The Value of Corporate Investing in Carbon Offsets

Today, corporations focused on Environmental, Social, and Governance initiatives are increasingly investing in carbon offsets to reach their emissions reduction goals. When a company purchases a certificate or tradable rights for carbon offsets, these investments fund environmental projects to address climate change, which are intended to cancel out the company’s own emissions in turn.

Carbon offset projects are typically categorized as nature-based solutions (NBS) or technological solutions. NBS are geared towards emissions avoidance, emissions removal, or avoidance and removal, and these projects can include everything from reforestation efforts to improved forest management. Technological solutions might be projects related to solar, wind, or hydropower renewables, as well as methane capture or direct air capture to remove excess greenhouse gasses from the air.

The Growing Market for Carbon Offsets

Shareholders and investors, as well as the general public, are pushing corporations to reduce their emissions, which is driving a dramatic increase in offset investments. For many corporations, investing in carbon offsets is a necessary strategic choice for achieving their emissions reduction goals in line with their timelines for binding net zero commitments. By 2021, the voluntary carbon offset market was worth more than $2B. The growth in this sector is expected to continue, with researchers estimating that the market will be valued between $10B to $40B by 2030. Furthermore, demand is projected to outpace supply for certain offset projects by 2024 or earlier.

Investing in carbon offsets is just one of many ways that corporations can do in order to take climate action, but this particular approach can be controversial. Because carbon offsets don’t lower a corporation’s direct emissions, consumers and stakeholders can be skeptical of the true value of these projects, and some question whether or not buying offsets is merely a form of corporate “greenwashing.”

With the corporate demand for carbon offsets skyrocketing, it’s easy to see why various stakeholders are curious about the validity of these projects. Despite these concerns, corporate investments in carbon offsets can play an important role in the fight against climate change, particularly in regards to funding new technology that could pave the way for net zero society in the future.

Are Carbon Offsets Greenwashing?

While many carbon offset projects are genuinely beneficial for environmental health, and investing in such projects can help drive the development of crucial new technology, environmentally-conscious consumers and other stakeholders are aware of the potential for greenwashing. Today, consumers who are passionate about sustainability will seek to patronize businesses that promote their positive environmental efforts, and investors who prioritize ESG may prefer to support companies that are taking steps to reduce climate-related risk exposure. This trend could incentivize companies to engage in “greenwashing,” or publicizing ESG efforts that don’t meaningfully reduce emissions. Furthermore, projects that later turn out to be unviable represent a wasted investment with no real progress towards emissions goals - but this may not be represented in a corporation’s public relations materials highlighting their offset investments.

Unfortunately, some carbon offset projects do not live up to their initial promise. For example, a corporation might buy carbon offsets to fund a reforestation project, only for the trees to be cut down or burned down later. Verra, the world’s leading carbon certifier, recently came under intense scrutiny after researchers uncovered that more than 90% of their rainforest offsets did not actually demonstrate evidence of deforestation reduction. In Australia, the government ordered an extensive review of offsets issued by their Emissions Reduction Fund after a former employee outlined the program’s flaws: offsets were issued for planting trees that already existed or for planting forests on land that could not support this kind of growth.

Additionally, some stakeholders and consumers feel that buying offsets can distract a corporation from their overarching goal of achieving net zero emissions. Buying offsets may not have the same impact as reducing their utilities usage or running their facilities with renewable energy sources, but corporations might choose to purchase offsets in favor of other initiatives simply because it could be more convenient in the short-term. This can lead to “leakage” - while a company could lower their emissions through offsets, they might have increased their emissions in another area, ultimately canceling out any potential progress.

However, not all carbon offset investments should be labeled as greenwashing. When properly executed, many carbon offset projects can help protect biodiversity, preserve forests and other vulnerable areas, and drive the development of powerful new technology. Understanding the benefits of viable NBS and technological solutions projects can encourage responsible corporate investing and spur the development of a mature carbon offsets market.

The Positive Impact of Carbon Offset Projects

Without funding, organizations behind these carbon offset projects would not be able to get them off the ground. This is where corporate investments play an important role. For instance, at the Cop26 UN Climate Summit, governments committed to a $12B public climate finance pledge to protect and restore forests, which is a groundbreaking investment. However, upholding this commitment will actually cost $393B annually by 2055, and governments and multilateral development banks have only dedicated minimal funding to the initiative. But the voluntary carbon offset market could provide much-needed funding where governments and banks are falling short - in fact, McKinsey predicts that carbon offsets could provide more than $50B in annual funding by 2030.

Carbon offset investments have also helped to fund the development of groundbreaking technology like direct air capture. A DAC system physically removes carbon dioxide from the atmosphere and stores this greenhouse gas underground, and if this technology is implemented for widespread use, it could be a crucial tool in mitigating the effects of climate change. Deploying this infrastructure on a large scale is an expensive endeavor, and carbon offsets provide essential funding. Steve Oldham, the CEO of prominent climate technology firm Carbon Engineering, has stated that cultivating market interest and establishing contracts with customers is critical for deploying DAC, and entering the offsets market is making this possible.

In addition to DAC, carbon offsets purchases have made it possible for companies to develop other innovative methods of carbon sequestration. For example, the soil improvement fiber manufacturer Soilfood has established a circular economy by refining nutrient, fiber, lime, and carbon-based sidestreams into fertilizers and formulas to enhance soil quality. By working with major paper, pulp, and bio-energy companies, they recycle industrial side streams that would otherwise be incinerated, which sequesters carbon rather than releasing it into the atmosphere. Furthermore, organizations like CarbonCure are addressing the massive environmental impact of concrete production with scalable, retrofit carbon dioxide removal technology. When CO2 is injected into fresh concrete, it becomes mineralized and remains embedded in the material. With this method, CarbonCure is aiming to reduce the concrete industry’s emissions by 500 megatons per year by 2030.

Other companies are leveraging carbon offset funds to explore strategies for turning natural resources into carbon sinks. Running Tide is harnessing the power of kelp as a scalable, permanent form of carbon removal with their unique buoys formulated from kelp forestry residue and limestone. Kelp absorbs carbon 20 times faster than trees, and when these buoys sink, the embodied carbon will be stored for hundreds to millions of years. Levitree is experimenting with subterranean wood injection, which involves storing deadwood in anaerobic, underground spaces where it won’t be degraded by microbes. This method of carbon sequestration has the added benefit of elevating properties for flood protection.

If carbon offset projects are automatically branded as greenwashing, corporations might be hesitant to invest in these initiatives, which means that these projects could lack necessary funding. With rigorous oversight from reputable verification organizations, corporations can make wise decisions when it comes to offset investments, and organizations that need funding for reforestation initiatives or cutting-edge climate technology can get the financial support they need.

Improving Corporate Investing in Carbon Offsets

Today, new carbon intelligence platforms are making it easier for corporations to invest in viable carbon offset projects. Independent, scalable platforms like Sylvera and BeZero provide transparent, high-quality ratings for different offset projects, allowing businesses to make informed choices to uphold their emissions reduction commitments. These platforms determine ratings by employing satellite monitoring, gathering geospatial data, and assessing the impact of natural hazards on ongoing offset projects.

Platforms like these apply machine learning technology trained on satellite imagery, radar, and field plots to monitor projects and estimate carbon stored by biomass. This enables them to assess the progress of offset projects remotely and convey this information to investors. Automating these processes simplifies the evaluation process for independent verification organizations and provides businesses with the up-to-date information they need. Furthermore, new verification organizations like Pachama are developing remote sensing programs powered by artificial intelligence and LiDAR detection to quickly identify issues that could disturb offset projects, such as logging or forest fires.

By utilizing platforms like these to guide decisions regarding carbon offsets, ESG leaders can feel confident in their company’s carbon offsetting efforts. With improved transparency and better verification processes for future carbon offset projects, corporations will be able to invest in worthwhile environmental initiatives and support ongoing progress towards reducing the impact of climate change.