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Due Diligence & De-risking
Compared to the voluntary carbon market's standard units of account - certified carbon tons - forward offtake agreements have much higher associated risk factors that must be considered to protect ecosystem participants. These risks include non-delivery, under-delivery, or delivery of significantly less valuable credits than expected. Solid World's up-front process aims to reduce these risks to structurally acceptable levels by applying an advanced de-risking method.
All Projects allowed into the Protocol have to pass rigorous project-based risk assessments and appropriate risk mitigation on the part of the Supply Partner using our AI driven CRISP framework. Only in cases where all criteria are met are forwards from Projects granted access to the Protocol.
For Projects, the following factors are considered:
- Compatibility with Basket requirements: The Project is screened for criteria that would allow the placement of this Project within an existing Basket category. If no such Basket exists, Supply Partners cannot bring the Project's forward supply onto the Protocol for the time being.
- Conservative Estimates: The Project has been given conservative issuance forecasts based on the most conservative variables available in public literature. Supply that involves preferences beyond the conservative estimates can not be brought to the platform to minimize structural under-delivery risk.
- Climate Risk: Major weather events can significantly impact carbon credit yields. These risks must be documented to disclose related non-delivery risks to Supply Partners. In addition, Solid World may set out guidelines to limit the supply from that Project based on added climate risks to lower structural threats to the Protocol.
- Legal Risk: Countries have different risk profiles regarding carbon credits. These risks might result in curtailing the ability to retire these credits in another country or the country exercising legal ownership rights over any resulting supply. These risks need to be analyzed. The analysis includes country-specific perspectives and discloses any contracts that the Project Proponent might have with the local government, which mitigate these factors.
- Financial Risk: Generally, this information is hard to access and often not disclosed, but the analysis makes its best effort to determine estimates for associated unit economics and break-even point for the Project under conservative assumptions.
- Quality Risk: Even if the Project were to receive issuance, if it does not meaningfully support its local community or engages in questionable emissions accounting practices, such as incorrect baseline setting, this can hurt the value of the resulting credits.
- Expert Council Approval: All Project analysis documents and the recommended course of action provided by the Risk Team are ratified by the Expert Council to ensure all proper processes have been followed and that the resulting judgment is valid.
- Public Documentation: If a Project is allowed onto the Protocol by the Expert Council, all related analysis documentation (to the extent to which they do not invade the privacy rights of any individual or organization) is released to the public. This is done so the public can identify any issues and provide criticism. Solid World believes this constitutes a public good that benefits the larger Voluntary Carbon Market.
For Supply Partners, the following factors are considered:
- Reputation: The Supply Partner is regarded as a known legitimate actor in the broader market.
- KYC & AML: The Supply Partner undergoes KYC and AML checks. These may be done by third parties which have the proper qualifications.
- Ability to cover non-delivery contingencies: The Supply Partner demonstrates the ability to deliver credits and has the means to protect delivery in case of project failure or under-delivery.
- Future developments: Solid World is actively collaborating with leading insurance providers to establish a robust safety net for our liquidity pools. This initiative underscores our commitment to maintaining a secure and resilient platform for our stakeholders. Our goal is to ensure that the entire pool is insured, thus mitigating the potential risks associated with real-world asset projects and fortifying investor confidence. By integrating insurance into our protocol, we strive to provide a more secure environment for our liquidity providers and contribute to the long-term stability and trust in the Solid World ecosystem.
- Legal ownership: At each tokenization event, the Supply Partner signs a document confirming legal rights over the carbon credits they bring once issued.
Solid World maintains a public list of Supply Partners after it accepts the launch of new supply partners.