Companies have started to recognize the urgency of climate action as demonstrated by a rapid acceleration of corporate’s net zero plans. However, in the absence of specific guidance on how to achieve these net zero targets, corporate approaches to climate action and environmental claims have varied widely to-date.
Corporates are increasingly turning their attention to making “climate contributions” as part of their climate action plans and requirements. Corporate climate contributions include all those activities which refer to actions or investments that fall outside of a company’s value chain and are intended to offset, reduce or remove residual, hard-to-abate carbon emissions in corporate supply chains. The Science Based Targets initiative (SBTI) has only recently published a FAQ outlining key principles for corporations on how to think about climate contributions. Under the SBTI terminology these are known as “Beyond Value Chain Mitigation” actions.
Definition: Climate Contribution
A “climate contribution” is a term which expands beyond carbon offsetting, and more broadly covers activities used by businesses and countries to comply with regulations and commitments to reduce or offset greenhouse gas emissions. It can include corporate’s broader ability to claim funding participation – whether as a donor or as an investor – in climate action. Climate contributions can be measured in a tonne of carbon dioxide equivalent avoided or otherwise offset.
At Abatable, we have developed a good understanding of the different types of corporate climate contributions. Below we have outlined several examples where those contributions overlap with the use of verified carbon offsets.
Four Approaches to Corporate Climate Contributions
A tonne-for-tonne approach is adopted when a corporate decides to purchase and retire verified carbon credits to offset all of their emissions like-for-like. This approach has been used by some European utilities who offer “green tariffs” to commercial and residential customers. These credits are bought on behalf of customers to match up all emissions linked to their non-green energy consumption in the energy mix. A tonne-for-tonne approach goes hand in hand with “carbon neutral” or “climate neutral” emission claims and is assessed from a carbon accounting standpoint. This tonne-for-tonne approach is adopted by corporates which have regulatory requirements or need a level of certainty around procurement of specific offsetting volumes. This approach may result in higher price sensitivity from the buyer’s perspective at large procurement volumes.
A dollar-for-tonne approach is when a corporation allocates a budget to support carbon offsetting projects (budget-based spending), with some idea of volume projected to be delivered over time, however, the corporate in this instance is not focused on optimising for a specific volume of carbon credits and it may be willing to accept some degree of carbon delivery risk over time. This approach is used by buyers who may have a lower price sensitivity and may be able to spend more on a per tonne of CO2 equivalent avoided or removed basis. It is also often used as a way to support the development of innovative carbon removal companies or technologies. This approach is used by corporate offset buyers that don’t have stringent regulatory requirements or public pressure to offset their carbon footprint. Instead they are usually interested in offsetting partial emissions and publicising these climate contributions as part of their net zero plan.
This approach is best illustrated by Stripe Climate's carbon removal commitments which saw the financial technology company commit $15 million as a way to pre-purchase some carbon offsets from four innovative carbon removal technology projects.
A new development in the market is the increased interest by corporates in a dollar-for-dollar approach. In this instance, the corporate is positioned as an investor in a carbon project and benefits from a return of investment on the initial upfront investment. In addition, they can also benefit from the receipt of carbon credits which may be generated by the project and secure those offsets at lower prices relative to the market prices. Corporates can have preferred access as an offtaker of the carbon credits generated by the portfolio of projects. However, given they are an early stage provider of capital to get the project off the ground, they may be subject to investment-related risks. Those risks can include but are not limited to, exposure to large carbon under-delivery risk if the project is not able to deliver the volume of carbon credits as planned.
This approach is best illustrated by Shell, who have been actively investing large sums in a series of carbon projects in partnership with a network of high quality carbon project developers. Shell have recently announced a $1.6 billion joint venture with EKI Energy Services to invest in the creation of portfolios of nature based carbon credits, as well as a large investment in C-Quest for the creation of a portfolio of carbon credits from clean cooking stove projects. Some of these credits may be used by Shell for its corporate offsetting needs in the future, but could also be re-sold to Shell’s corporate partners and clients for a profit.
Philanthropic / Corporate Social Responsibility action
Corporate Social Responsibility or “CSR” departments have typically been focused on supporting philanthropic efforts in full alignment with the corporate mission or stakeholder engagement policy. CSR departments have historically funded development of small scale carbon offsetting projects prior to even having a net zero strategy in place.Carbon offsetting procurement decisions have only recently started to become more strategic in nature, with “net zero” budget and goals needing to be set and approved by corporate finance offices. However, philanthropic activities of corporations continue to co-exist with the procurement of carbon offsets and climate contribution investments, particularly in larger organisations. The philanthropic approach is often budget-based and is focused on the identification of projects in line with the corporate mission and agenda.
For example, food and beverage corporations have been looking into supporting plastic reduction initiatives through a donations based approach. Some corporations have pledged a % of sales or profits to finance action projects. Since 1985, Patagonia has pledged 1% of sales to the preservation and restoration of the natural environment. Klarna also launched the Milkywire Climate Transformation Fund, a donation fund supporting pioneering projects needed to reach global net zero, climate advocacy and policy groups. Whilst this approach does not translate into the generation or retirement of carbon credits around a climate neutral claim, it allows corporations to communicate on corporate action for the advancement of one or multiple sustainable development goals.
Abatable is a carbon procurement and market intelligence platform which connects developers, intermediaries with mission-aligned corporates with long-term carbon procurement needs.
If your company is looking to purchase carbon offsets or invest in long term offset agreements, please get in touch.