Investing in Natural Capital Tools

Why Microsoft’s Climate Innovation Fund is backing three companies that are transforming the way we measure, manage, and regenerate ecosystems    

Climate change is the defining challenge of our time, and it requires urgent and ambitious action from all sectors. At Microsoft’s Climate Innovation Fund, we support innovative solutions that can provide scaled positive impact on the planet and its people across four impact pillars: carbon, water, waste, and ecosystems. That's why I am excited to share our investments in three companies that are leading the way in creating natural capital solutions that work: Yard Stick PBC, Vibrant Planet PBC and Farmland LP. These three companies are tackling some of the most critical and complex problems in the climate space: how to measure, manage, and regenerate ecosystems.

Widening the aperture to prioritize biodiversity and ecosystem health, in addition to considering the specific impacts on carbon, water or waste, is paramount when considering how to build climate resiliency. According to a 2021 report from the World Economic Forum, natural climate solutions can contribute at least 30% of carbon emissions mitigation needed by 2030[1]. Moreover, over half of the world’s GDP -- $44 trillion – is highly or moderately dependent on nature [2]. Dependent industries include food, timber, agriculture, pharmaceuticals, manufacturing, real estate, financial services, mining and other extractive industries[3]. And yet, it’s estimated nature-based climate adaptation receives only 5% of international climate funding [4].  These stats show clear misalignment between mitigation potential, economic impact, and available capital. We must take a longer view with a wide lens to ensure directional improvement across the many interwoven complex systems in our forests, our food systems, and our watersheds.

For example, critical work is required to address the resiliency of our food system which is increasingly threatened by the changing climate. Research suggests that for every degree Celsius temperature rise, there will be a 3-7% decrease in production of staple crops like corn, wheat, rice and soybeans [5]. These crops supply around two-thirds of all the calories that humans consume, meaning any disruption could have significant implications for global food security [6]. Declining crop yields and increases in global population (forecasted to reach 9 billion by 2050) make building food system resiliency critical.  Recent studies suggest all new food production in the next 25 years will have to come from existing agricultural land [7]; regenerative agriculture is one of our most powerful tools available to regenerate soils, maintain, and even increase crop yields.

While we work to build resiliency in our food system, commensurate work will need to be done to increase forest resiliency worldwide. In the last decade, the scale and the severity of wildfires has increased exponentially: the Canadian wildfires of 2023 burned 20M acres [8], releasing 640M tons of CO2 into the atmosphere which is comparable to the annual fossil fuel emissions of Germany [9].The Australia wildfires of 2020 released an estimated 715M tons of CO2, equivalent to energy use from 90M homes [10]. With fires these large, the estimated CO2 releases are orders of magnitude larger than anything seen in past wildfires and can erase years of net zero progress won through policy and technology innovation. It is imperative that we put technology to work to better protect global forest ecosystems.

 To tackle these enormously complex challenges, it is essential to harness the power of data and technology. Earth has a massive data footprint that grows every day. A typical farm produces about 500,000 data points every day, which will increase to 4 million data points by 2036 [11]. Planet Labs, a leader in the earth observation market, has approximately 200 satellites in orbit that capture >30 terabytes of data every day, with an archive of over 50 petabytes of Earth data [12]. Data platforms process and integrate these massive datasets that cover space and time, collected by satellites, drones, aerial flights, millions of IoT sensors, short- and long-term climate forecasts, weather models and more. AI helps to comprehend the intricacy of the systems involved, analyze and then crucially, foresee what will happen next. Recognizing the role data has to play in understanding and managing earth’s natural systems is one of the reasons Microsoft has made significant investments in this area – from our first-party solutions like Azure Data Manager for Agriculture, Microsoft Planetary Computer, to the Microsoft Climate Research Initiative and AI for Good -- teams across Microsoft are focused on how data can be used manage and monitor earth’s natural systems.

This is where our Climate Innovation Fund portfolio companies come in. They are pairing cutting-edge technologies and datasets, including climate forecasting, precision AgTech, spectroscopy, hyperspectral and LIDAR imagery, and geospatial data, with the latest in IoT,  machine learning and cloud computing, to create data-driven solutions that enable better decision-making and action for natural ecosystems. They are also creating new markets and opportunities for ecosystems to generate value for landowners, project developers, buyers, and investors. Let me introduce you to each of them and explain why we are backing them.

The Measurement Pillar of Soil Carbon: Yard Stick PBC

Yard Stick PBC is a soil carbon MRV company that has created an innovative soil carbon IoT device, paired with data analytics and insights to measure and track soil carbon at farm scale. The company leverages advanced technologies like spectroscopy, IoT and machine learning, backstopped by the latest in soil science, to provide insights on soil organic carbon (SOC) in fields, over time.

Where’s the tech

As a provider of soil organic carbon MRV services, Yard Stick has built impressive technology in both their probe and their digital platform. Yard Stick has developed a custom SOC measurement device, that uses a spectroscopy camera to measure how light bounces off soil, and therefore predict the percentage of SOC in the soil. They can measure at depths up to one meter enabling measurement on cropland with much deeper root systems [13].   Their device replaces a costly and lengthy lab analysis process with a digitized, in-field monitoring solution that enables landowners to measure soil organic carbon (SOC) values at regular intervals. Digitizing this critical soil carbon data means SOC can be regularly monitored, enabling time series insights and monitoring of any incremental improvements provided by farming practice changes. In doing so, soil carbon becomes a real KPI every farmer can track, just like NPK and soil moisture.

 Why we invested

At 915M acres, soil on US farmland is part of the second largest natural carbon sink after our oceans [14]. And yet, only 1.5% of credits traded in voluntary carbon markets are agriculture-based [15]. A lack of scalable, accurate, and affordable MRV has been a major bottleneck for the development of soil carbon projects, and technology has an important role to play in order to better realize the economic and mitigation potential of soil carbon. As the saying goes, if you can't measure it, you can't manage it. Yard Stick solves this problem by using spectroscopy to provide the highest quality measurement, with demonstrated scientific accuracy and registry compliance, all at a lower cost compared to conventional lab measurements. Yard Stick is also aligned to the latest soil carbon protocols and registries, such as Verra's VM0042, and has built a strong team of scientific advisors and partners. We believe Yard Stick is well positioned to become the market leader for soil carbon MRV services in the US and beyond.

Informed Land Management to Increase Forest Resilience: Vibrant Planet PBC

Vibrant Planet PBC is a company that harnesses data-driven science and cloud-based technology to help make communities and ecosystems more resilient in the face of climate change. The company combines advanced technologies, such as satellite imagery, LIDAR, and AI to provide analytics on land areas and built infrastructure exposed to wildfire risk, and generate mitigation plans to decrease risk and improve land resiliency.

Where’s the tech

Vibrant Planet's innovative software platform is revolutionizing forest management. Utilizing advanced AI and high-resolution imagery, Vibrant Planet provides landowners with a dynamic mapping tool to mitigate risk and enhance forest health and climate adaptations. The software integrates three sophisticated models to create detailed vegetation maps, offering insights into tree heights and creating digital forest replicas. These digital forests consider a myriad of factors, including topography, hydrology, property boundaries, and infrastructure, to ensure they align with real-world forest treatment scales. They are then evaluated using specialized models that assess fire risk, drought resilience, regeneration potential, and ecological departure, among other factors. Additionally, Vibrant Planet incorporates several additional datasets, including roads, buildings, water resources, carbon, and habitats of endangered species. Finally, the software brings all this data to life through an intuitive interface, enabling users to perform sophisticated, real-time scenario planning, with the ability to optimize plans with user-defined priorities, restoration goals, budget constraints, and timelines.

Why we invested

Climate change is making extreme events, such as wildfires, droughts, and floods, more frequent and severe, which endanger the well-being of millions of people and the health and function of natural ecosystems. To manage these risks and build resilience, we need accurate and timely data to enable adaptive planning, and collaborative and inclusive land management. Vibrant Planet offers a data-driven platform that combines remote sensing, data analytics, and science to provide resilience planning and decision support for fire adaptation to landowners. It enables users to evaluate and compare risks and benefits of different scenarios at any scale, and to cooperate and adjust plans as conditions or objectives change. This is an excellent example of AI enabling climate resiliency, providing critical analysis to predict a disaster before it happens, enabling preventive action.

Repairing Ecosystems with Regenerative Agriculture: Farmland LP

Farmland LP is an investment management firm that buys conventional farmland and transitions it to organic farmland, utilizing regenerative agriculture practices. The land is converted from commodity crops to a more diverse group of high-value organic and permanent crops, tailored to optimize the soil health of each farm. Farmland LP’s internal 55-person farm management team, with decades of experience in large-scale organic farming, oversees these operations. The firm also invests in infrastructure and technology to enhance productivity and sustainability across its farm portfolio. A wide array of regenerative agriculture practices are implemented, including crop rotation, planting pollinator habitats, livestock pasturing and cover cropping – all aimed at improving soil health, water retention and restoring biodiversity.

Where’s the tech

Farmland LP incorporates technology at every stage of its farm management practices. It starts with the use of short, and long-term climate forecasts to identify and evaluate risks to every acre of its land. IoT sensors for soil, water, and temperature continuously monitor and capture farm data, facilitating analysis. Precision irrigation systems with remote monitoring are deployed throughout the entire land portfolio to optimize water use. Imagery and mapping data is used for a range of purposes, including informing crop rotations, measuring NVDI (Normalized Difference Vegetation Index), estimating photosynthetic potential and forecasting water stress across fields. Hyperspectral and geospatial data is used to guide decision making. Additionally, Farmland LP uses modern, low-emission farm equipment with GPS/SAR for remote monitoring of work efficiencies, fuel use and yield tracking, and is exploring the adoption of electric vehicles and autonomous farm equipment.

Why we invested

Soil health is the bedrock of a strong climate mitigation strategy, a more resilient food system, and an untapped supply of nature-based credits for the carbon markets. From a climate impact standpoint, few opportunities match the global carbon sequestration potential of soil, estimated at 2-5Gt CO2 per year by 2030 [16,17]; this timeline is important as it’s a reminder that soil carbon sequestration is a Gt/yr scale market today, decades earlier than many other mitigation options.  Regenerative agriculture is a holistic approach to farming that focuses on soil health and ecosystem restoration. It also has economic benefits, such as increasing crop yields and quality, reducing input costs, and creating new revenue streams from ecosystem services. We look for opportunities to be catalytic, and catalyzing the regenerative agriculture market is increasingly important, as one of the most powerful tools to increase food yields, store more water in soils, and regenerate ecosystems. Farmland LP is solely focused on organic and regenerative agriculture in the US, and we are excited to support their mission.

What We Have Learned

Investing in natural capital is hard. Earth’s cycles happen on their own timeline, which can be (sometimes wildly) incongruent with a traditional venture return timeline. Patient capital is needed to, quite literally, see the forest and the trees. Here are a few things we have learned thus far:

• Patient Capital is needed. Investors in the natural capital space are dealing with largely fixed product development and maturation timelines -- there’s only so fast sunshine, dirt, and water can do its work! The end markets for these products are also forming, while scientists are actively researching to understand the potential of new and existing nature-based pathways, and new technology is being used to enable transparency through MRV. Complex work is happening in the financial, scientific, and technological spheres – all at the same time. The “payoff” however is massive – gigaton-scale sequestration potential awaits, but time (and patient capital) is a requirement to advance the ball.  
• Scientific accuracy is a must. We are very focused on investing in solutions that demonstrate strong scientific accuracy, and in startups that are committed to maintaining scientific rigor as part of how they run their business. We are fortunate at Microsoft to be surrounded by ecologists, biologists, data scientists, and technologists, and we utilize this network to ensure our investments are scientifically sound and nature positive.
• Double-bottom line returns are required. An average farmer may only get 40 annual crop cycles to maximize the potential of their sunshine, water and soil, in order to produce the highest yields possible and make the most of razor-thin operating margins. Practice change, given the small margin of error, requires a strong value proposition with a clear path to economic return and a positive environmental impact. Tech can do some pretty amazing things, but if the product can’t provide both economic and environmental value, getting through that last mile in the sales cycle is going to be impossible.

The journey towards ecosystem resilience is complex yet filled with opportunities for growth and innovation. Our collaboration with these pioneering companies is more than just an investment; it's a partnership for change. Together, we are creating a world where data empowers us to make informed decisions, and technology enhances our ability to adapt and build resiliency. We are thrilled to support the journeys of these three innovative companies that are transforming the way we measure, manage, and regenerate ecosystems at scale.

[1] World Economic Forum. Nature and Net Zero. May 2021.

[2] World Economic Forum. Why businesses are waking up to the threat of nature-related risks. Jan 2024.

[3] Trellis. Biodiversity loss is a bigger risk than carbon emissions. July 2024.

[4] Yale Environmental 360. Why are nature-based solutions on climate being overlooked?. April 2022.

[5] Columbia Climate School. How Climate Change will Alter our Food. July 2018

[6] Economist: Climate change will alter where many crops are grown. Aug 2021

[7] World Economic Forum: What is Regenerative Agriculture. Oct 2022

[8] Canada Offers Lesson in the Economic Toll of Climate Change. NYT, July 3, 2023

[9] Our World in Data. CO2 Emissions. Jan 2024.

[10] Nature: Australian bushfires belched out immense quantity of carbon. Sept 15, 2021.

[11] IBM AI and Cloud Tech Helps Ag Industry. IBM. May 2019.

[12] Planet Labs PBC Investor Day 2023.

[13] National Geographic: Grasslands Explained. October 19, 2023.

[14] Carbon 180: Soil Carbon Moonshot, March 2022

[15] Berkeley Carbon Trading Project, Voluntary Registry Offsets Database

[16] Frontiers in Climate. Soil C Sequestration as a Biological Negative Emission Strategy. Oct. 5, 2019.

[17] IPCC: AR6 Synthesis Report, Climate Change 2023