Business leaders today face an ever-increasing pressure to disclose data on ESG policies and decarbonization plans, and accusations of greenwashing from customers and stakeholders are only gaining more traction in the media. It’s clear that whether it’s a company’s reputation or bottom line, having a credible climate strategy will be fundamental to sustaining and thriving in a world that continues to adapt to the impacts of climate change.
This requires shifting away from an offsetting approach to a contributions strategy, which prioritises emission reductions and meaningful contributions to climate projects.
The shortcomings of offsetting practices
One of the main challenges with offsetting is that it doesn’t motivate companies to focus on reducing emissions at source.
Historically, offsetting practices have involved the use of carbon credits – originally created to force companies to pay for exceeding emissions thresholds set by their government. However, the unregulated use of these carbon credits means that companies are able to purchase as many carbon credits as financially possible, with the aim to offset most of their emissions. This means that companies can essentially buy their way to claiming carbon neutrality, despite not taking any actual steps to reduce their emissions or impact on the planet.
This isn’t the only problem with existing offsetting practices. Companies also face the difficulty of locking themselves into carbon neutrality claims. Once a company announces such a claim, they essentially commit to buying a set amount of carbon credits for its entire lifespan. This leaves them vulnerable to market fluctuations in carbon credit prices and their availability. With the price of carbon credits set to more than double between now and 2030, it brings the prospect of significant budgetary pressures further down the line.
These financial risks also limit organisations when selecting projects to build their contribution portfolios. They are forced to buy a set amount of carbon credits that meet the targeted number of CO2 to offset, so they can keep calling themselves “carbon neutral.”
Continuing to reassess our current accepted approaches to climate action is key to ensuring that a collaborative and supportive vision of action is realised – one that prioritises impact, transparency, and integrity.
The benefits of a contributions approach
To avoid these problems, a contributions approach involves first setting a contribution budget based on an internal carbon tax, which would raise funds in proportion to the amount of greenhouse gases that a company emits. The value of the tax should not be lower than the value of the credits previously purchased – ideally the tax should have an upwards trajectory. This approach has the benefit of freeing companies from the market volatility of carbon credits, encouraging a reduction of emissions at source, and involving employees in a company’s climate strategy.
Once an internal carbon tax is set up, a company has more ownership over building its climate budget and allocating it. This can go towards the decarbonization of a company’s direct (operational) or indirect (related to products and services) emissions, or support credible climate projects. It can do so collaboratively, engaging everyone within the organization and giving employees a sense of responsibility over their individual impacts.
When creating a portfolio of projects, they should consider company values and the needs of where the projects are based – most developing countries require better food security and energy access rather than more trees. Companies should also take into account national decarbonisation plans, also known as National Determined Contributions (NDCs), of the countries in which they operate. NDCs highlight key climate issues and priorities in a country, whether this is agricultural transition or industrial emission reductions. Like any investment strategy, a portfolio of carbon credits should align with climate and business goals – and focus on impact.
By taking these steps and beginning to make contributions, companies will start to be seen as strategic and transparent actors in the climate space, helping them to stand out as leaders whilst building strong engagement from stakeholders, employees, and customers.
Contribute to achieving corporate sustainability goals and global carbon neutrality
Ultimately, the shift to a contributions approach helps businesses to move away from the misleading idea that financing carbon projects qualify as ‘cancelling out’ emissions and helps them to move towards actions and contributing to climate justice.
Taking this necessary step is fundamental for any business seeking ways to adapt to a climate-impacted world, innovate according to the future needs of society, and become a Forever Company.
About the Author
Renaud Bettin is Sweep’s VP of Climate of Action, Renaud has over 15 years of experience in the field of corporate climate strategy. Committed to helping businesses be a driving force to reach global net zero, he launched the Net Zero initiative reference framework for corporate carbon neutrality and Info Compensation Carbone, a carbon finance website. His thought leadership has been featured in Carbon Pulse and the World Bank’s Carbon Pricing Leadership Coalition.
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