In our society, some economic activity is currently accepted or needed however it is unsustainable in the long term. Sustainability Credits are an economic mechanism which transfers funds from companies with unsustainable practices, to organisations currently addressing the sustainability issue. As a consequence, companies and industries are motivated to transition to more sustainable practices while funds are immediately made available to ameliorate the sustainability issue.
A definition of Sustainability Credits is outlined here.
While Carbon Credits are a well know example of Sustainability Credits, other sustainability issues can also be addressed. Some possible examples are discussed here.
A key element of Sustainability Credits is for them to be tradeable. Buyers need to be able to price them and register ownership after procuring them. This requires both a trading environment and a registry.
Currently most sustainability credits are manually traded in Over the Counter (OTC) trading environments with manually maintained registries. This is possible with their low trading volumes but comes with high transaction costs and opaque pricing.
Ideally the trading environment would be similar to that in equity exchanges. However generally, this is not viable because:
Major (Tier 1) exchanges would find it very difficult to justify a business case for Sustainability Credit markets as the revenue would not align with their cost structures.
In the case of regulated Sustainability Credits schemes, the above problems are overcome by regulation. Participants either use the (often subsidised) OTC trading environments or the government provides large subsidies to exchanges for them to list the credits. Generally this means that politically sensitive sustainability causes (such as carbon emissions/abatement) will be regulated and receive government subsidies. However other sustainability causes, which can only be voluntary schemes, do not have access to subsidies and are not viable. What is needed is a trading environment with all the capabilities of an equity exchange but at a cost that can be afforded by voluntary schemes.
Plxtra is an ideal platform for trading Sustainability Credits. It is a full stack solution with a pluggable matching engine architecture allowing it to be easily modified to meet the needs of different credit schemes. It is also designed for regulated trading of equities giving it the reliability and features desired by operators, traders and regulators.
Contact us for more information about how Plxtra can assist you with your Sustainability Credits scheme.