Climate Governance Initiative

Carbon Pricing Navigator

Carbon Pricing, Companies and Boards

Voluntary Carbon Market Risks and Opportunities

Reducing emissions across the value chain should be the central goal of any corporate net zero strategy. However, few organisations can reach their net zero goals via emission-reduction activities alone or do so quickly. Most will have residual emissions and may wish to purchase offsets from the voluntary carbon markets to address these. In some cases, an organisation may wish to sell offsets on the voluntary carbon market where a business opportunity has been identified.
As voluntary carbon markets remain largely unregulated, it is important to put in place a robust process for decision-making, scrutiny and adjustment of the organisation’s carbon offset choices over time. This will support the organisation’s decision-making process and mitigate against reputational risk.

Voluntary Carbon Markets opportunities

  • Buying carbon offsets or credits from the voluntary carbon market can help a company to achieve its net zero commitments
  • However, purchases of voluntary carbon offsets should only be made when companies (and specifically their boards) have a deep understanding of (1) of the role of offsetting within a broader net zero strategy and (2) what constitutes a credible carbon offset 
  • A number of accreditations exist for voluntary carbon offsets, and companies will need to navigate these. There are also a number of methodologies companies can follow on setting a path to net zero, for example, Science Based Targets and ISO.
  • The UN’s Integrity Matters report has further support for corporates.

Voluntary Carbon Markets risks

  • There is a significant reputational risk for companies investing in non-credible carbon offsets, or using carbon offsets in place of making reductions to their own carbon footprints.
  • Recent stories in the press, have questioned the validity of offset schemes and thrown into doubt the claims of companies who have invested in them. 
  • Companies that are purchasing credits for product neutralisation claims and marketing purposes risk censure from advertising regulators, particularly in the EU, UK and US.
  • Research by the Cambridge Centre for Carbon Credits argues that carbon credits can be a valuable tool for climate change mitigation, but success depends on improving their credibility.
  • Boards must take ultimate responsibility for managing the reputational risk to their companies.
  • Audit committees must ensure that any investment in the voluntary carbon market is transparently reported, as well as accounted for in the company’s audit.