The vital role of corporate voluntary action in reducing global emissions
In case you may have missed it on our social media channels, this edition of our Carbon Blog features an important Earth Day message from our Founder and CEO Justin Cochrane. This article was originally featured this week in ESG Clarity.
“We must work together and use every tool at our disposal to reduce our collective CO2 output.”
Today, there is a single unavoidable and devastating fact — we are running out of time to solve the climate crisis.
Last year’s report from the United Nations’ Intergovernmental Panel on Climate Change was described as the most disturbing warning yet on the disastrous effects of the world’s rising temperatures. Limiting global warming to 1.5C degrees is almost out of reach. Nature is being hit hard and hitting back: extreme weather events are on the rise, and nearly 3.5 billion people are now highly vulnerable to climate change.
No one country, industry, or sector can solve this alone. If we are to avert the worst impacts of a warming world, we must work together and use every tool at our disposal to reduce our collective CO2 output.
Across the globe, people are restoring and protecting forests, conserving water, and investing in technologies that will dramatically reduce our CO2 levels. Yet, something is keeping many of the most exciting projects from getting off the ground— the lack of sufficient finance.
To make the necessary impact and achieve net zero by 2050, $9.2trn in annual investment is required, up $3.5trn annually from today. Governments alone cannot provide the funding needed, meaning the private sector is essential to bridging investment gaps. It may be the most significant collective investment ever made — and the urgency has never been greater.
Thankfully, to buoy these efforts, corporations have one of the most effective funding mechanisms at their disposal: directing climate finance through the voluntary carbon market (VCM).
The VCM enables stakeholders to compensate for their emissions by investing in projects that have a positive impact on the planet. These may be nature-based solutions, distributing fuel-efficient cookstoves and water filtration devices, and projects focused on waste avoidance and energy efficiency.
Most would agree that companies need to follow a mitigation hierarchy where they prioritize setting science-based targets to reduce emissions within their operations and value chains, then compensate for the emissions that they cannot yet mitigate. Carbon credits allow companies to compensate for their residual and even past emissions through climate finance.
And corporations across the world are increasingly turning to the VCM as part of their larger emissions mitigation and compensation plans. The total value of voluntary carbon credits traded globally rose to nearly $2bn in 2021 with estimates suggesting this could reach $50bn by 2030, equivalent to a billion tonnes (1Gt) of CO2 – comparable to the annual emissions of the global aviation industry.
And the positive impact of corporate voluntary action on the planet and our communities cannot be overstated. The VCM not only drives finance to projects that would otherwise not exist, but also provides a host of co-benefits by advancing the United Nations Sustainable Development Goals (UN SDGs), creating jobs in local communities, protecting biodiversity, conserving water, and providing education and job training.
An Imperial College study estimated that for every 1 tonne of CO2 reduced through a project, additional benefits of $664 were also delivered to critically challenged economies and ecosystems, helping communities adapt to the impacts of climate change and deliver sustainable development outcomes.
As an example, Rimba Raya, is one of the world’s largest initiatives to protect and preserve tropical lowland forests on the Island of Borneo in Indonesia. This project is expected to generate 2.7 million carbon credits per annum until 2073. It also develops livelihood programs in surrounding villages to provide education, healthcare, and employment. These programs address all 17 of the UN SDGs.
Fortifying frameworks that guide voluntary corporate action is an important step to ensuring carbon credits deliver on their full potential. The Integrity Council for the Voluntary Carbon Market is working to ensure that the carbon credits sold in the market are achieving real emission reductions and removals. The Voluntary Carbon Markets Integrity Initiative is developing guidance on the kinds of claims companies can make when purchasing carbon credits.
These are welcome, but companies must not let the quest for perfection get in the way of progress. Leaders are already taking bold steps to direct investment and demonstrate the viability and potential of the VCM. Corporations should approach climate finance with the same rigour as any other business decision to ensure projects demonstrate integrity and address the criteria necessary to be deemed ‘high-quality’.
The world faces immense challenges in meeting the climate crisis, but corporations have the power and resources to drive significant impact. They hold the potential to unleash the VCM’s immense capacity to drive financing where it is needed most, at scale. To do that, we need collective corporate action, urgently, because climate success is business success. And any further delay in real climate action is likely to have catastrophic effects.
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