Restoring credibility to offsetting
Even in lower-emitting sectors, there is a recognition that few corporations will be able to get all the way to net zero without some level of offsetting to address those residual emissions. And that is going to drive a surge in demand for credible offsets, putting the voluntary carbon market centre stage.
This emerged about 30 years ago to enable private investors, NGOs, individuals and businesses to offset by purchasing carbon credits. However, a historic lack of regulation has, in the eyes of many, undermined its credibility.
It’s a reality that prompted the Institute of International Finance to convene the Taskforce on Scaling the Voluntary Carbon Market (TSVCM) late last year. Launched by Mark Carney, special envoy on climate action and finance to the UN, the private sector-led initiative is working to develop an effective and efficient market, in turn allowing a global price for carbon to emerge and providing companies with the tools and incentives to reduce emissions at lowest cost.
As pressure on companies to cut emissions grows, and investors demand clear, credible transition plans, as unequivocally stipulated in BlackRock boss Larry Fink’s 2021 letter to CEOs, “a well-functioning voluntary carbon market will be critical to reaching net zero and net negative goals,” the taskforce states. It predicts that the current market will need to scale at least 15-fold, and potentially 160-fold, to meet growing demand.
Boeing is one of the 40 members from across the carbon market value chain that contributed to setting up the TSVCM. Bann welcomes the initiative as an opportunity to craft new global carbon frameworks for the private sector: “The taskforce is seeking to bring some of the rigour and lessons from the compliance markets to the voluntary side. With the increase in corporate commitments driving momentum in voluntary offset purchasing, market standards can help to provide more clarity to buyers on required criteria, and bring down transaction costs.”
German industrial giant Siemens is also contributing to TSVCM with a view to creating a more trustworthy offsetting framework. Sustainability manager Volker Hessel agrees that offsets should come only after following rigorous emission reduction pathways, such as those set out by the STBi. But having already secured the “low hanging fruit”, he is under no illusion that further reductions will become harder and harder to find. There are three core concerns, in Hessel’s view, that will inform Siemen’s offset purchasing strategy: credibility, price transparency, and a link to wider sustainability goals.
Of these, the most important is credibility. “There are 1,000 different ways to offset but not all of them are credible. As corporate buyers, credibility is paramount because our reputation is tied to the quality of the credits we purchase. We’re less concerned about price or brokering the cheapest deal, although given the pricing differences in the marketplace, we’d welcome greater transparency to help us make the best decisions.”
Hessel views carbon offsets as “far more than just a commodity”, arguing that they make little sense without considering wider sustainable development goals in a given area, such as community development or biodiversity. “We’re looking into the projects to understand how they work and if they align with Siemens’ overall approach. That will make the credits we buy more compelling to our employees and key stakeholders.”