Transparency In Developing Carbon Credits
Quick Links – Part 1 | Part 2 | Part 3
Part 4 – Making a Difference Today
Can we really make a difference today when it comes to climate change? What will get us there – carbon credits, net-zero goals, science-based targets (SBT), Environmental, Social, & Governance (ESG) reporting? The answer is – all of the above.
At ClimeCo, we know the Voluntary Carbon Market (VCM) is an essential part of the broader push to decarbonize our global economy with direct financial investments. It must work in connection with these other components to help us meet international goals. So, let’s discuss how we can make a difference today and tomorrow for our future.
In this final part of our “Transparency in Developing Carbon Credits” editorial series, we will cover how carbon offsets should be used as part of a comprehensive approach to decarbonization. To drive the necessary changes, companies and countries must make all the investments needed to meet ambitious climate targets while ensuring that ESG issues are effectively tracked and addressed.
What is Our Situation Today?
The number of countries and institutions that have pledged to drastically reduce their greenhouse gas (GHG) emissions has recently grown. Now, over 76% of GHG emissions  are addressed under national commitments, and 96% of the largest global companies  produce sustainability reports. But what is the financial cost associated with this emerging green economy?
By some estimates, society must invest over $275 trillion by 2050 to reach worldwide net-zero targets . However, our existing policies are not on track to meet GHG and sustainability commitments. The most recent Intergovernmental Panel on Climate Change (IPCC) report calls for a significant increase in financing for climate action to scale the deployment of existing and innovative tools to avoid the worst consequences of climate change.
As discussed in part 2 of this series, the VCM is integral in financing the global net-zero transition as the public and private sectors work to measure and price carbon, track and implement operational decarbonization programs, and strive to meet reduction commitments. High-quality VCM projects fill a vital market gap and help define natural capital and similar needs that need to be more economically addressed. Simply put, as we prioritize our emission reductions, we must improve our ability to measure and price carbon and shift financial resources toward practical solutions. We can accomplish this by supporting high-quality VCM projects.
What Kind of Project Should We Support?
In part 3 of this series, we highlighted two types of projects in the VCM – nature-based solutions (NBS) and industrial or technology-based solutions (industrial). Both project types can prevent emissions from entering the atmosphere or directly remove emissions. Both are integral to meeting global GHG commitments.
Which project type should you support? The answer depends on your sustainability goals, your brand’s specific missions, and what best aligns with your net-zero commitment. For example, some buyers may wish to support projects within their value chain or closer to their operations. Others may prioritize projects that also protect biodiversity and social equity. To help our clients support projects that align with their company values and sustainability goals, ClimeCo has developed a diverse and growing portfolio of high-quality NBS and industrial projects to choose from. We work directly with our clients to help them understand their options and share the project details with them so they can support the right project for their brand and company philosophy on sustainability. We are transparent about how we develop our projects and how they benefit the local community, and we have always focused on quality over quantity. We care about how we develop our projects and how they impact the Earth, and we share this knowledge openly with our clients because today, we are all trying to make good decisions for the greater good of our planet.
How Does the VCM fit into ESG and the SBTi?
The VCM is a vital tool to combat climate change, but it is also one of many tools and initiatives that corporations may encounter in the market today. The rapid pace of change in voluntary initiatives designed to address many ESG issues, including climate change, can be daunting to navigate for corporate leaders. Therefore, it is essential to understand which voluntary initiatives best align with a company´s strategy and business model, from campaigns and commitments to methodologies, registries, and standards.
Following the Paris Agreement, governments and companies began to measure their GHG emissions and figure out what it would take to meet their individual emissions reduction commitments. The need for a standard for best practices was clear. SBT are the accepted best practice for setting emissions reductions and net-zero targets in line with climate science. The Science Based Targets initiative (SBTi) defines and promotes these best practices, provides target-setting methods and guidance, and conducts independent assessment and validation of targets. As of March 2023, over 2,300 companies have had SBT approved with the SBTi.
The SBTi requires companies to set targets based on emission reductions through direct action within their boundaries or value chains. Establishing such a target is a commitment to the deep decarbonization of a business model and the emissions rate business activities will create in the future. The emissions profile of value chains varies significantly by sector. Hard-to-abate industries like plastics, cement, and aviation will take longer to decarbonize without low-carbon alternatives.
Deep decarbonization is complex work that requires a diverse set of policy, legal, technology, and market solutions that remain in development. Offsets are only considered an option for companies wanting to finance additional emission reductions beyond their SBT or net-zero target. Optional compensation measures, like offsets, play a vital role during the transition to net-zero by neutralizing unabated emissions as the global economy aligns with climate science.
Commencing the Net-Zero Journey
Any corporate climate strategy must follow a mitigation hierarchy from carbon neutral to net-zero and climate positive. This will inform whether a mitigation strategy effectively neutralizes a company’s impact on the climate, mitigating climate risk on the company and incentivizing low-carbon capital allocation. At ClimeCo, our team aligns with the Blueprint for Corporate Action on Climate and Nature and recommends four priority interventions:
1. Account for and disclose emissions using internationally recognized frameworks, such as the GHG Protocol, CDP (formerly the Carbon Disclosure Project), and Task Force on Climate-related Financial Disclosure (TCFD).
2. Reduce value-chain emissions in line with a SBT pathway defined by the SBTi.
3. Quantify a financial commitment by pricing remaining emissions through an internal carbon price.
4. Invest in the financial commitment to impact climate and nature to further emission reductions, unlock climate solutions, and source high-quality carbon credits.
Sustainability Solutions for Net-Zero
Since our founding, ClimeCo has been a leading transformation partner to companies, investors, and governments pursuing a low-carbon future. As a vertically integrated sustainability solutions provider, we have enabled our clients to go beyond business as usual. By developing frontier technology-based and nature-based carbon reduction projects, transacting voluntary and compliance environmental credits, and advising on climate risk and disclosure, our team is dedicated to implementing decarbonization pathways tailored to our clients’ sector, business model, and balance sheet.
Thank you for reading our editorial series on “Transparency in Developing Carbon Credits.” We hope that this series is an effective tool to advance your company’s decarbonization efforts. Not all sustainability journeys are the same, but understanding the process and the science behind carbon credits and ESG solutions will help you make the best choices for your business. Please visit our previous parts of this series for more information: Part 1 – The Role of the Voluntary Carbon Market, Part 2 – How Carbon Credits Are Created, and Part 3 – Carbon Quality in Context.
1. United Nations – Net Zero Coalition
2. KPMG – The 2022 KPMG Survey of Sustainability Reporting
3. McKinsey – What it will cost to get to net-zero