5 September 2023
How companies can successfully navigate the VCM
CEO and Co-Founder at BeZero Carbon
Director of Sustainability at Cloverly
Carbon credits are an essential part of a robust net zero roadmap. They can help to accelerate the decarbonisation of a company’s emissions while contributing to the broader scope of net zero globally. A credible carbon credit strategy can also yield additional benefits such as accessing new markets, attracting customers, and retaining talent which also improves business resiliency as the climate crisis heats up.
The 2020s are commonly known as ‘the decade of change’, with a rapidly growing number of companies aspiring to contribute to the fight against the climate crisis. However, companies entering the voluntary carbon market (VCM) at this time of transition - with inbound guidance, regulation, and new players in the market - need to consider various factors linked to the nature of this emerging market.
In this time of transition, a variety of challenges can hinder progress, discouraging businesses from taking ambitious action or investing in innovative solutions like carbon credits. Some of the main drivers and challenges limiting climate action are summarised below.
With these challenges, diving into the world of carbon credits can be daunting for many companies. The past 24 months has seen a host of enhancements and new participants enter the VCM. Yet, the market remains opaque, complex, and fragmented for many buyers. It can be difficult for sustainability managers to find trustworthy partners and quality carbon credits, while also mitigating the challenges related to greenwashing and climate reporting.
However, acknowledging challenges can empower companies to successfully navigate them and find opportunities to demonstrate clear climate leadership.
So how can this be done?
Rising to challenges and integrating credits effectively
When addressing the challenges posed by leveraging carbon credits, companies can take three main steps to embed carbon credits into their wider sustainability strategies. These are:
Build carbon credits into an ambitious and credible net zero strategy
Managing emissions requires a robust decarbonisation strategy and ambitious net zero targets; not just across the company’s own operations, but reaching beyond their front door and associated supply chains to contribute to societal goals as well.
Many companies have set targets aligned with frameworks like the Science Based Targets initiative (SBTi), the leading framework for net zero strategy. Globally, over 2,000 companies have now set targets in line with an aim of limiting global warming to at least 2oC.
Decarbonising 90%+ emissions directly should be the first priority. But carbon credits offer a viable path to contribute towards residual emissions reductions as part of a net zero strategy, while providing additional value toward global climate goals.
Carbon credits are not the sole solution for reaching net zero but can be a valuable component, complementing efforts to avoid or sequester carbon alongside a company's own reduction pathway. They are not a standalone tool, but they play a crucial role in leveraging current strengths in decarbonisation pathways across a company's supply chain, while supporting areas that require improvement.
Therefore, thinking strategically about using carbon credits encourages critical consideration of how they can be framed and communicated to improve effectiveness. With this in mind, some important applications include:
Scope 3 supply chains and residual emissions: Targeting hard-to-abate emissions in carbon-intensive Scope 3 categories as well as residual emissions associated with Scope 1 and 2 (such as infrastructure) can help bridge the gap between immediate action and future advancements that require time to scale. These emissions pose a challenge currently beyond our capabilities as they require future technology for actual net zero results.
Future-proofing: Investing in future-proof projects is vital for reducing hard-to-abate emissions, alongside expanding technologies that can have wider reaching benefits. This includes advancements in renewable energy, innovative carbon removal technologies, sustainable fuels, and efficient supply chain logistics. Traditional funding may not support these projects, but carbon credits provide new revenue streams to accelerate progress.
Driving innovation and business value: Furthermore, investment in carbon credits and related sustainability initiatives may help companies become more efficient and innovative as they decarbonise their operations. This can lead to reduced costs and new products and services, unlocking competitive advantage and future revenue. In this way, near-term strategic decisions could have wider and longer lasting benefits for companies that need to adapt to a changing world.
Staying ahead of regulatory changes: Many countries are introducing legislation to address corporate responsibility for GHG emissions. New climate disclosure regulations such as the EU Corporate Sustainability Reporting Directive (CSRD) will help to hold companies accountable for reporting their emissions, how they plan to reduce them, and how they will mitigate any remaining emissions. Certain regulations also focus on Scope 3 emissions, which can be particularly challenging for businesses to address. By including carbon credits in their climate transition plans, companies can proactively demonstrate their ongoing efforts to reduce emissions, both within and outside their supply chain.
Co-benefits: Carbon credits go beyond immediate value chains, providing support for environmental and social benefits. They include co-benefits such as biodiversity preservation and promoting Sustainable Development Goals (SDGs) through projects that protect habitats and create employment opportunities for communities.