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 are SDGs?
The Sustainable Development Goals (SDGs) are a global initiative, adopted by the United Nations in 2015, comprising 17 goals designed to be a "blueprint to achieve a better and more sustainable future for all" by 2030. These goals address the global challenges we face, including those related to poverty, inequality, climate change, environmental degradation, peace, and justice. Each goal is supported by specific targets and indicators to guide and measure progress, making them a comprehensive framework for sustainable development across the globe.
How do SDGs Integrate into a Sustainability Strategy?
Integrating SDGs into a sustainability strategy allows organisations to align their operations with global efforts to foster a sustainable future. By adopting SDGs as part of their environmental, social, and governance (ESG) targets, companies can ensure their initiatives contribute to wider global goals.
For instance, investing in carbon credit projects that also support local community development or biodiversity conservation can provide co-benefits beyond carbon sequestration. These projects not only help mitigate climate change but also advance other SDGs, such as reducing inequalities (SDG 10) or promoting sustainable use of terrestrial ecosystems (SDG 15). By strategically selecting projects that align with specific SDGs, companies can address a broad spectrum of ESG targets, demonstrating commitment to comprehensive sustainability and social responsibility.
How are SDGs Tracked and Measured?
SDGs are tracked and measured using a set of targets and indicators specific to each goal. These indicators provide clear metrics for evaluating progress towards each target. Governments, international organisations, and other stakeholders use these indicators to assess advancements, identify areas requiring more effort, and ensure accountability. Data collection and analysis are crucial, involving a wide range of methods, from national statistics and surveys to satellite imagery for environmental monitoring. The Global Indicator Framework, adopted by the United Nations Statistical Commission, offers a standardised approach to measuring and reporting on progress, facilitating global comparisons and benchmarking.
What to Look Out for when Evaluating a Project's SDGs?
When evaluating a project's alignment with SDGs, ask yourself the following:
Does the project directly contribute to achieving specific SDGs and targets? Are there clear, measurable impacts that align with the indicators defined for each goal?
Do the projects offer integrated benefits across multiple SDGs? For instance, do projects addressing climate change also promote social and economic benefits, enhancing their overall impact?
Can the project's outcomes be scaled up or replicated in other contexts, thereby amplifying its contribution to the SDGs?
Is there evidence of meaningful engagement with local communities, governments, and other stakeholders? Are projects with strong stakeholder involvement more likely to be sustainable and have a lasting impact?
Does the project demonstrate a high level of transparency in its operations and reporting, including clear documentation of its impacts and mechanisms for accountability?
How sustainable is the project over time? Are projects that are economically viable and have secured long-term funding more likely to achieve sustained impact?