“Don’t fool yourself: billions more needed to protect tropical forests”, warns a Guardian headline. Similarly, a recent We Mean Business study revealed that a $4.1 trillion finance gap for nature-based solutions must be bridged to achieve global climate goals. And on Earth Day, millions echoed the rallying cry: #InvestInOurPlanet.
Yet, 93% of companies are neither compensating nor reducing their climate impact: in other words, they are doing nothing to address climate change.
This needs to change.
Climate action requires integrity, innovation, and, most importantly, financing. This raises two questions: firstly, what mechanisms do we have for companies to fund climate action, especially in the window until 2030? And secondly, how can we ensure that the finance is producing the promised impact?
Catalysing climate solutions with the Voluntary Carbon Market (VCM)
The VCM provides an effective means for companies to finance activities at a scale that drives the global transition to net zero emissions. And the potential is huge.
If 1,700 high-emitting companies invested just 10% of their emissions in nature-based projects, over $1 trillion could be mobilised by 2030. This finance can support local communities, landowners and NGOs to overcome one of the biggest challenges that they face: securing access to funding.
Why carbon markets you might be thinking to yourself? It’s not the only solution, but investments in land-based solutions are tricky, as they typically involve small and aggregated deals, currency risks and complex ownership structures. Carbon markets, however, treat communities, farmers and land-owners as business partners – as opposed to making a direct investment with an expected financial ROI. Importantly, carbon finance – via the purchase of certified credits traded on carbon markets – is payments for results: it provides a results-based way to finance the implementation of transformative practices that don’t necessarily yield large financial returns, but that lead to measurable positive environmental and social impacts.
Over the next seven years, the VCM could grow by 13X and reduce and remove up to 2.6 GT of GHG emissions. That would account for up to 5% of today’s global emissions.
Promoting effective and transparent use of carbon credits
For genuine climate impact, companies must adhere to simple, high-level principles. South Pole published their Principles for Carbon Credit Use to support the many companies that want to invest in the planet, and in financing the global transition – but who don’t know how to do it in a credible way.
- Set a science-aligned net zero target.
- Pay for all unavoidable GHG emissions today and on the pathway to net zero.
- Use high quality carbon credits.
- Companies should transparently communicate their use of carbon credits.
Delivering high-integrity climate solutions
The VCM ecosystem is made up of many different actors, such as project developers, project owners, landowners and independent auditors; industry bodies like the International Carbon Reduction and Offset Alliance (ICROA); and architecture, including certification standards and methodologies. While the VCM is not regulated, these actors underpin the market, create standardisation, uphold and continuously update robust principles, and ensure real and measurable impacts from projects operating within the VCM.
On top of purchasing projects from internationally-recognised certification standards, another hallmark of quality are the co-benefits a project delivers. Simply put, co-benefits are the impacts beyond carbon, for example boosting food security, protecting biodiversity, and helping create new sustainable livelihoods. They can also support women with becoming more independent and improve their access to basic services, like water, education and healthcare.
Both Verra and the Gold Standard, leading certification bodies in the voluntary carbon market, have designed much-needed tools and even new standards to measure and certify co-benefits in a more standardised way. Although there is still a way to go in terms of monitoring co-benefits, choosing projects with strong impacts beyond carbon ensures a company is contributing to enhancing local standards of living in the host country and therefore a just transition to net zero where no one is left behind.
René Groot Bruinderink, Regional Director, Commercial & Delivery – UK & Netherlands