Offsetting carbon emissions for business is major current news. Environmental impacts are at the forefront of C-suites across all industries; consequently, companies are looking at all possible avenues to decrease their carbon footprint.
The issue is important Net-zero commitments are a common occurrence and businesses will be pressured to keep their commitments.
Carbon offsets for businesses are one of the options you could be contemplating — but you may be unsure about like:
What is carbon offset?
Why do businesses employ carbon offset?
What is the cost to operate? Does it actually contribute to moving your business towards being carbon neutrality?
We will explore these questions and many more.
What does it mean to trade carbon credits for a Business?
What is the meaning of carbon offsetting in the business world? Carbon offsetting (sometimes called “carbon credits”) is the method of neutralizing the amount of carbon dioxide emissions that an individual or business emits during an event or as part of its activities. Corporate carbon offset covers the organization aspect of this.
The trend is gaining traction. at the time of writing 163 companies of within the Fortune Global 500 had publicly committed to meeting climate-related targets which included carbon neutrality as the most popular of these, and cited by companies 91.
Certain carbon emissions are offset to comply with regulations; or in order to satisfy obligations regarding emission or environmental performances. Certain carbon offset markets are created through the purchase of voluntary carbon credits. This is vital according to McKinsey observes, not only because carbon credits purchased by people who are voluntary boost the amount of carbon offset but also because:
“Voluntary carbon credits provide private funding to climate action projects that otherwise would not be able to get off the ground. They alsohelp to encourage investment in the technological advancement required to reduce the costs of advancing technology for tackling climate change.” In addition, they are aiding to “facilitate the mobilisation of capital for those in Global South, where there is the greatest possibility of economically-based nature-based emission reduction projects.”
Carbon offset for business appears to meet a variety of criteria and then. However, it’s not always an easy fix, it’s not a framework that’s created to help it achieve its goals. Bloomberg estimates that of the 18 major oil companies with the current net-zero targets, 3.3 billion metric tons of annual emissions would need to be eliminated in order to meet their goals, which is nearly 18 times more than the total number of carbon offsets they will issue in 2020.
Although your goals may not be as challenging, they could be equally intimidating.
How does Corporate Carbon Offsetting work?
If carbon offset is something you are considering for your business it is important to know the process and what it can mean in the real world. What does carbon offset for businesses actually perform? Can a business actually reduce their carbon footprint?
The carbon offset program for business (and in fact any carbon offset) program operates on the assumption that carbon dioxide that is absorbed by the atmosphere will offset carbon dioxide emissions elsewhere.
Based on this, companies can offset carbon with the help of investing into and setting up projects to decrease or store carbon in order to offset the CO2 they generate elsewhere. Carbon credits are which is also used to refer to carbon offset can be described as the concept of a quid pro quo in exchange for carbon emissions.
What is this like in actuality? The kinds of projects that are utilized for carbon offsets in business are:
Tree planting
Forest preservation
Renewable energy sources, like solar or wind farms
Projects to improve energy efficiency, such as insulation of the premises of a business or introducing an electric vehicle fleet
Why do companies use carbon Offset?
What are the main reasons for carbon offsets for companies? There are a myriad of compelling reasons:
Increasingly, organizations in all sectors recognize that environmentally-focused strategies are the “right thing to do” as part of a broader ethical and ESG-oriented culture.
They also face increasing pressure from the public to enhance the quality of their ESG performance. 2022 is projected to be an “golden period” of shareholder activism, with low ESG performance being one of the key requirements to “mark corporations as targets” for activists.
In addition, ESG performance is becoming more transparent as disclosure requirements become more strict and reporting results being used to assess and evaluate the capabilities of your business as a business, investment supplier or partner.
Imagine that your company produces substantial amounts of carbon. In this scenario carbon offset by companies can be the only viable option to reduce significant carbon emissions, at a minimum in the short-term.
What is the cost to offset carbon?
A more positive and natural approach could become an option that could be the Holy Grail for many organizations However, among the ethical issues, companies still are bound by financial obligations. If you are a CFO or the team the next natural question is: how much costs will this incur? How much will companies pay on carbon offsets?
At present, offsets of corporate carbon emissions is about $3-5/tCO2e (that is about $3-5 per tonne of carbon dioxide equivalent).
However the report from June 2021 of University College London (UCL) suggests that this figure could increase to $20-50/tCO2e by 2030, and over $50/tCO2e by 2050, the people responsible for carbon neutralizing projects are properly compensated and incentivized.
Does Corporate Carbon Offsetting work?
Another crucial aspect to consider. If the procedure is found not to work, companies aren’t making any progress with carbon offset. Like everything else that’s new there’s been an element of doubt regarding carbon offset. However, the evidence that offset emissions can aid in solving but not completely resolve the issue in greenhouse gases is evident.
The BBC is an British broadcasting and news corporation and broadcaster, says that even though “numerous skeptical people” have suggested that carbon offset is “ineffective or even illegal” and agrees that “they are an utterly flawed instrument,” it also concludes that “they certainly can make a difference.”
To determine if carbon offset is effective, it’s important to realize that it’s not the perfect solution for climate change. However, experts are of the opinion that it’s an essential step towards the road to net-zero. No matter how well-intentioned or thorough plans for reducing emissions of an organisation most businesses will end up with the carbon footprint they’ll need to reduce.
While carbon offset for corporate entities alone isn’t enough but it is a crucial component of the solution. Businesses are no longer asking what they should do, but rather how to reduce their carbon emission.
Make the Next Step towards carbon-neutral operations
Climate change is an enormous necessity for everyone -not just as a matter of such as “optics,” or reporting or even the balance sheet, but to ensure our existence as a species -organisations must make use of every tool that they have to fight the issue.
While carbon offsetting for businesses isn’t a magic solution for companies seeking to enhance the quality of their ESG standing, it’s a reliable and tested tool to add to your toolbox. It will have an impact on the carbon footprint of your business.
Carbon offset for business can result in tangible improvements to your ESG performance when it is part of a systematic approach which focuses on:
Understanding and measuring the drivers of your company’s carbon footprint
Making steps to limit your carbon emissions
Completing any emissions you are unable to reduce your own emissions
We hope that this article has given you a better understanding of the theories of carbon offsetting in business and the practicalities involved in setting up a carbon offsetting strategy.
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