources on? Yeah, well, you know, we're actually not that far away I think, from that point in time. This doesn't happen very often in this podcast that asked this question, and we're not that far away from that point. That's very good.

Rickard Focken 25:47

Yeah, we're looking at a substantial increase of our portfolio over the next year or two with very promising deals that I unfortunately cannot talk about. So to me, first of all, one billion in the context of climate change mitigation is a small number. It's nice. And I'll answer your question in a second but I would like to put this number into perspective for any of your listeners who made it this far. You know, what can you achieve with one billion actually, in terms of carbon sequestration? You know, if you invest in an agroforestry system, or in a forestry system, you probably get about 20 million tons of CO2 sequestered?

Koen van Seijen 26:24

Is that per year, per block of time? Unfortunately, not. That's 20 million over 20 years. So that's about a million tonnes per year roughly. And if we are generous, and if we had a methodology that would actually look at soil and what we actually sequestered in the soil, the real carbon sequestration is much higher actually, because we don't take soil sequestration to account here. So this is pure biomass, trees. Pure biomass and purely what is actually the smallest common denominator that can be measured by gold standard or BCS (Biomass Carbon Stocks). Let's say you can get up to 30 million tonnes of CO2 with your 1 billion euros. So I would ask you, if we want to compensate the 40 billion tonnes of carbon that we're putting into the air every year as humanity? How much billions do we need to take these out of the air to compensate 40 billion tons of CO2 that we're putting out every year? What would that be in billions? And so it's just to show you that would take about 13300 billion euros in order to do that, just to put that number into perspective. So you would leverage it. So how would you use that billion to get the 1000 times, more than 1000 times actually, you need? Yeah, I mean, first of all, if I had a billion euros to invest tomorrow, I would focus on very few crops, two or three crops and try to become a world knowledge leader and make these crops super sustainable. In the way they're being grown. Trying to maximize the climate impact of that. This is more or less our strategy on the operational side to pick a few crops that we really, really want to understand deeply in the context of an overall biodiverse and possibly regenerative system. That then will drag along a lot of other crops in such a system at some point later. But first of all, we really need to understand how to work with a few strategic crops that are important to the farming community and to the food and forests community. Would you choose like the biggest commodity crops there? Or would you choose the ones with the biggest potential for regeneration? How would you select? If you only could select three? We would always go tree based as we want to promote climate change mitigation. Where we would basically get the biggest bang for the buck and climate change terms would be something that really lends itself well to agroforestry systems. With a market with, yeah, obviously, yeah.

Rickard Focken 28:54

Yeah with a real market where if you look at the palm oil catastrophe, which palm oil as such of course is not a bad thing it's just the way it has been applied, and forests have been destroyed to create huge monocultures. But there are a number of crops out there. Coconut would be one of them, possibly, that are still much under appreciated, I think today, under used, that have thing usages that we would like to engage in much more than today.

Koen van Seijen 29:24

And that actually, it's a nice bridge to a question, I mean, could be the same answer but I'm gonna ask it anyway. I've been experimenting a bit with asking this question on using the ITN framework. So the I four importance, the T for tractability and the N for neglegtedness coming from effective altruism and a few other organizations. And if you want to know more, I will link some links below but basically looking at what you're trying to do in this case focusing on a few crops or even in general focusing on agroforestry and how to get institutional capital in there. Looking at the importance, which is what is the scale of the problem like if all the problems in this area will be solved like how much better would we, the world be? Tractability, like how solvable is the problem actually? And neglected, how many other people are working on it with the thought that if less people are working on it, your added work will make a bigger difference. If you have to look at importantce, tractabilityand neglectedness, I mean, you chose agroforestry I think for these reasons, but within agroforestry, not necessarily from the $1 billion investment fund, but just instead, if you had all the time in the world, what would you focus on? And what would you spend your days on? Or are you doing that already? Oh, yeah, that's a good one and a big, a big one. Yeah, I'd like to maybe take a step back again, looking at this, because I want to resist the temptation to make every problem look like a nail when I only have a hammer. So for us first of all, it's very important to create holistic solutions, everything we do, whether it's agroforestry, whether it is regenerative agriculture, it has to be in the context of an overall system that makes sense, otherwise not going to work. So that's why I would like to take a quick step back and look at what are the fundamental problems facing us. So the fundamental problem that I'm trying to solve or helping contributing to solve, at the beginning when we started out it was climate change mitigation. And it got more complex as we went deeper. I've heard that before from other people. Yeah. So we today, we know with like 100% certainty that the 35 to 40 billion tonnes of CO2 that we put into the atmosphere every year, that will lead us to tipping points of no return. So there is a certain urgency to act now, from that point of view, and climate scientists that are not obliged to be politically correct, that can speak out freely in scientific journals, they are convinced that 3-4 degrees is probably fairly realistic, and not necessarily a pessimistic scenario, actually, for what's going to happen in reality. And all political efforts so far, have not really led to a net reduction in global carbon output. No matter what all our politicians have said, we're still in a rising curve of carbon output today, no matter what everybody is claiming. So if I look at the importance of this triple question, what is the fastest or in a way to cheapest and technically, absolutely, perfectly working way to sequester carbon from the atmosphere? The biggest and best one is to create long lasting tree based ecosystems, and to increase the living carbon content in the soil. Even though we're not measuring the soil part yet. But I mean, who cares? As long as it stores carbon? As long as it's done, right? This is more problem for the measurement and the financing side, you cannot finance anything that's not measurable, unfortunately. But if you can finance it, even without that measure piece, then it hopefully in the next years, it becomes possible, which means the returns become even more interesting. Yeah, we have to make it measurable. And of course, it is possible, but this is a machine that has been perfected over like 500 million years or so. And if we compare it to carbon sequestration, that is man made, much more expensive by at least a factor of 10 or so if you look at very good books, like drawdown or similar publication. They're raising a lot of money, though, for these carbon sequestration machines in Switzerland and some other companies are raising serious, I mean, serious 50, 60? Yes, no, it's a very good effort and we have to work all sides of the spectrum. And one of the problems why people, if you don't mind my saying that, prefer to invest into climate tech rather than soil based investments, is because they think they understand tech easier, it's easier to understand, the mechanics of a tech startup than of nature. Nature's much more complex to understand and people don't want to get their hands dirty. And so I'm seeing that all the time, and we've been asked also by various players, if we want to engage in climate tech. I said "No, absolutely not". We already have climate tech, it's called a tree and it's called soil. Yeah, it must cheaper also. If I have to choose between something that is cheaper by a factor of 10, I mean, that's revolutionary, right? So why would I want to create machines when we haven't done this first. And it's neglected as well, which is a shame, but also good if you're trying to create a space.

Rickard Focken 34:27

I wish more people were doing it, but the trees are creating this huge service to mankind and the biosphere and to me, the biggest problem is the absence of investments in this tree-based sustainable agriculture and agroforestry. So only I think it's about 2% of the so called Green Bonds, yeah that we all know and every time you see the word green bond you think are finally somebody is investing in nature, but no, they're not actually. I think it's a maximum of 2% globally that is invested in forestry and then often with questionable sustainability, for my perspective.

Koen van Seijen 35:04

Are you planning to raise Green Bonds at some point? Or thinking about it, let's open it up a bit. Not for a while. I mean, a corporate bond, if you want to call a corporate bond the green bond? Then yes, this is something that is in the books. Now, the green bonds typically have a lot of public money in them. And that makes them incredibly slow, cumbersome. Yeah. No, no, but like a corporate bond, like an energy company raising bond for increasing their renewable energy or stuff like that. That is something we are interested in looking at, over the next few years. Interesting, it's sort of the next step of large amounts, because they're large amounts in the bond market. Yeah, very large amounts and again it's a question of making this digestible to the normal, financially investable. So what is being created with the green bonds today is often gigantic monocultures that are not the answer to the problem. At the same time, as I said, it's more complex than that. Yeah, climate change is progressing. But we're also facing this fight against mass extinction of many species of our planet. I think we're losing to the tune of about 50,000 animal species per year. And we're losing 130,000 kilometers a forest per year. So the dollar loss in biodiversity is estimated to be about 170 billion per year. It's not enough to just worry about one thing, we need to build good soils, create maximum biodiversity in combination with these productive and profitable ecosystems. That was my very long answer to the importance piece of it. That's why I'm asking, I'm starting to ask this question more and definitely give me feedback, if it's serving, but to understand the thinking of the guests better, and to have a sort of framework to see why you're focusing on certain things, and why not on many others because there's so many things to worry about. And that's exactly what I'm asking to get to the deeper part. So please, thank you so much for sharing the importance piece, and I'm curious about the rest. Yeah, I think for German listeners here, we need to maybe quickly translate the word tractability that you used. Yeah in some versions of the framework they use solvability. But then obviously, it doesn't work. It's ISN and they use ITN so it's tractability, let's say slash solvability. Like how solvable is the problem in this area. But it's a bit of a tricky word, I agree.

Rickard Focken 37:25

It reads a little bit like traceability, which is...

Koen van Seijen 37:27

Yeah, I know.

Rickard Focken 37:29

Your eyes jump to traceability and they think immediately about, you know, traceability. But that's not the case. So tractability means how solvable is the problem, and the answer to me is totally solvable. It's a question of energy that we're putting into it. And right now, it's a human streak and we love to make our life as easy as possible. And if I am an investor, I'm going to do typically everything that has always been done, you know, and it's clean, easy and common to invest in the stock market, in a bond market, and in tangible, paper based liquid assets, like wirecard, for example, it would be nice.

Koen van Seijen 38:10

Not even paper based, like it's like, yeah, zeros and ones based. Yeah, you're right here. Papers is even... yeah that phase is over. So why bother working through tangible real assets, further understanding the nature and how the underlying assets should work and how everything interacts? That is much more complex, it's much more work, actually. And I still see the investment community not being prepared actually, to dive deeper. And to take that plunge, which they have to take in order to be able to judge properly and to not just follow procedures and hope for the best. And what should they look at? If they are, let's say they're listening and there's a stadium full of listening - obviously social distancing - the virtual stadium full of listeners listening to this podcast thinking: "now, but we, I, my family office, or an institutional investor I work with, wants to get into the space but we don't have any experience yet". What should they look out for? What questions should they ask? Where should they start? And then we get to the neglectedness, obviously, I'm jumping around in questions. But I was just curious, like, do you visit forests? Do you visit farms? Do you buy your own piece just to try? What's the best? Do you start gardening? First of all, you actually look for that holistic system that I mentioned. You need a partner who can provide you with a holistic vision of what is supposed to happen. At that level, these guys don't need gurus, they don't need single problem solving ideas. they need this translated into a real workable solution from somebody who understands exactly what he's doing. And they are some companies around but not very many who can actually offer that service. This is a little bit of general answer to that question, but I would look for the holistic side. And then yes, of course, please, by all means, check out the lay of the land. Although nobody we've ever taken into a farm has resisted, or everybody who is taken also catches the bug. That's good. We're not against it.

Rickard Focken 40:21

Exactly. So I mean, purely promoting what we do, it is very good to have people come and visit and actually share firsthand experience to really understand what we're doing. Especially in the context of social impact. This is something that in Germany is quite often neglected or not seen, which in France, for example, is much more visual and much more asked for. The aspect of putting the human beings into the center of the activity: What about the people? How do they cope? And how important is it that they actually make this work?

Koen van Seijen 40:51

Yeah, we had a discussion with Oliver on that actually. Just for reference, Richard didn't want to listen to the interview with Oliver because he didn't want to be influenced by it, he will listen to it afterwards. But we had a discussion on the social part about that a lot of the work - because this was right into lockdown - basically, a lot of your work as 12Tree was not just to make sure that the people working in the farms and on the agroforestry projects had enough to eat. Because a lot of the distribution of food stoped because of lock downs in different countries obviously at different times. But a lot of work went into making sure - of Oliver at least - to make sure that there was enough food for all the staff to make sure that they could go on. So that, I mean immediately shows the fragility of our food system, but also the focus on social because obviously people need to eat also when crazy lockdowns block everything. Yeah, one of the key problems that investors face today is that with this investment, you can create a lot of value beyond the financial return. Because if you do it holistically, you're creating jobs, you're creating a whole ecosystem, doing soil improvement. Biodiversity, yeah.

Rickard Focken 41:55

Biodiversity, you're creating a better world for the next generations, you are paying pensions, you're paying social security for people who have never seen social security in their lives before. So one of the fundamental questions is, of course, why does the investor have to carry all of that cost when all he wants is a kind of reasonably decent return. So should the cost be spread a little bit further on more shoulders? And that's something that we're working on to provide intelligent co-funding from other partners that are interested in different parts of different pieces of this value chain. And that it could be foundations that are interested in biodiversity, for example. Or it could be the state of the host country. I've been speaking to ministers or presidents to ask them for support. In actually saying, look, we are solving one of your problems, in terms of social security, providing pension payments, etc. etc. What can you do to help us? How can you help us succeed and that not one single investor has to carry all have those costs?So it means that, for example, it could be on the taxation side, that there there is a promotional taxation for truly ecological investments, which is often the case, etc. So this is another piece to watch out for that you don't necessarily have to shoulder all of the costs alone. And the last one, maybe that is one of my favorites demands is that we need a higher carbon price.

Koen van Seijen 43:27

I mean, it recovered a bit over the last months or a year or so. But yeah, definitely, it's not nearly the true cost it should be.

Rickard Focken 43:36

We are on a good track. Fascinating news is that, I mean in Germany we have a carbon price of 25 euros or carbon taxation of 25 euros per tonne as of '21 and 55 euros as of '25.

Koen van Seijen 43:48

Wow. So 50 euros per tonne is the point where... It starts to hurt, yeah.

Rickard Focken 43:55

Well, it starts to hurt some...

Koen van Seijen 43:57

Yeah of course.

Rickard Focken 43:58

Forestry can be funded almost purely from carbon revenues. So this is really interesting, if this has been translated at some point into the market for carbon compensation, then we have a very good chance to reforest the planet based on carbon pricing.

Koen van Seijen 44:17

And I know that Sweden i think is - but do correct me if I'm wrong - somewhere around 100/140 already euros per tonne and they're just increasing. I mean, it's not a gigantic country, but it shows what is possible and the voluntary market, I think the European market in general the price has been moving up, even in this crisis or have been stable, and it's sort of back at 25 as well. I mean, let's see what happens after a year. We started this with Canada left and the whole thing collapsed and it could have it in Germany, the government's change and 2025 we never get to 50. But let's say next year 25 is a start and it becomes sort of ingrained in the system, too late and too slow but still. Yeah, then we need the necessary legislation to translate that into forestry and agroforestry projects, which is not there today, because the voluntary market is much slower than that. And would that be like the one thing you would change? I'm asking the magic wand question quite often, like if there's one thing you would change tomorrow morning, and we all wake up in the world where Richard has changed something, would it be a 50, 100, 150 dollar carbon price - or euro - or would it be something completely different?

Rickard Focken 45:25

Yeah, could I have two wishes?

Koen van Seijen 45:27

Of course, of course. The one key factor if we can have a carbon pricing for forestry, and sustainable forestry, that is close to, let's say $50 or so, this would be revolutionary and would trigger a global reforestation initiative like we have never seen before. This would be a total game changer. And there would have to be a guarantee, though, that it is there for the longer term. Because as you said, in the Kyoto Protocol, the problem was that the price is fluctuating so much, there's such a volatility that you never know where you come out of. And if you invest a million today, you may lose it tomorrow. So if it's a tax, if it's based on taxation, or on a similar kind of rigid system, you know that, okay, it's here to stay, we're not throwing this out overboard tomorrow. So that's one. The other one is more an agricultural one. I think it would be great - and this is fantasy - it would be great to have a mandatory sustainability scorecard for all agricultural products, and that the sales of products underneath a certain sustainability threshold should be prohibited. It forces that all agriculture production is forced into a certain sustainability, you know, that is becoming sensical, that just makes sense. Like soil health, energy use, inputs... You delete all the practices that are detrimental, and that everybody says... Basically you would like to walk into a supermarket with your wand and probably 95% of the products disappear overnight. Yeah, and a few that are, and then giving space to those to those, and to the others that want to change. So anyway, yeah, that would be maybe my second one. I think you were allowed to have two. I want to thank, I want to be conscious of your time, I think we answered honestly the neglectedness, which is a word I keep struggling, but we keep improving. I mean, I think we've answered that throughout the podcast. Like you wish there were many more focusing on this and you see the interest growing, and maybe even with a carbon price and with actually the success you're having in some others, there will be more operators, there will be more asset managers, like we've seen in renewable energy. I mean, there were a few crazy ones 20 years ago, and now there is an industry that is doing this with prices that obviously are way lower than we could ever imagined, and with investments way higher than we could ever imagine. I think neglectedness is a good last point, because I think it is changing also radically today. I've never felt this before as I feel today, that we are on the verge of real change when it comes to the anticipation and realization of climate change impact. I think it's, with the kids taking to the street, yeah Friday's for future. I think this is probably the biggest wake up call that I've seen in a long time in the perception of people, not talking about myself. We've been in the bubble.

Rickard Focken 48:20

In the bubble now for 15 years. And people are finally starting to take some of this seriously, although they wish it would just go away. Somebody please make this go away.

Koen van Seijen 48:30

Let's buy some electric cars and get some panels and it will be fine, yeah.

Rickard Focken 48:34

Yeah, exactly.

Koen van Seijen 48:35

But still, it's a step. It's not the holistic way we would like but it's a step. To maybe end this on a positive note, if I may, we'll see the biggest polluters in the world, huge energy companies will turn into the largest renewable energy producers in the world. We're seeing energy companies establishing living carbon portfolios. It is something they've never heard that notion before. We're seeing car companies, not just offsets but real forests. So there's a huge change going on right now in realizing that this is real, that is life threatening. And that everybody, especially industry, who has been calling for tougher climate regulations for a long, long time is really coming to the table now. And our financial investors, especially institutional investors, by necessity, they cannot be pioneers. They cannot be leaders in this normally, you know, their mandate is actually to keep money secure and to pay pensions. So they must by necessity be followers. But there is huge progress today in creating the framework actually that allows also step by step for the biggest investors in the world to come on board for forestry and agroforestry sustainable investments. I think that's, it's a perfect note to end. Thank you so much, Richard for this deep dive into the world of agroforestry, institutional investors and what needs to be done and is already happening to really get, let's say, the larger pots of money flowing into the space. Yeah, thanks very much for giving me the possibility to air my views here and apologies to all listeners who got lost in my rambling. Absolutely not, I think it was great. If you found the "Investing in Regenerative Agriculture and Food" podcast valuable, there are a few simple ways you can use to support it. Number one rate and review the podcast on your podcast app. It's the best way for other listeners to find the podcast and it only takes a few seconds. Number two, share this podcase on social media or email it to your friends and colleagues. Number three, if this podcast has been of value to you, and if you have the means please join my patreon community to help grow this platform and allow me to take it further. You can find all the details on patreon.com/ regenerativeagriculture or in the description below. Thank you so much and see you at the next podcast. Dear friends of the podcast I'm super excited to share with you the online video course "Investing in Regenerative Agriculture and Food" - how to put money to work in regenerating soils at scale and growing a lot of tasty food while doing it. Why are we doing this course? After 100 interviews and more than 100 hours of audio asking the question how to put money to work in regenerating soils - and I've been following the space since 2011 and recording this podcast in 2016 - we thought it was time to share our lessons learned. What have we seen in the space over the last years? How have we built our decision making framewor? What to focus on with the podcast? How have we picked interviewees? What questions should you ask? What is happening in this space? What should you read? What should you listen? What should you watch? How to approach this space? For whom is this course? You! The soil builders and investors in this space. The soil builders, people working in this space. Entrepreneurial farmers, fund managers, vehicle builders, crowd investing platform builders, AgTech companys, farm to gut food companies, permaculture, keyline designers, holistic management consultants, etc. etc. People that are building soil at scale. And the investors who are putting their own money to work through their family office or as private individuals, or people who are putting other people's money to work through foundations, institutional capital banks, insurance companies, etc. Is this course free? No. This is this pay what you think it's worth. Meaning I have no way of knowing what this course will be worth to you, and I'm very aware that among the listeners of this podcast we have people with very different means. So I'm inviting you if this course is creating value to you, and if you have the means to consider paying what you think it's worth. Thank you. So what is this course? It's currently a series of 17 videos mostly ranging from 10 to 15 minutes, plus PDF slides, so you don't have to write along. We're going to look into why invest in regenerative agriculture and why extractive agriculture is so risky, how to invest, what kind of frameworks you could and I think should build, what to invest in, what kind of co-investors you could find, or what kind of investors you could find if you're a soil builder. Every lesson will have a digging deeper part where I will share what kind of reports, what kind of interviews, what kind of videos you can look into if you want to dig deeper. We're gonna look at nutrient density, landscape design, and a lot more. So what is it not, it's not a list of investable deals. Unfortunately, that doesn't exist in this world. We're really at the beginning of the regenerative agriculture and food revolution. It's also not investment advice. Before making any investment please find professional investment advice. So get ready, get a cup of coffee, a cup of tea or whatever you're drinking, click on the link below sign up and I'm really looking forward to your feedback.

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