Five steps to setting a robust carbon offsetting strategy

As we navigate the complexities of climate change, the significance of voluntary carbon offsetting is increasingly clear. It plays a crucial role in advancing corporate climate action on a global scale but also in safeguarding the natural resources we depend on. Although instrumental, carbon offsetting must always be understood as a complementary measure to the fundamental principles of climate action and the mitigation hierarchy – measure, reduce, offset. This means aggressively reducing emissions at their source to align with science-based targets.

With ongoing challenges in climate finance, particularly evidenced by the recent stagnation in Article 6 negotiations at COP28, which has directly contributed to the strain on climate finance flows, the role of carbon offsetting solidifies as a fundamental component of the net-zero toolbox.

For businesses already taking major steps to reduce their impact, integrating carbon offsetting strategies as outlined by the Science Based Targets initiative (SBTi) is a key component of their climate strategies and transition plans. This approach not only helps neutralise at least 10% of their residual emissions after they have achieved their long-term targets and cut emissions by more than 90%, but it also addresses emissions beyond their own value chains (coined by the SBTi as “Beyond Value Chain Mitigation” (BVCM)). This shift from being an add-on to being integral in their plans is necessary to reinforce the role of offsets in our collective pursuit of societal net-zero – defined as achieving a balance between the greenhouse gases (GHG) emitted and those that are removed on a large scale.

Future-proofing business with a strategic carbon offsetting strategy

Integrating carbon offsetting into a company’s strategic framework from the outset is key. This approach not only contributes to future-proofing businesses’ climate strategies and enhancing resilience, but also supports alignment with Environmental, Social, and Governance (ESG) commitments. Engaging early also allows companies to spread costs and manage budgets more effectively, providing financial stability as they work towards their climate goals.

Adopting this forward-thinking strategy can provide companies with access to high-quality carbon credits that not only deliver positive climate impact but also support broader nature and sustainability objectives. These include fostering community development, restoring ecosystems, and protecting biodiversity – all fundamental elements for the health of our planet’s ecosystems.

In developing an offsetting strategy, companies must recognise the time required to build high-quality projects, particularly those centred around nature-based carbon removals such as afforestation, reforestation and conservation initiatives. These projects often face significant lag time from inception to the actual issuance of carbon credits, attributed among other factors to the type of project and the thorough verification process ensuring their impact. As an example, investing in new Nature-Based Solutions (NBS) projects typically takes 5-10 years before credits are issued, and even then, the quantities may be small. This timeframe and potentially limited availability of high-quality credits underscore the importance of companies integrating offsetting strategies at the beginning of their climate action planning. By investing in carbon credits early – whether through retail purchases, financial investment, or direct project development –  companies not only fulfil their offsetting needs but also contribute to building the necessary expertise and capacity for developing new projects. This early engagement increases the pipeline of available projects, thereby enhancing the supply of high-quality credits within the Voluntary Carbon Market (VCM).

Beyond the timing considerations inherent to project development, initiating carbon offsetting early can offer significant strategic advantages, especially given the current market-driven dynamics of the VCM. We are witnessing a scenario where prices are on the rise (e.g., the price premium for A-rated credits has risen to around 200%) and the supply of high-quality offsetting projects struggles to meet the surging demand. This presents distinct challenges for companies in search of appropriate projects that align with their climate and sustainability goals.

Catalyst for accelerated decarbonisation

The benefits of early involvement in carbon offsetting reach well beyond navigating market fluctuations. It allows companies to adopt carbon offsetting as an integral part of their internal carbon pricing strategy. Despite ongoing debates about the potential for misuse of carbon offsetting practices, recent insights from Ecosystem Marketplace present a compelling counter-narrative. They reveal that companies weaving carbon offsetting into their broader climate strategies not only effectively meet their climate obligations but also secure a tangible competitive advantage.

Such strategic integration facilitates a more rapid decarbonisation process, potentially doubling the speed, by internalising carbon costs. It spurs more ambitious emission reduction efforts across all aspects of operations and supply chains, underscoring the multi-dimensional benefits of proactive engagement in carbon offsetting.

Five steps for strategic carbon offsetting

1. Measuring your footprint and setting a science-based target

The first step to any climate action journey is to accurately calculate your organisation’s value-chain emissions. This requires measuring emissions using relevant emission factors in line with the Greenhouse Gas Protocol (or comparable) methodologies. This exercise enables your organisation to highlight hotspot emission sources, and when publicly communicated, provides transparency for consumers and investors.

Following this, it is best practice to set a net-zero science-based target aimed at cutting emissions by 2050 at the latest and neutralising residual emissions from the point of net-zero and beyond, through permanent carbon removal and storage, in alignment with global objectives of limiting global warming to 1.5°C. EcoAct are experts in supporting organisations’ target-setting. We have helped over 100 companies obtain validation from the SBTi, working with a diverse range of sectors supporting companies to meet the required SBT criteria and provide the documentation for submission.

2. Improving your organisation’s understanding of the VCM and the regulatory landscape

The VCM is on an exciting trajectory, with expectations of growth from $2 billion to an estimated $100 billion by 2030 and further to $250 billion by 2050. Understanding market dynamics within the VCM will provide your organisation with valuable insights, enabling you to make informed decisions and effectively fulfil your offsetting commitments.

Strategic foresight becomes increasingly important, not just for adapting to changing prices but also for aligning with evolving net-zero strategies. Organisations that proactively engage with the market by investing early in offsetting projects or securing carbon credits ahead of the curve are ultimately better positioned to align their projects with their priorities and corporate values, compared to those that defer to the ‘spot’ market, where availability might be limited, and credits may come at a premium due to immediate demand.

Upskilling within key areas of your organisation, especially among procurement, finance and C-Suite executives, can help unlock the full potential of the VCM. This comprehensive understanding across multiple departments not only enhances decision-making but also better equips the company to handle regulatory and market shifts, ensuring more robust risk management and strategic planning. The evolving regulatory landscape of the VCM, shaped by both domestic and international developments, further emphasises the need for a well-informed team that can navigate these complexities and seize opportunities as they arise.

Central to navigating these evolving regulations are developments such as the EU’s Green Claims Directive, which, once enacted, will establish precise standards for companies making environmental claims, including those related to carbon offsetting. Complemented by the Corporate Sustainability Reporting Directive (CSRD), these measures are set to usher in an unprecedented level of transparency and accountability, bolstering stakeholder confidence in environmental claims. Similarly, the Transition Plan Taskforce (TPT) in the UK mandates detailed disclosure of transition strategies towards a low-carbon future, including the use of carbon credits within wider climate action initiatives.

Reinforced by guidance from the SBTi, the Oxford Principles for Net Zero Aligned Carbon Offsetting, the Voluntary Carbon Markets Integrity Initiative (VCMI) and IETA, the crux of these regulatory evolutions is clear: they aim to ensure that companies’ investments in carbon credits and offsetting projects are transparent, verifiable, and impactful. By aligning with these guidelines, your organisation not only adheres to best practices but also sets itself apart as a climate leader, demonstrating strategic foresight and operational agility as you gain a detailed understanding of your impact, leading to enhanced risk management, supply chain resilience and innovation.

3. Modelling your organisation’s emissions trajectory

The next step to consider when developing your offsetting strategy is modelling your ambition and defining your future need for credits. While there may be some level of uncertainty, such as emissions increases caused by inorganic growth, having a broad understanding of how many credits your organisation is likely to require over time will help map out your journey to net-zero and forecast expenses for the balance sheet.

The first component of this process is determining which scopes of emissions you will address throughout the journey. The Science Based Targets initiative (SBTi)’s Corporate Net-Zero Standard requires removing residual emissions at net-zero. Complementing this, the SBTi’s own Beyond Value Chain Mitigation (BVCM) guidelines advocate for the immediate use of high-quality carbon credits beyond your company’s value chain. This dual approach is essential for contributing to global net-zero efforts and achieving broader environmental, economic and social goals. Depending on your organisation’s ambition and targets, your offsetting requirements will vary.

It is important to note that the SBTi has recently announced a revision of its Corporate Net-Zero Standard for 2024, with a focus on enhancing guidance around Scope 3 emissions. This revision, following consultation, is set to include new frameworks, reflecting the ongoing discussions and evolving understanding of how environmental attribute certificates and verified carbon credits can be leveraged to address climate change – particularly in the abatement of Scope 3 emissions. The outcomes of this revision are anticipated to provide further clarity and are expected by July 2024.

4. Engaging stakeholders to build a cost-effective offset programme aligned to your business objectives

Before purchasing credits or contracting for future years, organisations should think strategically about how to select the projects they will be supporting. This involves considering a variety of key factors such as the geographical locations within the value chain, types of projects (e.g., renewable energy, reforestation, or community-based projects), internal focuses such as specific Sustainable Development Goals (SDGs), and alignment with existing policies, including best-in-class initiatives like the

5. Communicating your programme

As organisations increasingly come under the spotlight for their climate initiatives, and as we see regulations evolving to ensure transparency and integrity in environmental reporting and claims, it is crucial to accurately represent the impact of your offsetting programme. Misrepresenting these activities or misplacing them within the ‘measure, reduce, offset’ hierarchy could be counterproductive. Instead, focus on effectively communicating your programme’s progress and leadership in thought from its inception and beyond. Aligning your reporting and communication with established methodologies and frameworks such as the Greenhouse Gas Protocol or the CSRD, not only follows best practices but also complies with regulatory requirements in many cases.

It’s important to maintain transparency about the measurable outcomes of your contributions – highlighting your achievements rather than comparing them with others – and correctly presenting sustainable development impacts without overstating are key steps forward. Remember, demonstrating real-world impact through actions is more impactful than mere promises.

EcoAct’s dedicated advisory, portfolio and in-house marketing teams are well-versed in guiding organisations in identifying and supporting high-quality offsetting projects but also in developing their own projects based on their values and priorities. They can also support communicating offsetting programmes with integrity and can help simplify the complexities of emerging changes.

Our experts remain at the forefront of climate policy and can assist throughout your organisation’s offsetting programme – from strategising to project development.

If you want to learn more about developing a robust carbon offsetting strategy, download our new carbon offsetting strategy factsheet here.