Are carbon credits the easy way out? ♻️

In the fast-paced world of corporate sustainability, companies are under growing pressure to cut emissions and meet net-zero targets.

But are they actually reducing emissions — or just outsourcing the problem?

Carbon credits, once seen as a practical tool to offset emissions, are now under scrutiny.

Are carbon credits truly a solution, or have they become a loophole for companies avoiding real emissions reductions?

Recent changes in the Science Based Targets initiative (SBTi) guidelines are forcing companies to rethink their reliance on carbon credits — and this could reshape corporate climate strategies globally.

From offsetting to real reduction 🌱

The Science Based Targets Initiative (SBTi), a global body that defines and promotes best practices in emissions reductions, has clarified its stance on carbon credits.

The SBTi now advises that carbon credits should not be counted toward a company’s core emissions reduction target. This is a significant shift from previous guidelines where offsetting could be used as a central tool for meeting emission reduction goals.

This change stems from concerns over the credibility and effectiveness of carbon offset projects.

According to a Bloomberg Green report from 2023, over 50% of carbon offset projects fail to deliver the promised reductions in emissions, undermining the trust in these market-based solutions. Additionally, a 2022 study published in The Guardian found that 90% of rainforest carbon offset projects certified by major standards were deemed ineffective in actually sequestering carbon.

This new approach puts the focus on companies making real, direct emissions reductions within their value chains, which the SBTi argues are critical to addressing the climate crisis.

In the voluntary carbon market, the value of carbon credits reached $2 billion in 2023, but concerns about their effectiveness may lead to a decline in their use.

Conversely, carbon pricing mechanisms like the EU Emissions Trading System (ETS) are gaining traction. In 2024, EU carbon prices surged to €100 per ton, now currently trading at around 70€, showing that market-driven carbon pricing, as opposed to offsetting, could play a more significant role in driving down emissions.

What this means? 💡

The growing skepticism around carbon credits presents both challenges and opportunities for investors. Companies will need to focus more on internal decarbonization rather than relying on external offsetting measures. This creates opportunities in sectors like:

• Renewable energy

• Green infrastructure

• Carbon capture and storage (CCS)

• Sustainable supply chains

Firms that successfully adapt could stand to benefit from long-term growth as part of the green economy, while those that fail to innovate may face reputational and financial risks.

For instance, major corporations such as Microsoft and Shell have already announced their intention to reduce reliance on carbon credits and focus more on direct emissions reductions. Companies that align with these new SBTi guidelines will likely gain investor confidence, while those who remain overly dependent on offsets might face increasing scrutiny.

Ready to dive into sustainable investing?

Subscribe to The Climate Mentor today to get updates on the latest trends, tips, and news on climate change.

Enjoy the newsletter? Please forward this to a friend 👥

It only takes 15 seconds. Making this took me 10 hours⌚

Join the newsletter (it’s free)