Earlier this month, we published our Carbon Offset Due Diligence Checklist (available to PracticalESG.com members) – which turned out to be pretty good timing. Responsible Investor wrote last week that
“continuing concerns about the environmental integrity of many credits issued in the voluntary carbon market and the long-term effectiveness of offsetting are giving others pause. Some investors and investor groupings, meanwhile, are pushing for greater transparency from investee companies on their approaches to carbon credit use and are pressing for greater disclosure as companies develop their offsetting strategies…
‘Investors face risk if companies focus too much on carbon offsets’ to meet their decarbonisation goals, she says, adding that a reliance on low-quality carbon credits ‘would mean companies are not actually mitigating the material risks that climate has to investors’ [said Giovanna Eichner, a shareholder advocate at Green Century]…
Thus far, investors conversations with companies around climate have tended to focus on the basics: encouraging them to measure emissions, set targets and begin to mitigate their own climate impacts and those within their supply chains. But ‘the enormous amount of money in the market’ seeking to invest in and profit from carbon credits could encourage imprudent offset use by companies, says [Danielle Figueres, president at As You Sow].
‘We want to make sure that we get ahead of the curve and make sure that, if companies are going to use offsets, they are doing it in a meaningful way. They’re not putting themselves at risk…'”
Advocates of carbon offsets may see this as yet another attack based on sensationalized reports/claims of project failures and fraud. It is debatable whether those problems have been “sensationalized” given the amount of money involved, but two things are certain – meaningful failures did occur (some are still unresolved) and those shook confidence in the offset market.
Beyond concern about fraud or other risk factors, shareholders have an interest in how companies use the capital with which they are entrusted. Some companies are spending tens or hundreds of millions on offsets – it is perfectly appropriate for shareholders to question whether that money is being used appropriately.
Are you ready to answer shareholder questions about how/why you select offsets, and defend why that is the best use of the company’s money? Being well prepared could prevent shareholder activism or lawsuits.
Our members can learn more about offsets here.
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