The transition to a low carbon economy is on every CEO's agenda nowadays. The impacts of climate change and responses to it will transform every business sector in the coming decades. Although Climate change will affect a majority of companies, all will be expected to contribute to its solution.
Nevertheless, it is challenging for most companies to devise and implement a credible decarbonisation strategy. The transition requires new ways of doing business, including new ways of displaying capabilities and resources and new ways of thinking. But despite the challenges, companies around the world are scaling up their decarbonisation commitments.
We can see this trend with the number of companies committing to reducing emissions. More than 2000 companies have confirmed emissions reduction targets under the Science Based Target initiative (SBTi). Additionally, more than 370 have committed to The Climate Pledge, pledging to achieve net zero emissions by mid-century or sooner.
For most companies and investors, carbon credits play a crucial role in their Net-Zero strategy. They allow companies to make earlier and more ambitious commitments. Credits allow companies to reduce their current emissions through offsets, while taking cost-effective steps to reduce future emissions through asset rotation and business model development. In the long term, credits can play an essential role in offsetting difficult-to-avoid emissions from products for which no low- or zero-emission options exist.
The growing interest in recent years is also reflected in the Voluntary Carbon Market (VCM), which organises the pledging and trading of carbon credits. In 2022, the demand for carbon credits is at its peak. Prices have increased by more than 140% since 2021 and forecasts assume that demand for credits will increase 15-fold by 2030, to $50 billion per year.
But the voluntary carbon market has a problem. It cannot cope with demand. Access, which plays a crucial role in the global effort to combat climate change, is often limited to large organisations and is characterised by opaque pricing and market inefficiencies. Furthermore, due to a lack of transparency and credibility, it has faced a number of problems in recent years.
This report examines the key role for on-chain carbon credits as part of net zero strategies and the VCM. It was prepared by senken to help business decision makers identify and understand the best use of credits for their business.
What is Greenwashing?
Greenwashing refers to companies or organisations providing misleading information about how sustainable their products, services, or practices are. This deceptive marketing tactic is used to capitalise on the increasing numbers of environmentally conscious consumers, often obscuring a company's actual environmental impact.
Examples of Greenwashing
Companies claiming to neutralise their emissions through the purchase of carbon credits without taking any other steps to reduce or avoid emissions within their own operations.
Products labeled as "green" or "eco-friendly" without any certification or evidence to substantiate the claims.
Companies emphasising a small segment of their operation that operates sustainably, while the majority of their practices remain harmful to the environment.
Carbon Credits and Greenwashing
While carbon credits themselves are not a form of greenwashing, they can be misused in ways that can be considered as greenwashing. Issues such as double counting, where the same emission reduction/removal is counted more than once, and the use of low-quality credits that don't yield their stated environmental impact, can both undermine the integrity of carbon neutralisation efforts. Additionally, companies may use carbon credits to give an appearance of environmental responsibility while continuing unsustainable practices.
How to Avoid Greenwashing
Trade Finance Global indicates that greenwashing incidents were up by 70% in 2023. In order to maximise global climate efforts, it is crucial to curb these figures. Companies and consumers ought to educate themselves on environmental issues and the true impact of products and practices.
When implementing sustainability measures, some key ways to prevent greenwashing include:
Following a scientific approach where possible, such as that of the SBTi, IPCC, or the Oxford Principles
Relying on recognised environmental certifications and standards in order to validate claims.
Remaining as transparent as possible about sustainability practices and the impact of products or services.
Focussing on actual emission reduction strategies within your own operations alongside the use of high-quality carbon credits.
Developing and implementing a holistic sustainability strategy that goes beyond just offsetting emissions.