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Companies get green light to use offsets for supply chain emissions
Global Banking & Finance Review®
Company
By Simon Jessop
LONDON (Reuters) -A leading judge of corporate climate action plans said it will allow companies to use carbon credits to offset their supply chain pollution, a win for the growing offsets market despite criticism the move could see emissions rise.
Selling credits from wind farms and other activities to a company so it can offset pollution is seen as a way to help move money to climate-friendly projects, although some are concerned it could lead to companies carrying on business as usual.
Late Tuesday, the non-profit Science-based Targets initiative (SBTi), seen as the gold standard arbiter of company plans, said it would allow the so-called Scope 3 emissions to be offset subject to as yet undefined “guardrails and thresholds”.
SBTi had previously not allowed offsets in case it dissuaded boards from actually cutting emissions, but many have struggled to align their plans with the world’s climate goal amid weak government action, still nascent technical fixes and high costs.
By allowing companies to use offsets, it is hoped they will be able to secure market and investor support for more ambitious action, helping reduce their cost of capital and driving more money into climate-friendly projects.
Over time, as the policy and technical hurdles dissipate, the hope is the offsets are not needed, or can at least be reduced.
“The voice of business on this issue is clear,” said MarÃa Mendiluce, chief executive of the We Mean Business Coalition and a board trustee of SBTi, which by end-2022 had validated 2,079 company targets. A further 2,151 had committed to set targets.
“Companies value SBTi and are committed to delivering on their emissions reductions targets, but need greater clarity and flexibility in how to navigate Scope 3 emissions. This change empowers companies to bring more innovation and investment into cutting emissions from their value chains.”
The move drew sharp criticism from non-profit Carbon Market Watch, however, which called it “a blow to the SBTI’s credibility” adding “targets cannot be science-based if they are not associated with deep internal emission reductions”.
A source with direct knowledge of the matter said that, given the way emissions are calculated, for some companies it could even result in zero emissions reductions by 2035.
SBTi said it acknowledged the complexity of the issue and would “consult and strive to reach the necessary cooperation agreements with other relevant initiatives as well as a broader set of stakeholders”.
The decision by SBTi brings it into line with a move by the Voluntary Carbon Markets Initiative to expand the use of high-quality carbon credits, and carbon trading association IETA, which plans to launch new guidelines on quality credits.
It follows a slide in demand for credits from companies during 2023 – down 6% in the first half, data from BloombergNEF showed – after several cut credit purchases amid concern about the quality of certain projects.
Worth around $2 billion in 2021, the market could pass $50 billion by 2030, Boston Consulting Group has said.
Teresa Hartmann, chief ratings officer at BeZero Carbon, which rates carbon credits, said SBTi’s move was “a significant step forward in scaling carbon markets and climate action… within the critical next decade”.
(Editing by Mark Potter)
Carbon credits are permits that allow companies to emit a certain amount of carbon dioxide. Companies can buy and sell these credits to offset their emissions, supporting environmental projects.
Scope 3 emissions refer to indirect emissions that occur in a company's value chain, including both upstream and downstream emissions, which are not directly controlled by the company.
The Science-based Targets initiative (SBTi) is a global body that helps companies set science-based emissions reduction targets to align with climate goals.
Carbon offsets are used to compensate for emissions produced by funding projects that reduce or remove greenhouse gases from the atmosphere, such as renewable energy initiatives.
Sustainability in finance refers to the integration of environmental, social, and governance (ESG) factors into financial decision-making, promoting responsible investment and corporate practices.
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