Scaling Investment in Carbon Credits with Integrity

Key Points

• Regulations relating to offsetting and ‘carbon neutrality’ claims alongside vast uncertainty about the applicability of credits to companies’ Scope 3 targets under the Science Based Targets Initiative (SBTi), have made companies wary of purchasing carbon credits in the short-term.
• Yet, investment in nature-based solutions, largely funded through high-quality carbon credits, is crucial for scaling climate and nature action.
• BSR’s Nature and Climate teams have developed an approach to support companies in navigating the purchase of carbon credits with integrity in an uncertain environment, while also supporting internal goals and objectives.

Nature-based solutions (NbS)—often marketed and financed through the voluntary carbon market (VCM)—are critical in scaling up investments necessary to meeting the goals of both the Paris Agreement and Global Biodiversity Framework. However, credits as a mechanism have come under fire, largely due to the uncertainty in their ability to deliver on their stated promises (e.g., the amount of carbon sequestered), making them the target of scrutiny by both regulators and stakeholders.

A proliferation in guidance and regulations globally related to offsetting claims—such as the EU Green Claims Directive and the US’s VCM Principles—have made companies reticent to continue purchasing credits. Business leads are increasingly at a loss for how to frame and justify their investments since ‘carbon neutrality’ claims are by and large no longer allowed. Projects and purchases have also come under increased scrutiny by various stakeholders following a series of explosive articles over the past 18 months; while these rightly pointed out some shortcomings that need to be addressed, they unhelpfully frightened off investment from the credits market entirely instead of helping channel it into high-impact projects. 

At the same time, SBTi’s Board of Trustees recently announced that they will be exploring the use of “environmental attribute certificates” (which include carbon credits) to support companies’ Scope 3 emissions abatement. Leaving aside the governance of that revision, the substance of the announcement means there to how companies utilize credits to abate their Scope 3 emissions. 

Amid such uncertainty, the market for corporate purchasing of carbon credits has been volatile. For the first time since its inception, both 2022 and 2023 saw a contraction in the carbon market compared to 2021 levels. Many companies have been taking a wait-and-see approach, yet science tells us that we must invest immediately and at scale if we are to halt the twin climate and nature crisis. We cannot wait to invest in nature if we are to meet the goals of either the Paris Agreement or the Global Biodiversity Framework, and carbon credits stand as one of the readily available and scalable mechanisms to support both of these.

A host of frameworks, guidance documents, principles exist to help guide the purchase of high-quality carbon credits. Just a few of these include SBTi’s BVCM guidance, ICVCM Core Carbon Principles, VCM Claims Code, Tropical Forest Integrity Guide, and Oxford Principles. We can conclude two things from the diversity of guidelines: 1) there is overall agreement on what constitutes high-quality, such as the need for additionality and permanence, among other characteristics; but perhaps more importantly, 2) the nuances between the frameworks and lack of comprehensive and authoritative guidance leaves companies uncertain about how to engage with carbon credits with integrity for the long-term.

Given the convoluted market, BSR has developed an approach to support companies in carbon credit purchasing for the long term. We align standards and principles from existing frameworks to set a robust minimum standard. This is complemented by strategic visioning and alignment with your climate and sustainability strategies to ensure that purchasing works with internal goals and objectives. We codify the standards and criteria in a strategic framework, which we use to identify and vet potential providers that will enable companies to enact their purchasing strategy efficiently and with integrity. We also support companies in understanding how to communicate their efforts amid increased scrutiny.

High-quality carbon credits are critical for scaling finance quickly, and represent an impactful avenue for corporate investment in the short term. Credits can and should play a role in corporate climate and nature strategies, parallel to business transformation and overall decarbonization, especially in supporting companies’ beyond value chain commitments. Moving forward, BSR suggests businesses evaluate their current use of carbon credits.

Some key questions include: 

1. What types of credits are you purchasing? What types of projects do the credits support? Does your current purchasing meet the (increasing) minimum standards for quality? Do your purchases support both climate and nature goals, or are they undermining them?

2. Why is your company investing in credits? If ‘carbon neutral’ claims are driving current purchasing, how might your company re-frame and rationalize credit purchasing? What role do credits play in mitigating your company’s impacts?

3. What claims are important for your company to make about credits? How might it need to update how it talks about its purchasing of carbon credits, such as via contribution claims (e.g., “we contributed to the restoration of 15,000 hectares of Brazilian rainforest”)?

The next 6 months are likely to see significant changes in the rules governing the use and application of credits. Members can get in touch to discuss how we can support your company in purchasing carbon credits with integrity in an uncertain environment, while also supporting internal goals and objectives.