We recently interviewed Bart Wesselink, Chief Financial and Risk Officer at STX. Bart Wesselink is the Chief Finance and Risk officer at STX Group. Before joining STX Group in 2021, Bart served as a Chief Financial and Operations Officer as well as a statutory director with consent from the Dutch Central Bank at bunq bank. Prior to his time at bunq, Bart was the Chief Financial Officer for Europe at LiveStyle and the founder and Chief Financial Officer for Paylogic, founded in 2005.

Key Takeaways

• STX is a global environmental commodities trader that helps businesses achieve their net-zero goals by providing a wide range of environmental commodities and services.
• Their newly launched credit facility by STX is unique in nature because it is a borrowing-based facility that allows them to use their environmental commodities as collateral for borrowing from banks.
• The credit facility is the first of its kind across the globe and marks a significant achievement for STX and the entire environmental commodities market.

Overview

cCarbon.info: Can you tell us what exactly STX does when it comes to trading environmental commodities?

Bart: STX is a leading global environmental commodities trader. We define these commodities as any product that helps to achieve the net-zero goals, and all the products that we trade can be expressed in a ton of CO2 reduction. Our portfolio consists of over 40 different product types, including Renewable Energy Certificates (RECs), blending obligations, and renewable gas, among others. While many are familiar with carbon credits and biofuels, we trade in a much wider variety of environmental commodities. Our corporate sales arm, Strive by STX, works with companies to help them meet their net-zero goals. Our approach goes beyond offsetting, beginning with energy efficiency schemes to reduce overall energy consumption. We then focus on substitution with sustainable energy, ensuring that any energy consumed is truly sustainable. Finally, we also trade offsetting products, with a focus on energy efficiency and substitution. Our work is driven by compliance and regulation schemes. The European Union Allowance (EUA) is a well-known carbon allowance in Europe, but we support several local schemes in individual countries, like Belgium, as well. As a market maker, we strive to make the environmental commodities market function by providing access and absorbing risk. In summary, our goal is to help businesses meet their net-zero goals by providing a wide range of environmental commodities and services.

Paving the way for energy transition

cCarbon.info: How is this newly launched credit facility by STX unique in nature?

Bart: The uniqueness of it is that it came to be! That is the unique part of it because the facility we have is called a borrowing-based facility, a type of credit facility that is the cornerstone of any commodity trader trading in metals or anything else. It works by pledging your inventories and outstanding invoices as collateral to the bank while still retaining ownership of them. However, the strict rules and valuation methods banks use for collateral previously made it difficult to borrow against environmental commodities, except biofuels and EUAs (European Union Allowances) which were accepted.

Our mission has been to prove to banks that our products have significant value and are just as viable collateral as any other commodity. We have shown them that in many cases, environmental commodities we trade are even safer and more secure than others they are used to dealing with. For example, our products are certificates in a government registry, making them easy to sell without the need for storage facilities. We have worked tirelessly to get our products accepted and valued as collateral, and we have succeeded with a significant group of banks.

This achievement is pivotal for us and the entire environmental commodities market, as it demonstrates that the banking sector is excited about what we have accomplished. Since announcing the credit facility just two weeks ago, we have seen increased interest and have even added another bank to the syndicate. Investment banks have also taken notice and are reaching out to set up similar structures. This acceptance of our products opens more opportunities for us and the market.

cCarbon.info: Which type of credits are put up as collateral in your facility?

Bart: In regard to the facility, its beauty lies in its versatility. While we offer a range of commodities, it is important to recognize that each one may have unique market characteristics, such as size or price volatility. However, we consider these factors through a “haircut.” This means that the amount of cash we can borrow against inventories varies depending on the underlying product, with different levels of haircut per product category. So, while there may be differences from certificate to certificate, we strive to manage these variances effectively.

cCarbon.info: This facility has also been said to be the first of its kind across the globe, is that true?

Bart: To our knowledge, this is the first system of its kind. We have reached out to numerous banks to collaborate on this initiative, and those who have joined the syndicate are among the biggest and most prominent trading banks in the world. According to our partners, this marks the first time they have been involved in a venture like this. We have also received feedback from other banks who have expressed interest but are not internally prepared and ready to participate yet. To date, we have not encountered anyone else who has a comparable system in place aside from STX.

Scope of the facility and trading technicalities

cCarbon.info: If you as a company pledge a certificate, would you have to hold that on your books, or can that be something that you can still trade?

Bart: To finance environmental commodities, we must have them on our books. As such, we place the inventory in a lockup period until we repay the credit facility. We purchase the commodities with cash, add them to our balance sheet, and demonstrate to the banks that we possess them. We are then refunded or receive cash for most of the purchase and must repay the bank on the day we sell the certificate. Technically, we must periodically provide banks with statements about what we have, which translates into one number that serves as the maximum amount we can borrow. This brings environmental commodities in line with other commodities, such as metals, that can be borrowed against. The availability of financing for environmental commodities is now like that of more traditional investment options.

cCarbon.info: What does STX plan to do with the funds generated from the scheme? Any plans?

Bart: Given that it is standard practice for any company to finance working capital with debt, it was a challenge for us to secure adequate financing via this route. As a result, we had to rely on our equity to fund our working capital needs. By financing the facility, we can expand within this industry and refinance the equity that we had invested in working capital. This means that our equity is available for other purposes, such as funding projects that are at a similar stage, which can be difficult to finance with debt – as is often the case in other commodity markets. Our objective with these funds is to increase our focus on origination, meaning we aim to support the initiation of these projects that generate these products, in addition to trading in the secondary markets.

Market outlook for environmental commodity trading

cCarbon.info: Would you say that the facility incentivizes investors to hold onto these commodities throughout the world right now?

Bart: This is certainly a significant step towards increasing liquidity and volume in the market. However, we have a long way to go before reaching the level of incumbents. Currently, we operate in the OTC (Over the Counter) market which is not deep enough to support this. Despite this, we have made great progress by obtaining financing for what is a ‘dead asset on account’ for many market participants. At the end of a compliance period, such as a calendar year, our counterparties are required to submit a certain number of certificates to the regulator. If these certificates are acquired throughout the year, they will be considered “dead assets on account” until they are submitted to the regulator at the end of the compliance period, as they do not generate any value and are not recognized as collateral by banks. Our new facility has established a new arrangement that does not change this per se, but this company may now choose to sell us the certificates with the obligation to buy them back shortly before the end of the compliance period. We can finance these certificates and through this, we can provide working capital to such counterparties. This is a significant milestone towards increasing liquidity and making the market more attractive for investors.

Into the future: energy transition and other impacts

cCarbon.info: What is your outlook on this facility pushing the envelope for energy transition across the world?

Bart: We are currently experiencing a critical turning point where banks are beginning to accept environmental products. This recognition is significant because it means that these products are becoming established and mature, much like traditional commodities, such as metals, which have been around for a long time. As a result, the playing field is leveled and these markets can function more efficiently, like the way metals markets operate. This is a significant development in driving the energy transition and ensuring that environmental commodities play a vital role in shaping the future of energy.

cCarbon.info: How do you think this will impact the overall environmental commodities market in the short and long term?

Bart: In the long term, the facility will accelerate the path toward achieving net zero. As more countries make net zero pledges, the volumes in the environmental commodities market will increase, making market mechanisms such as financing more efficient. In the short term, we see the facility as a success and note that it has received attention from lenders and other market participants who are interested in replicating it. This is a way to contribute to the energy transition and we are happy to see others scrambling to replicate our success.

About STX Group

STX is a leading global environmental commodity trader and climate solutions provider. For over 15 years, the company has been at the forefront of the global transition towards a low-carbon economy. By leveraging its expertise in accurately pricing pollution and emissions, it has helped to cultivate trust in market-based solutions to the decarbonization of the economy.

With its trading and Corporate Climate Solutions offerings, STX ensures that money flows to hundreds and thousands of projects that make the world a greener place while providing corporations with certified proof points of their contributions to environmental progress.

After acquiring Vertis and its subsidiary Strive in December 2021, the STX Group now boasts a diverse team of nearly 500 employees from over 50 countries. Headquartered in Amsterdam, the Netherlands, STX Group has 10 offices around the world and an annual trading volume of over EUR 4 billion. For more information, please visit stxgroup.com.

Analyst Contact:

• Craig Rocha (cmrocha@ckinetics.com)
• Megha Jha (mjha@ckinetics.com)