Corporate commitments to carbon neutrality, or net zero, continue to surge as business leaders race to re-align strategic priorities with consumer, investor and regulatory pressure for urgent climate action. The United Nations Race to Zero Campaign — credited as the largest and fastest growing alliance of businesses committed Paris Agreement mitigation targets — has received commitments from 120 national governments, with 10,000 more commitments from companies, investors, cities and regions.
Adding to this, the United States Security and Exchange Commission (SEC) reached a potentially monumental ruling in March to Enhance and Standardize climate-related disclosure requirements for all U.S. public companies — another cogent signal that the global climate change reckoning is here. Increased consumer and investor scrutiny around triple bottom line impacts of business have sent market demand for carbon credits into unprecedented year-over-year growth. However, many well-intended but underinformed businesses are soon to fall victim to the faults of a nascent carbon offset market with emerging concerns over the integrity of its more than 700 million active credit issuances.
So, what is a credible offset?
Earned through reducing or avoiding emissions in everyday operations, or through carbon removal projects such as nature or technology-based sequestration and land restoration projects, a single carbon offset credit represents any verified offset of 1 metric ton carbon dioxide, or other equivalent greenhouse gas emissions (CO2e) into the Earth’s atmosphere. Per the Environmental Defense Fund (EDF), purchased carbon offsets must be considered in addition to integrating carbon reduction and avoidance in everyday business operations, yet this market approach to carbon trading can provide a critical near-term decarbonization tool for parties who may not have a viable near-term solution for net-zero in everyday business operations.
In response to the rising demand for offsets, the voluntary carbon market (VCM) has grown sixfold (in total value of issuances bought and sold) between 2017 and 2020 (Ecosystem Marketplace, 2022). In this same period, the number of carbon offset credit issuances more than doubled, with around 181 million carbon credits issued in 2020 — the equivalent of 181 million metric tons of CO2e. The market for purchased offsets is here to stay, and with it comes a critical concern over lagging global regulation and standardization on credit issuance and third party verifications. As a result, many ESG ratings boards and capital investment firms have levied staunch criticisms over the voluntary carbon market’s obfuscated supply of both "low" and "high" quality offset credits. This criticism has emerged among a growing volume of peer-reviewed research identifying the damaging consequences associated with low quality "nature-based" carbon-offset projects. Whether it be through support of corporate greenwashing efforts , decreasing ecosystem biodiversity or abusing human rights through aggressive displacement, the VCM has incentivized many to pursue manufactured offset credits at the expense of people and planet. How ironic, right?
Offset integrity must become the top priority for companies to ethically leverage the convenience of the voluntary carbon market. The Integrity Council for Voluntary Carbon Market (ICVCM) is a leading organization in setting a standardized and transparent set of standards for carbon offset credit issuances. EDF, which co-chairs the Expert Panel for ICVCM, has built the following topics questions into their overall framework for assessing integrity of offsets:
The first question you should always ask is: "Have we done everything we can to eliminate harmful emissions from our existing practices?" If the answer is unclear, there is a good chance that engaging in the carbon offset market will result in considerable sunk costs and an increased risk to brand equity. Always consider your internal emission reductions as the highest priority.
Questions you should be asking offset credit sellers
The World Wildlife Fund, EDF and Oeko-Institut developed the "Carbon Credit Quality Initiative" to guide buyers in the complex carbon credit market. Here are questions to ask, based on the guide.
Normative program documents and accreditation: Does the seller have documentation from an accredited carbon crediting program? Look for standards used in the seller’s carbon accounting methodologies along with any other procedures, manuals or project guidance documents.
Non-permanence: Is it possible that the emissions removal from this project will be reversed in the future, whether due to natural disturbance risks, changes in political influences or project mismanagement?
Additionality: Would this carbon reduction activity have happened in the absence of any incentive from the carbon credit market? If yes, this would imply that a company could have purchased the offset in lieu of reducing their own emissions, resulting in a potentially carbon-positive transaction.
Double claiming or double counting: Are any other parties claiming the credit towards their own mitigation or carbon reduction targets? If so, this double claiming contributes to reduced offset integrity and reputational risk for all parties involved.
Leakage: Have all indirect emissions from upstream and downstream activities associated with the offset project been counted? If not, would counting these indirect emissions still result in a net-negative carbon "offset"?
High integrity carbon offset credits will only become harder to access as market demand soars and global standardization tightens around credit issuance. Diligent firms that set forth deliberate strategies for acquiring carbon offsets while taking all available steps to eliminate direct emissions will find ESG leadership to be among their most valuable competitive advantages. Firms that over-rely on carbon offsets, without a critical project evaluation strategy, are sure to find themselves over-exposed to accelerating market pressures for managing people, planet and profit in harmony.
This article has be updated to reflect Integrity Council for Voluntary Carbon Market's name change and EDF's involvement with the council.