I’ve long been concerned about how reliant companies are in nature-based carbon offsets – perhaps “over reliant” is the best way to put it. A big part of the problem comes down to whether carbon sequestering trees end up living the number of years assumed by the project, or if they go up in flames thereby releasing stored carbon and limiting the amount of uptake subsequently available. A recent LinkedIn post recommended by my friend (and panelist in our upcoming 2023 Practical ESG Conference) Julian Richardson discusses a popular risk management method (“buffer pools”) and why those should be more aligned with reinsurance practices:
“Adopting this form of ‘reinsurance’ would enhance the security of the buffer pool and the carbon market more broadly, ensuring there are sufficient credits available to compensate for any non-permanence risks, even in a worst-case scenario. This would help strengthen confidence among market participants, assuring them that their purchased carbon credits are secure and represent permanent emissions reductions.”
Offset risk management is important for offset purchasers to know about and consider. Inadequacies in this regard may not only be relevant to achieving company climate goals/targets, but could also present a risk factor significant enough to warrant disclosure in your SEC 10-K.
