All in on climate: the role of carbon credits in corporate climate strategiesForest Trends’ Ecosystem Marketplace
This report highlights how companies that participate in the voluntary carbon market (VCM) are leading on key climate transparency, ambition, and action efforts that are fundamental to ensuring the credibility of their climate claims.
Our findings result from Ecosystem Marketplace’s (EM) analysis of corporate disclosures to CDP by 7,415 organizations reporting data covering at least six months of 2021, as well as of EM’s own propriety voluntary carbon market dataset.
We focus on a comparison between companies that purchased voluntary carbon credits versus companies that do not use carbon credits at all and companies that only buy or originate compliance credits. The 2022 CDP Climate Change information request that resulted in these corporate disclosures was sent on behalf of 590 institutional investor signatories with a combined US$110 trillion in assets, and 200+ major purchasers with over US$5.5 trillion in procurement spend.
We offer a series of comparative analyses across a variety of metrics for corporate action on climate sustainability, aligned with corporate best practice of first measuring greenhouse gas (GHG) emissions; then taking steps to reduce and avoid direct and indirect emissions on a target-based pathway; and finally buying carbon credits to address unavoidable emissions and those beyond the value chain.
Across the board, the evidence shows that participation in the VCM is a signal that a company is likely already addressing climate change in their direct operations and throughout their value chains. Far from “buying their way out of the problem”, voluntary carbon buyers are taking advantage of the valuable role carbon credits play as one of the available solutions for value chain emissions that cannot be addressed by reducing Scope 1 and 2 emissions.
Companies engaged in the VCM outperform their peers in accelerated climate action. Fifty-nine percent of VCM buyers reported lower gross emissions year-on-year related to reduced emissions and/or renewable energy consumption, compared to 33 percent of companies not participating in the carbon markets. VCM buyers are also 1.3 times more likely to have supplier engagement strategies and spent three times more on emissions reductions activities than the typical non-buyer (see page 17).
Voluntary carbon buyers are more likely to have science-based targets to address climate change, and their targets are more ambitious. Voluntary carbon buyers are 3.4 times more likely to have an approved science-based climate target than companies that do not engage in carbon markets, and three times more likely include Scope 3
Emissions in their climate targets, As the old management adage says, you can’t manage what you don’t measure (see page 18).
Voluntary carbon buyers lead the pack when it comes to emissions transparency and accountability. Compared to other companies, they are 1.2 times more likely to disclose their emissions to CDP, and the median voluntary credit buyer disclosed more than 2.5 times the volume of emissions with their Scope 3 reporting than companies not engaged in voluntary credits. Ninety-nine percent reported board-level oversight of climate-related activities (see page 15).
In fact, VCM carbon credits represent a very small share of overall corporate GHG emissions. Our data show that the credits companies are buying represent just over 2 percent of their total emissions on average.
Taken together, clear insights emerge from these analyses. Companies are purchasing voluntary carbon credits as a part of an integrated and comprehensive strategy to accelerate global climate action while also decarbonizing their own businesses. In other words, the data do not broadly support the perception that carbon credits are being used to delay or avoid meaningful action on climate. This is important, because intense public scrutiny, paired with a wait for greater clarity from the Voluntary Carbon Markets Integrity Initiative (VCMI) in the form of its forthcoming claims code, has had a dampening effect on the market in 2023. Since 2021, EM’s own proprietary data show a decline in credit sale volumes, which has been accompanied by an uptick in EM’s global average VCM credit prices, a signal of increasing buyer commitment toward higher quality credits (and a willingness to pay more for them).
Still, voluntary carbon buyer transparency is lagging. Our analysis indicates that only 8.2 percent of the total carbon buyers that confidentially reported to EM are disclosing carbon market engagement to CDP. EM welcomes the work of VCMI to create a standard approach for voluntary carbon buyers’ climate ambition and action criteria, as well as how they should report their claims on project-based carbon credits through their soon-to-be-finalized Claims Code.
As the VCM continues to evolve, EM stands ready to continue to drive carbon market transparency, knowledge, and insights as a globally trusted, independent, and neutral non-profit initiative. To continue to do this effectively, we look forward to engaging with the entire carbon market value chain and stakeholder network who have a common vision for high-integrity and well-functioning global carbon markets that achieve results on the ground and in corporate boardrooms.
- Download a PDF version of the All in on climate: the role of carbon credits in corporate climate strategies here.
This report was funded by the We Mean Business Coalition.