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 Insetting?
Insetting is an innovative approach within environmental management where companies integrate carbon offset projects directly into their own supply chains or operational processes, rather than investing in external offsetting schemes.
What is the difference between Insetting and Offsetting?
In contrast to carbon offsetting, which often involves purchasing offsets from external projects, insetting provides companies with direct control over their carbon reduction projects This is because insetting projects are typically more integrated into the core business processes and can thus contribute directly to a company's profitability and sustainability goals. This internal approach to carbon management allows companies to directly reduce their carbon footprint and enhance sustainability within their value chain.
Key Aspects of Insetting:
- Internal Focus and Value Chain Integration: Insetting projects are developed within the company’s own operations or supply chain, enabling direct control over emissions reduction strategies.
- Operational Influence: By embedding sustainability initiatives directly into their operations, companies can ensure these initiatives are fully aligned with their business goals and operational realities.
Why Should Companies Explore Insetting?
- To comply with regulations by actively reducing emissions, monitoring and reporting progress, and aligning with existing and emerging environmental and social regulations, such as the Net Zero Standard.
- Insetting strategies involving supply chain engagement and carbon offsetting help address emissions beyond a company's direct operations. This helps address regulatory requirements related to supply chain sustainability and carbon neutrality.
- Transparency, accountability, and community engagement in insetting initiatives strengthen a company's ability to adhere to environmental and social regulations by demonstrating a commitment to responsible business practices.
Examples of Insetting Projects:
- A coffee company investing in sustainable agricultural practices where they source their beans, thereby reducing emissions and enhancing the quality of their product.
- An apparel brand promoting sustainable cotton farming, reducing emissions, and securing a greener raw material source.
- A manufacturing company investing in renewable energy sources for its facilities, directly reducing its operational carbon footprint.