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4 steps companies can take to offset carbon emissions and protect forests

If not carefully designed or part of a broader carbon management plan, carbon offset projects can have the potential to negatively impact local communities and economies, and biodiversity and other natural resources. Read More

(Updated on July 24, 2024)

Global greenhouse gas emissions, even as they dropped last month to their lowest levels in more than a decade due to the COVID-19 pandemic, have fueled the ongoing climate crisis. Individuals and companies have long tried to reduce their emissions by what is known as carbon offsetting — the practice of compensating for emissions by offsetting them in carbon storage projects. And in recent years, this trend is only accelerating. 

But it begs the question: How can voluntary corporate carbon offset projects be responsibly implemented? 

We have seen a recent surge by some of the largest-emitting companies in using voluntary forest carbon offsets to compensate for emissions through the re-establishment of forests and improved forest management.

Transactions in voluntary carbon markets hit a seven-year high in 2018, according to recent data from Forest Trends, with a market value of $295.7 million. The markets were propelled by increased interest in “nature-based solutions” for climate resilience, which drove a 264 percent increase in the volume of offsets generated through forestry and land use activities. 

For example, Amazon committed $100 million to worldwide reforestation and peatlands protection efforts to count towards its goal of reaching carbon neutrality by 2040. On Earth Day, it announced its first $10 million investment to restore and conserve forests in the northeastern U.S. in partnership with The Nature Conservancy. Microsoft said it would cultivate forest carbon offset projects in North and South America, including 60,000 acres in Brazil and 20,000 acres in New England. These projects may contribute to the company’s goal to be “carbon negative” by 2030. In January, JetBlue announced its use of forest carbon offsets as part of its plan to become the first carbon-neutral U.S. airline. Shortly after, Nestle pledged to plant at least 3 million trees in Mexico and Brazil over the next 18 months to help achieve its carbon neutrality goal by 2050.

So why are more companies committing to voluntary carbon offset projects? 

In part, this increased focus is no doubt in response to public concerns about climate change and climbing emissions. It’s also clear that a growing number of institutional investors understand that protecting and creating healthy forests are essential actions for companies looking to meet their overall carbon emission reduction goals, since forests sequester carbon.

Yet not all of these carbon offset projects have received universal praise, suggesting that some of these commitments don’t pass muster with investors and other stakeholders. 

If not carefully designed, or part of a broader carbon management plan, carbon offset projects can have the potential to negatively affect local communities and economies, and biodiversity and other natural resources. That’s why investors have become increasingly concerned over the potential reputational risks companies could face as they pursue well-intended efforts to tackle emissions.  

More investors are already focusing their engagements with companies on the financial implications of the reputational risks associated with commodity-driven deforestation.

Last year, 251 investors with $17.7 trillion in assets under management called on companies to take urgent action on eliminating these risks, as well as operational and regulatory risks, in light of the devastating fires in the Amazon rainforest. Given this, Ceres aims to work with investors in the coming year to foster engagements with companies on forest carbon offset projects.

With a focus on the important lessons learned through addressing deforestation risks and an eye towards emerging best practices, investors can begin to help companies design smarter carbon offset and forest management plans, and avoid reputational risks. They will encourage them to:

1. Complement broader sector and company-wide efforts to reduce emissions

Investors are increasingly engaging with companies on eliminating deforestation in their supply chains in a holistic way, as they see efforts to eliminate deforestation as a key component of an overall carbon management and emission-reduction plan. Investors will want to approach forest carbon offset projects in a similar way and to complement — not replace — company efforts to reduce emissions.

If carbon offsetting isn’t approached as just one part of a larger company strategy to abate emissions, the idea of offsetting emissions potentially could take company focus away from the primary need to meet emissions reduction goals, worsening the problem of company inaction on emissions reduction. It also could undermine investor confidence and public trust in forest carbon offsetting in the long-term.

In order to avoid such reputational risks, companies should disclose the extent to which they will rely on forest conservation and carbon offset commitments to meet their overall emissions reduction goals.  

2. Design projects in partnership with local communities 

With deforestation, investors are also focused on the financial incentives companies can create for supply chain producers to help foster forest conservation. The most successful forest carbon offset projects also support and stimulate local economies and the livelihoods of those in the community. This is especially important for companies working with indigenous and other under-resourced communities. 

In Uganda, there were reports that an afforestation project, which creates a forest on previously unforested land, triggered community violence and diminished villagers’ access to natural resources. The lesson learned here is that forest carbon offset projects need to be appropriately sited in partnership with the local community, and the associated risks must be effectively managed to avoid such issues. 

3. Cultivate prosperous natural resource systems 

Investors engaged with companies on eliminating deforestation risks are interested in not only securing long-term profits and protecting forests but also in cultivating prosperous natural resource systems. 

Biodiversity is a key topic of deforestation-related engagements with companies. Investors increasingly recognize that biodiversity is key to maintaining resilience in human and natural ecosystems.

Tropical forests are biodiversity hotspots — as Adam Kanzer, head of stewardship for the Americas with BNP Paribas Asset Management, notes: “There are many important opportunities to bring biodiversity into existing company conversations on forests and climate. Rather than shy away from ‘net-zero’ emissions commitments, for example, we should be using these commitments to drive restoration of critical habitats, now.” 

Forests also perform vital ecosystem services, such as recycling water. Therefore, when assessing large-scale forest carbon offset projects companies also should factor in regional environmental impacts, such as the availability of water and existing native vegetation.

4. Commit to using reputable verification standards

Not only do investors want to see companies make specific commitments to eliminate deforestation risks, they also want to see companies disclose measurable, verifiable progress on those commitments and seek third party verification of this progress. 

Similarly, investors will want to know that companies embarking on forest carbon offset projects are committed to using credible monitoring and verification standards such as Gold Standard and the Verified Carbon Standard to assess and manage forest carbon offset projects.

Companies should build monitoring mechanisms into their carbon offset and forest management plans to ensure projects continue to operate at peak performance. Investors will come to expect regular, standardized and verifiable corporate disclosures.

No doubt, there will be a lot of challenges to navigate in the year ahead, as investors work with companies to implement smarter carbon offset and forest management plans.

But by learning from the lessons of the past and sticking to these key principles, companies can achieve success in delivering on their emissions reduction goals, while restoring our forests and improving our local communities. 

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