Carbon Offsetting and Carbon Credits: How Businesses Can Lead the Way in Climate Action

May 28, 2024

Following the SEC’s proposed climate-related disclosure requirements, many companies have taken additional steps towards active management of their GHG emissions as part of their corporate responsibilities. Even before the latest proposal, a number of companies had already set targets to significantly reduce or reach net-zero emissions by 2030 or 2050. The most challenging issue comes with finding useful solutions in reducing and mitigating carbon emissions.

While reduced energy consumption through changes to operations or increased research on emission-reducing innovations are common corporate environmental strategies, these are far from enough to meet emission targets. As a complement to these strategies, many industry giants have begun making billions of dollars of investment in carbon removals or emission reduction projects to offset their own emissions. These projects not only have the potential to reduce global emissions, but also positively build companies’ brand reputation.

What is Carbon Offsetting Projects & Carbon Credits

Carbon offsetting projects refer to verified sustainable initiatives designated at reducing or removing carbon emission. In general, carbon offsetting projects fall into four categories:

- Reduction: Lowering the baseline emissions of a process

- Avoidance: Preventing emission activity from taking place

- Removal: Transferring atmospheric carbon to a carbon sink

- Sequestration: Storage of non-atmospheric carbon in a carbon sink

For more information on types of projects, read Why Carbon? Present Market Dynamics

Implementing green projects generates carbon credits, each of which represents one metric tonne of carbon dioxide equivalent emissions. Before those carbon credits are generated, the project developers first identify the methodology and prepare project design documents for validation and verification from a qualified third party. Then, a carbon registry will undertake authentication of the project to ensure legitimacy and transparency. At that point, carbon credits may be issued and traded on the marketplace and later retired to officially offset the owners’ emissions.

Potential Risks to Consider when Procuring Carbon Credits

- Quality Assurance: Ensuring credibility of carbon credits demands rigorous monitoring. Verification processes must confirm actual emissions reductions or removals, guarding against purchasing credits from ineffective projects.

- Authenticity & Additionality: Establishing that projects lead to genuine emissions reductions beyond business-as-usual scenarios is essential.

- Permanence: Risks of carbon release from stored biomass or soil require long-term management strategies, like land agreements or carbon insurance, to guarantee emissions reductions durability.

- Transaction Risk & Double Counting: Preventing multiple claims of the same emissions reductions necessitates robust tracking and accounting standards, crucial for maintaining the integrity of carbon markets.

- Transparency & Reputational Risk: Transparent communication about offsetting activities helps mitigate the risk of reputational damage, particularly regarding perceptions of using offsets as a substitute for emissions reduction efforts.

How to Buy Carbon Credits

As an environmentally responsible firm, if one wants to make investments in carbon offsetting projects, a good first step is to look at an open marketplace. Businesses can look at targeted projects themselves to determine which one to invest in for minted carbon credits.

If the business wants personalized financial structures with well-developed risk management procedures, consulting a carbon asset manager is highly recommended. This is the typical working procedures with your carbon assets manager:

Committing to long-term carbon emission reduction and net-zero targets requires additional efforts on the part of businesses in the short-term. Those sustainable actions can fit well in a climate strategy with long-term co-benefits, such as greater brand reputation for green actions and minimizing potential penalties financing. Working with reliable registry platforms or professional carbon asset manager is highly recommended for responsible businesses to start their net-zero journey today.

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