In the past few years, along with the climate change and environment change movements has increased across the globe. As concerns about global warming, natural resource depletion and environmental degradation grow, business are under pressure to adopt sustainable practices. The use of carbon credits has become one of the key tools that allow businesses to decrease their carbon footprint while also crafting improved sustainability strategy.
In this article we take a look at how businesses can use carbon credits to add to their sustainability strategy, what carbon credits are, how they can help mitigate climate change and how businesses can control how they use carbon credits in their operations.
What Are Carbon Credits?
Carbon credit is a certificate or permit to express the reduction of one metric ton of carbon dioxide (CO2) or equivalent greenhouse gas (GHG). These mechanisms are intended to reduce the total CO2 emitted into the atmosphere and as a result emit carbon credits in these. Crucially, each is tradable in carbon markets and these credits can be purchased, traded, or sold in an effort to provide financial inducements for businesses and governments to take action to cut their environmental impact.
There are two primary types of carbon credit markets: voluntary markets and compliance markets.
1.Compliance Markets: Government bodies regulate these markets, which are mostly for businesses and industries that have to cut back on their carbon emissions. However, in these systems, businesses must either directly lessen their emissions, or they must buy carbon credits to balance out their excess emissions. A well known example of a compliance market is the so called European Union Emissions Trading System (EU ETS).
2.Voluntary Markets: These are marketplaces, outside these governmental controls, so businesses and organizations, and even individuals can voluntarily offset their carbon emissions. Businesses looking to strengthen their environmental commitment, improve corporate image, or just meet environmental requirements are generally the buyers of voluntary carbon credits.
Carbon Credits and their Role in Sustainability Strategies
But carbon credits are only a part of any sustainability strategy — they are used now as a mechanism for businesses to reduce their carbon footprint in a relatively simple way without necessarily having to make large and immediate changes to their operations. Companies purchase carbon credits that help fund projects that reduce or eliminate greenhouse gases from the atmosphere. Renewable energy, reforestation, methane capture and any other environmental initiative project may be included.
1. Offsetting Emissions
Businesses use carbon credits mainly to cover otherwise unaltered carbon emissions. Options for ways a company can reduce their emissions include improving energy efficiency, adopt renewable energy sources and optimize their supply chain. Nevertheless, some emissions are difficult or too expensive to remove entirely. In these cases businesses can purchase carbon credits and support projects that offset their remaining emissions.
Say, a business buys a box full of carbon credits — credits created through reforestation or renewable energy projects, for example — that can offset its annual emissions. It allows businesses to become ‘carbon neutral,’ an important step on the path to sustainability goals.
2. Supporting Green Projects
Environmental projects that wouldn’t be financially viable without money coming in from the sale of credits are usually linked with carbon credits. However, these projects are aggressively designed to cut GHG emissions, pull carbon out of the atmosphere, or protect natural ecosystems. Examples include:
• Renewable Energy: Solar, wind or hydropower energy promoting projects.
• Reforestation and Afforestation: Tree planting to absorb CO2 from the atmosphere was an initiative aimed at.
• Methane Capture: Capturing and use of methane emissions from landfills or agricultural operations to reduce potent greenhouse gases.
• Energy Efficiency: Instruments developed for the purpose of helping industries diminish energy usage by improving practices and processes.
3. Enhancing Brand Reputation
Today’s market is focused on consumers seeing their impacts on companies and the environment, which are increasingly important. They need to know that businesses are willing to make the sustainable case and that what they do actually accords with their values. Integration of carbon credits in their sustainability strategy is something that businesses can do to improve their reputation as environmentally responsible businesses.
One way businesses can win in a crowded marketplace is by promoting carbon neutral initiatives, supporting renewable energy or reforestation projects. Sustainability is more likely to be supported by consumers, investors and stakeholders who, in turn, support sustainability supporting companies supporting sustainability supporting customers supporting sustainability supporting brand equity supporting sustainability supporting performance.
4. Sustainability goals for cooperation
But as many companies establish ambitious sustainability targets (such as being carbon neutral, or cutting greenhouse gas emissions by a precent over a precent time period), questions often arise about how they will achieve those goals. Carbon credits can be a valuable part of how businesses reach these goals, especially if they have not been able to fully reduce emissions on their own. For businesses, the purchase of carbon credits proves them dedicated to sustainability without impeding their ability to compete.
One example is a company that might decide to cut its carbon footprint in half in five years. In some part they may even achieve this reduction via operational changes but there will remain emissions in which the company can offset through the purchase of carbon credits and meet their total sustainability goal.
5. Attracting Investment
When making investments, investors are paying more attention to environmental social and governance (ESG). Having indexed carbon credits into the sustainability strategy of a business it allows to take a prominent position within the ESG performance, becoming more appealing to environmental conscious investors. Moreover, businesses with strong sustainability practices are perhaps better positioned to adapt to future regulations and policy changes regarding climate change.
Companies are increasingly being scrutinized by investors and financial institutions on how the companies measure their carbon footprints and their promise to lower emissions. As companies continue to seek out carbon credits and actively demonstrate willingness to achieve carbon neutrality, those companies face an opportunity to catch investment dollars from ESG focused investors, and other investors, which can drive growth and innovation.
An Exploration of How Carbon Credits Can Fit into Sustainability Strategy
If businesses want to capitalise on carbon credits they need to know how to integrate it into their overall sustainability strategy correctly. Here are some steps companies can take to maximize the benefits of carbon credits:
1. Assess Emissions
The initial step is to establish a full carbon footprint assessment of the business to know the nature of the company’s emissions. Both direct and indirect emissions are included – from operations, from the supply chain, transportation and other activities. There are tool like the Greenhouse Gas Protocol and third party consultants for companies to calculate their emissions and opportunities for reduction.
2. Emission Reduction Targets set
Even better, once a company has measured its emissions, it can set clear, measurable emission reduction targets. These targets should also be aligned with the broader sustainability goals, and could include reaching carbon neutrality, or cutting emissions by a certain percentage. Before considering carbon credits for offsetting, companies must come to the table ready to improve energy efficiency, adopt renewable energy sources, reduce waste and optimize their supply chains.
3. Source Credible Carbon credits
For businesses, they must use credible and reliable carbon credit projects. There’s not a one size fits all when it comes to carbon credits—you you’ll get those that don’t deliver the environmental benefits they claim or don’t have transparency. Because of this, businesses should buy their carbon credits from reputable standards such as the Verified Carbon Standard (VCS), the Gold Standard or the Climate Action Reserve. By confirming that the carbon credits represent real, real, real emissions reduction, these standards assure us that we are not just making up stuff.
4. Invest in High Impact Projects
Businesses need to focus on carbon credits associated with high impact projects that line up with their values and goals. Let’s say a company in the renewable energy space opts to purchase credits from solar or wind energy projects. An alternative to forestry investment is an investment in the reforestation or afforestation projects by a company in the forestry. Selecting projects which have the maximum environmental benefits enables businesses to invest in the maximum way possible.
5. Share Information About Sustainability Efforts
Businesses need to communicate what they’ve done to create sustainability in order to truly receive the full value of the carbon credits. But can there be transparency in reporting on emissions reductions, and the use of carbon credits that will help build trust in and consistency among carbon markets? Most companies publish an annual sustainability report that highlights a company’s carbon footprint, the steps towards reducing it, and the use of carbon credits to absorb emissions.
6. Monitor and Update Strategy
Carbon footprint is a process of continuous monitoring and adaptability of business strategies which is done for the purpose of sustainability. With continued development of technology and continually emerging opportunities to further reduce emissions beyond what carbon credits offer, businesses should continue to look for additional ways to reduce their reliance on carbon credits and achieve more direct emissions reductions.
Conclusion
Carbon credits are a business powerful tool to strengthen sustainability and they are a main instrument in the battle against climate change. Companies can purchase carbon credits to help eliminate emissions they are unable to directly, support important environmental projects, polish a positive image and reach lofty sustainability targets. But businesses have to scrupulously scrutinise their emissions, choosing authentic carbon credit sources, and clearly communicating their efforts to ensure they make the most of their investment.
With the world still on the brink of climate change, businesses seeking to aggressively reduce carbon footprint and offset will have the advantage of long term business success. As companies consider their sustainability framework more and more holistically, carbon credits offer an opportunity to make a more sustainable future possible and, by doing so, to build their brand, attract investment and meet the demands of discriminating environmentally conscious consumers.
