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Scrutiny of the voluntary carbon market is critical - but that’s no excuse for corporate complacency
06 October 2023

Scrutiny of the voluntary carbon market is critical - but that’s no excuse for corporate complacency

6 minute read
Corporate climate action Net zero
Tara Oakley Head of Commercial Oceania

In divided times, reaching consensus is difficult, but there’s no real question that pushing the pace and scale of climate action is a must to avoid the irreversible and catastrophic effects of future climate change.

That means we must find effective ways to finance clean technology, fair transitions, and global emission reductions. We must make sure our efforts have the greatest possible impact. And we must acknowledge the critical role that the private sector can play in ramping up climate finance and funding these activities, particularly in light of insufficient government policies and actions.

From this perspective, carbon credits and the voluntary carbon markets (VCM) on which they are traded may be the most misunderstood climate solution in the world.

A credible solution, or smokescreen for slow progress?

The complexity of the VCM, and the fact that corporations are often motivated to use credits for reputational benefit (i.e. to polish their image), make the system difficult to understand and carbon credits easy to criticise, as we have seen from the spike in markets-focused media coverage this year.

But does purchasing carbon credits actually delay companies' efforts to decarbonise? Is it just an excuse to continue with business as usual? And, more importantly, will buying carbon credits actually result in real-world impact?

A growing body of evidence shows the benefits of funding climate action: purchasing carbon credits makes commercial sense, drives organisation-wide decarbonisation at a faster pace than in organisations that don't make credit purchases, and helps measurably fund the technologies and innovations that are needed to meet global climate goals. Today, investing in climate action beyond direct value chains is seen as both “urgent" and “essential" – but also best practice.

As emissions-free operations are sadly still a far-off prospect for most companies, carbon credits remain one of the most viable, near-term options for companies to measurably reduce global emissions. Purchasing carbon credits forces companies to measure their footprint, pay a price for their pollution, and put their money where their mouth is. It shouldn't be all they are doing – they must decarbonise too – but it's a tangible and accessible way to take action that creates real benefits in the short term.

With perfection demanded from both carbon credit-issuing projects and the companies voluntarily funding climate action, it is easy to see why businesses may stop buying credits or talking about them. Yet this 'greenhushing' creates more problems than it solves by delaying corporate action.

We agree wholeheartedly that every climate solution, including climate finance mechanisms like carbon credits, should be scrutinised and their performance regularly evaluated and improved. The effect of sensationalist headlines, dubious research and blanket criticism, however, is counterproductive to solving the climate crisis in that it fails to put better alternatives on the table. It also focuses blame on companies that are doing something versus those that are doing nothing. If we truly want to move the dial on climate action, we must scrutinise and support those who have the most work to do.

Carbon markets are evolving and they are here to stay

Honest conversations about the integrity of our global climate mechanisms, including the VCM, are a must. Scrutiny here is key, as carbon markets reward continuous improvement: the fact that performance faces constant evaluation and auditing, with lessons learned carried over into new work and new methodologies, is a sign of a healthy system. Any credible climate solution should be continuously improved so as to apply the best available science and technologies. This is why it is equally important to evaluate solutions in the right historical context: what is cutting-edge today may become more standardised tomorrow, but these efforts will have provided critical insights, frameworks, and improved performance metrics, enabling new climate technologies to be credibly scaled – as just one example. This means that all previous and ongoing investment and finance to support those solutions are worthwhile, as they help enable improvements over time.

And improvements are being made all the time, across the whole market – from the Integrity Council for the Voluntary Carbon Market (IC-VCM) and Voluntary Carbon Markets Integrity Initiative (VCMi), to the Science-Based Targets initiative (SBTi) and carbon standards themselves. In Australia, the Australian Carbon Credit Unit (ACCU) scheme recently underwent a review, and recommendations sought to ensure the high integrity of the scheme and that it delivers confidence to participants. South Pole has also been doing its part in pushing for quality and ambition in market-based mechanisms for more than 17 years.

These efforts to improve and iterate are particularly important, given that the VCM is also paving the way for compliance markets under the Paris Agreement, which will be led by governments. In the lead up to 2030 countries are establishing and reviewing carbon pricing and compliance schemes to increase their national emissions reductions, and many are looking increasingly at voluntary carbon market mechanisms (like standards and registries) to guide the development of their compliance instruments, or they are looking to the units issued by independent standards to serve as the compliance instruments themselves.

Navigating through the noise: taking action now

We need to support those companies that want to take action but are just not sure what to do. We do that by restoring confidence, establishing open dialogue and clear best practice frameworks and making an ongoing commitment to maximum transparency.

If your organisation wants to fund global climate action with carbon credits but is finding the process difficult to navigate, here are three areas to focus on:

  1. Understand what you're buying and why: A compelling business case for carbon credits will engage your stakeholders, from those in finance and risk through to sustainability teams, and move the conversation beyond the media headlines. Start by developing a carbon strategy which covers current and future regulatory scenarios, sets an internal carbon price and defines procurement priorities such as project types, co-benefits and budget. See our guide to purchasing carbon credits for more guidance on navigating risk and maximising impact.
  2. Get familiar with developing best practice: The Integrity Council for the Voluntary Carbon Market (ICVCM) recently launched its Core Carbon Principles and the process is underway for the carbon project standards to review and align with this new framework. This guidance won't be a silver bullet for carbon credit buyers in the short term, but can be a useful reference for framing conversations with credit providers now to prepare for the future. Equally, companies should be paying attention to the latest guidance from the SBTi on Beyond Value Chain Mitigation, which is expected to be released later this year.
  3. Consider your climate claims carefully: Some companies have found themselves in hot water as a result of how they communicate their use of carbon credits. Claims such as “carbon neutral" and “emissions offset" are becoming less popular in some places around the world; instead, we encourage clients to share how they are “making climate contributions" and “funding climate action" through carbon credits because these statements show the company is taking responsibility for emissions. See our latest Climate Claims Report for more detailed guidance on this important topic.

More companies must show leadership and continue investing beyond their value chains. Media articles come and go, but the fundamental facts remain the same — the climate crisis is escalating and we need to use all the available tools to solve it. Now is the time for more action, not less.

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