Best Practices: A New Risk-Reward Calculus For Voluntary Carbon Credit Utilization
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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.
Table of contents
The ground has shifted beneath the carbon credit marketThe 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
Table of figures
Figure 1. Quality requirements for carbon offsetting projectsFigure 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
Organisations mentioned
Abatable, Allianz, Aspiration, Barclays, BeZero Carbon, Calyx Global, Carbon Green Investments (CGI), Charm Industrial, Chevron, ClearBlue Markets, Danone Waters of America, Delta Airlines, Die Zeit, Disney, Ecosystem Marketplace, ernmental Panel on Climate Change (IPCC), evian, Gold Standard, Gucci, International Sustainability Standards Board (ISSB), L’Oréal, Leon, McKinsey & Company, Meta, National Grid, Nestlé, Netflix, Occidental, Ørsted, Renoster, Science Based Targets initiative (SBTi), Shell, SourceMaterial, South Pole, Standard Chartered, Sylvera, Task Force on Nature-related Financial Disclosures (TNFD), The Guardian, Total, UK Advertising Standards Authority, University College London (UCL) Institute For Sustainable Resources, US Commodity Futures Trading Commission (CFTC), US Securities and Exchange Commission (SEC), Verra, Viridios, Voluntary Carbon Markets Integrity Initiative (VCMI)About the authors
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