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Thrive is set up by Funding London, a venture capital company bridging the finance gap for early stage businesses based in London. With over a decade’s experience in supporting the startups of London through a variety of funding vehicles, Funding London sensed a need to illuminate the ever-evolving scenario of London’s early stage businesses.

Thrive features interviews with and opinion from budding entrepreneurs, investors and industry experts. A mix of contributors from all areas of the industry is desired in order to spark genuine discussion about ongoing critical issues. While it showcases the effectiveness of successful ventures, it also encourages sharing lessons learned from missteps and unsuccessful projects.

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Trends · 1 July '22

Carbon offsetting: the business accounting trick for climate action?

“Net-zero in 3 easy steps”

“Measure, reduce, and offset”

“Offset your business footprint in two steps”

“For less than X per week, you can become climate positive”

Let’s face it, if climate action were that easy, then climate change would have been solved by now and the 2021 carbon emissions would not have been the highest ever recorded.

Climate mitigation is NOT easy, actively reducing your business emissions is quite an undertaking that needs to be underpinned by a proactive leadership, an engaged workforce, the right knowledge and tools, and often a healthy cash flow. Real, enduring, and data-driven carbon reduction will involve fundamental changes in your business operations, business models, and strategy.

With climate action becoming increasingly popular as a marketing strategy, and regulation trickling down from big corporations to smaller organisations, we have recently seen many initiatives promising they can make your business, your product, your e-commerce “carbon neutral” in just three clicks using carbon offsets. But how real are these claims?

carbon offset refers to a reduction or avoidance in greenhouse gas emissions (GHG) that is used to compensate for emissions that occur elsewhere. Carbon offsets can be sold by accredited projects that have contributed to the removal or avoidance of GHG. To illustrate, let’s think of a solar farm project. You can argue that if that project hadn’t been installed, then the demand for energy would most likely be supplied by fossil fuels. Therefore, the solar farm is “avoiding” carbon emissions, and after going through an accreditation process, they can sell certain amounts of carbon credits that represent that avoidance of GHG.

In principle, carbon credits are an excellent way to support green projects, especially in developing countries. They can provide an additional revenue stream and a flow of funding from the developed world – largely responsible for global warming – to developing countries – who will suffer the most from the consequences of climate change.

In practice, the problem arises with the verification of these projects. Studies of the world’s two largest offset programs – the Clean Development Mechanism (CDM) and Joint Implementation (JI), both administered by the United Nations under the Kyoto Protocol – suggest that up to 60-70% of their offset credits may not represent valid GHG reductions[1]. Let’s think of a reforestation project: it will take many years for those trees to capture a significant amount of carbon emissions, and many things can happen in between that makes it difficult to ensure their capabilities as a carbon sink.

So, what happens when you buy carbon credits for your business? In terms of being “carbon neutral”, if I emit 100 tonnes of GHG as a business, I can theoretically buy 100 credits from that solar farm or other projects to “balance” my emissions and continue with my business as usual.  A very clever accounting trick, plus and minus of the same amounts equal zero on my carbon balance sheet, done. But, most likely very little has changed.

If as a business, you still choose to go through the carbon offset route to claim you are a “carbon neutral” company, it is imperative that you buy the carbon credits from official providers that have verified said projects are real, additional, measurable, and verifiable. There are a lot of companies out there selling dubious carbon credits and taking a cut from that. The last thing you would need as a business is being accused of “greenwashing”.

Now, for the planet’s sake, let’s go a step beyond carbon neutral. What would I need to do as a business to be “net zero”? According to the Science-Based Target Initiative, the most well-known framework to set a net-zero pathway, you actually need to do something to reduce your business emissions, and you need to do something soon. You need to actively reduce emissions on a yearly basis, and only for that remaining 10%, you can buy carbon credits that are capturing GHG from the atmosphere.

No accounting tricks, no buying carbon offsets, no magical three-clicks solutions; just true – and lasting – carbon reduction.

The reality is, we need to collectively and proactively tackle global warming without intermediate or “patch” solutions that look nice on paper and make us sound great as a company. The time to act is now.

[1] https://www.offsetguide.org/concerns-about-carbon-offset-quality/#_ftn1