Motif Markets | Sustainability Credits

What are sustainability credits

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.

Example sustainability issues

While Carbon Credits are a well know example of Sustainability Credits, other sustainability issues can also be addressed. Some possible examples are discussed here.

Trading sustainability credits

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:

  • Trading volumes are extremely low compared to equities.
  • There is no element of capital raising.
  • Most regulated equity exchanges are built from systems from many suppliers.
  • Sustainability Credits trading methodologies within an exchange can differ from equities (eg. Including audit information and co-benefits). These would require customisations by many of the exchange suppliers.

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.

Motif Markets’ trading solution

Motif Markets’ XStack is ideal for trading Sustainability Credits. It is a full stack with a pluggable matching engine architecture allowing us to easily modify it 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.

However, most importantly, it is affordable.

We are developing a hosted version of XStack specifically designed for Sustainability Credits. This hosted version is based around shared infrastructure making it even more affordable. The following points outline its capabilities and how it can be used by customers developing voluntary or regulated Sustainability Credits schemes:

  • All exchange infrastructure is hosted and maintained by Motif Markets.
  • Customer’s will be provided with their own virtual market on this exchange. They can list one or more credits on this market.
  • Buyers, sellers and traders of these credits will have access to all the XStack front end tools as available to equity exchanges. This includes Motif, MotifXL, ArcLight and alerting.
  • Market will have specialised features for audit and trading of credits.
  • Motif Markets will work with the customer to define the market rules for the credits and, if necessary, Motif Markets will customise their market so that it implements the rules.
  • Specialised protocols and adapters can be created for automatic issuance of credits by credit generators.
  • Customer operates market with XStack Administration tools (which includes the ability to specify vetting rules).
  • Customer can either use the Motif Markets’ own registry or Motif Markets can write an adapter to use an external registry specified by the customer.
  • As market operator, the customer will be responsible for all legislative licensing required by the credits scheme.

Contact Us

To find out more, please contact one of our consultants.