Best Practices: A New Risk-Reward Calculus For Voluntary Carbon Credit Utilization
31 Oct, 2023
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Executive Summary
The voluntary carbon market (VCM) is experiencing a turbulent 2023, after a period of significant growth in 2021 and 2022. The market ecosystem has encountered significant stakeholder backlash, levied at participants operating at all stages of the carbon credit life cycle, from project developers to end-purchasers. A carbon credit theoretically represents a single tonne of emissions mitigation funded voluntarily; however, systemic volatility has led to widespread doubts that this concept has a basis in reality, creating market-wide hesitation about whether firms should offset at all – and if so, how they should do so, to avoid potential reputational damage. This report can be used by executives seeking to upgrade their carbon offsetting strategies to mitigate reputational risk while contributing to global emissions mitigation.
The ground has shifted beneath the carbon credit market
The carbon credit market has suffered recent reputational setbacks
Firms must better manage reputational risk as carbon market perceptions shift
Understanding the new carbon market risk-reward calculus
Decarbonization use cases vary in the new risk-reward calculus
Risk in offset strategies can be mitigated through transparency
Carbon credit rating agencies bring clarity to the market
De-risking carbon offset strategies through disclosures
The carbon credit market has suffered recent reputational setbacks
Firms must better manage reputational risk as carbon market perceptions shift
Understanding the new carbon market risk-reward calculus
Decarbonization use cases vary in the new risk-reward calculus
Risk in offset strategies can be mitigated through transparency
Carbon credit rating agencies bring clarity to the market
De-risking carbon offset strategies through disclosures
Figure 1. Quality requirements for carbon offsetting projects
Figure 2. Traditional carbon credit generation processes under fire in 2023
Figure 3. Carbon credit taxonomy
Figure 4. Carbon credit corporate perceptions in 2023
Figure 5. Carbon offset use cases
Figure 2. Traditional carbon credit generation processes under fire in 2023
Figure 3. Carbon credit taxonomy
Figure 4. Carbon credit corporate perceptions in 2023
Figure 5. Carbon offset use cases
Standard Chartered, Meta, Abatable, South Pole, Chevron, evian, SourceMaterial, Allianz, Ecosystem Marketplace, Verra, International Sustainability Standards Board (ISSB), Charm Industrial, Voluntary Carbon Markets Integrity Initiative (VCMI), Gucci, The Guardian, Gold Standard, Task Force on Nature-related Financial Disclosures (TNFD), Disney, McKinsey & Company, Viridios, Die Zeit, Netflix, BeZero Carbon, Sylvera, US Commodity Futures Trading Commission (CFTC), Leon, Total, Delta Airlines, Renoster, National Grid, Aspiration, ClearBlue Markets, Nestlé, Shell, Science Based Targets initiative (SBTi), Calyx Global, Barclays, Occidental, Ørsted, ernmental Panel on Climate Change (IPCC), UK Advertising Standards Authority, Carbon Green Investments (CGI), US Securities and Exchange Commission (SEC), University College London (UCL) Institute For Sustainable Resources, Danone Waters of America, L’Oréal
About the Authors
Connor Taylor
Senior Analyst
Connor is a Senior Analyst at Verdantix. He focuses on delivering research to help senior executives navigate decarbonization decision-making and build effective strategies to…
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Ryan Skinner
Research Director
Ryan is a Research Director at Verdantix, where he leads a team of analysts delivering research, data and advisory services that help clients navigate the fast-evolving landsc…
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