The ‘how’ and ‘why’ of engaging with the carbon market
We Mean Business Coalition
Investing in the right carbon credits can be a struggle. Here’s how companies can make sure they’re making credible investments in nature.
The carbon credit market has exploded in popularity in recent years, with the value of traded global markets for carbon permits reaching a record $909 billion last year. That increase in popularity has brought with it greater scrutiny on the integrity of different carbon credits, with recent investigative reporting highlighting an uncomfortable truth: the market still lacks regulation, and some credits simply don’t deliver on their climate promises.
Recent scrutiny should not, however, discourage companies from investing in carbon markets. Carbon credits still represent a critical tool in limiting global warming to 1.5°C and reversing devastating nature loss, and should be part of a company’s climate transition action plan. It is critical, however, that investments in nature should always be coupled with significant reductions in greenhouse gas emissions throughout a company’s value chains, rather than being used as a substitute.
Companies should also play a more active role in making sure their purchases on the carbon market are credible — as Luke Pritchard, We Mean Business Coalition’s Deputy Director for Nature-Based Solutions, argued in a recent article for Reuters Sustainable Business.
Here, we address some of the key questions companies and investors are asking as they seek to navigate the risks and opportunities that carbon credits bring.
How can my company buy credible carbon credits?
Companies can engage in the carbon market in several different ways: by buying directly from project developers, launching requests for proposals (RFPs) that invite submissions from projects, or by going through carbon brokers or marketplaces. As in any business, there are advantages and disadvantages of involving a third party or using a marketplace.
On the one hand, these marketplaces have helpfully streamlined the purchase process and have often curated or screened projects ahead of time. On the other hand, they have a vested interest in selling their own credits, and take a cut of the purchase in doing so. This can mean that less money from the purchase reaches its intended climate project.
Several organisations have produced guides for companies looking to enter the carbon market, including the following steps in the Business Alliance to Scale Climate Solutions (BASCS) primer:
- Develop a company climate strategy
- Develop a carbon credit procurement strategy and plan
- Build internal support and alignment
- Begin sourcing credits (through RFPs, brokers, marketplaces or consultancies)
- Vet and screen projects
- Finalize and execute your plan and purchase
- Manage your carbon credit inventory and records.
The Natural Climate Solution Alliance (NCSA) has also produced a guide suitable for C-suite executives, whilst the Tropical Forest Credit Integrity (TFCI) guide can help ensure the purchase of high-quality forest credits.
The steps outlined above are a good start but they’re not exhaustive. Companies should join platforms like BASCS or NCSA to get more in depth guidance and work with their peers to develop best-in-class sourcing strategies.
Is it more difficult for SMEs to purchase credible carbon credits?
Small and medium-sized enterprises (SMEs) may face some challenges in this process. The amount of background research, due diligence and screening they can do may be restricted by their skills, knowledge, internal capacity or funding, proportional to the volume of credits they are purchasing. For example, they would not necessarily be expected to have the resources to do due diligence for relatively small purchases of around 100 tonnes, or to do the background and project work to launch their own RFP.
Two marketplaces that curate projects and have streamlined the purchase process to make carbon credits more accessible to any company are Salesforce’s Net Zero Marketplace and TIME’s CO2.com.
How can I be sure the carbon credits I purchase will result in real emissions reduction and positive impact in communities?
The best way is to ensure you are purchasing credits that are independently validated and verified against a credible, independent standard, such as Verra’s Verified Carbon Standard, Gold Standard, Plan Vivo, ART/TREES, the Climate Action Reserve, or American Carbon Registry.
These standards refer to the criteria that projects must meet to be eligible for carbon credits, which include, among other things, being able to demonstrate that the achieved emissions reduction or CO2 removals are real and measurable. Carbon credits ratified by a credible, independent standard, such as Verra’s Verified Carbon Standard (VCS) or the Plan Vivo Standard, have met minimum threshold requirements and undergone an independent validation process to ensure they have adhered to the standard’s requirement, and that there is a robust registry to back up those credits.
However, even within the methodologies applied for each standard there can be significant variation in carbon credit quality. Companies should make sure to carefully review the standards used by the carbon market program they are participating in to ensure they meet the criteria.
Both the BASCS and TCFI documents contain guidance on how to vet carbon credit projects before investing, outlining the standards they recognize and signposting third party credit-rating agencies.
Ratings agencies such as Sylvera or BeZero can help companies navigate the variability within similar project types. They do not provide ratification or a standard to a carbon project, but instead independently assess the likelihood that the credits which have been issued with a standard have delivered on their claims and highlight any risks associated with the projects.
Once my company has purchased carbon credits, how can I continue to monitor their integrity?
Once the credits have been purchased, it is important to follow up with verification bodies to make sure the projects are delivering on their stated goals. Independent rating agencies also monitor projects through project analysis and forecast for emissions avoidance or removal. It’s important to understand how these ratings and standards are produced, which may be through desk research, satellite monitoring or field visits.
Which other methods can help me to verify carbon credits?
Standards-issuing organizations have also shifted to new approaches in verification such as digital monitoring, reporting and verification (digital MRV or DMRV). Gold Standard released an open collaboration to test secure, open-source solutions, whilst Verra opened up expressions of interest for piloting platforms. The aim is to collect carbon project data in real-time via the Internet of Things, mobile technology or online apps. That data can then be used, for example, in tracking a project’s emissions claims and verifying them. This will facilitate the digital evolution of standards, which are currently given out on paper records after project emissions data has been collected manually on site, to a software-based solution or service. Better transparency of the data will lead to more clarity and reliability in the market.
NCSA has also produced a buyer’s guide to natural climate solutions carbon credits and a guide suitable for C-suite executives, while the updated TFCI guide can help ensure the purchase of high-quality forest credits.
Towards net zero
It is critical that companies do not abandon their investments in the carbon markets. Companies must instead recognize the opportunity. However, it is crucial for companies to understand the standards and baselines of carbon credits and to participate in reputable carbon market programs that undergo rigorous verification processes. Companies have the power, the tools, and the choice to shape the carbon market to help realise its potential.
For more guidance on company investments in nature, read We Mean Business Coalition’s Guiding Principles for Corporate Climate Leadership: The Role of Nature-based Solutions.