Companies buying carbon credits are far more likely to be taking robust, ambitious and accountable action to decarbonize their business and supply chains, according to new NGO-led research, which argues hits back at accusations that the voluntary carbon market is little more than a “greenwashing” exercise.

The research, based on voluntary carbon market (VCM) transactions and corporate climate disclosures made through the CDP reporting platform by over 7,400 organizations, claims that not carbon credit purchases are not only funding a wide range of green projects, they are also typically associated with firms that are already taking steps to cut emissions from their direct operations and value chains.

Across a range of measures, including emissions reductions, accountability, target-setting and supplier engagement efforts, companies buying carbon credits were found to be “outperforming” those that were not engaged in the VCM, according to the study.

The analysis, carried out by U.S. NGO Forest Trends’ through its Ecosystem Marketplace initiative, also found that carbon credits account for a very small share of overall climate action from the companies buying them, representing just over 2 percent of their total emissions on average.

Stephen Donofrio, managing director at Forest Trends’ Ecosystem Marketplace, said the research pointed to a “remarkably consistent” trend that firms buying carbon credits were far more likely to be investing in a range of efforts to reduce their climate impacts.

“Our analysis indicates that corporate voluntary buyers are using science to backstop their investments into a suite of climate solutions, including project-based carbon credits,” he said. “As companies are being called on accelerate their efforts to do the hard, but necessary, work of addressing greenhouse gas emissions in their value chains and decarbonizing their operations, over the past decade our market analyses have shown remarkably consistent results: that companies investing in voluntary carbon markets are outperforming their peers across a range of key indicators.”

A series of investigations…have revealed instances of ‘junk’ carbon credits being traded and bought by companies.

The research was funded by a range of groups including environmental NGO Conservation International, green business non-profit the We Mean Business Coalition, and climate solutions funder the High Tide Foundation. The Voluntary Carbon Market Integrity Initiative (VCMII), which works to develop and raise corporate standards among organizations buying carbon credits, also part-funded the research.

It comes amid mounting criticism of the voluntary carbon market, following a series of investigations that have revealed instances of “junk” carbon credits being traded and bought by companies that either do not achieve the emissions reductions claimed, or which are in some instances supporting projects accused of driving negative environmental or social impacts.

Just last month an investigation by The Guardian and the non-profit Corporate Accountability found that of the top 50 selling offsets projects on the global market, at least 39 projects worth around $1.142 billion in total trades were likely to be worthless due to failing to deliver promised emissions cuts. The investigation claimed such credits account for almost a third of the entire global voluntary carbon market, and that “junk” or overvalued carbon credits could therefore be the norm.

Developers have routinely hit back at such accusations, arguing that standards in the market for monitoring and reporting emissions reductions are improving all the time and the vast majority of projects deliver a range of climate, biodiversity and development benefits.

However, critics have also alleged that the purchasing of carbon credits is being used by corporates to make spurious claims they have achieved “carbon neutral” or “net zero” status, which in turn eases the pressure on them to cut emissions at source.

It is an approach based on ‘and/and,’ not ‘either/or.’

The analysis from Forest Trends does not assess the integrity of carbon credits available on the market, nor those purchased by buyers. As such it warns that transparency from buyers of carbon credits is still “lagging,” with just 8.2 percent of the firms confidentially reporting their carbon credit purchases to the Ecosystem Marketplace found to have also disclosed their engagement in the market to CDP.

But the report does push back at the argument that companies are using the purchase of carbon credits as cover for their failure to cut emissions at source.

“Companies are continuing to purchase and retire carbon credits, at the same time that they continue to do the hard, but necessary, work of investing in climate action throughout the value chain and decarbonizing their operations,” said Donofrio. “It is an approach based on ‘and/and,’ not ‘either/or.’

“Much work remains to be done to clarify and communicate the role carbon credits play in a science-based climate strategy, but the foundations we build on are solid indeed.”

The findings were welcomed by VCMII CEO, Mark Kember, who said the study showed most companies were using carbon credits “judiciously” as part of a transparent, ambitious and integrated climate strategy, rather than backing low integrity offsets to try and postpone or avoid taking action to actually reduce emissions from their business. As such, he urged companies not to dismiss the benefits of purchasing carbon credits altogether, and to be as transparent and open as possible about their involvement in the voluntary carbon market.

“Sadly, corporate leaders have become reluctant to ‘talk their walk’ about carbon market strategies for fear of being type-cast as greenwashers but I hope this report will help dispel mistrust and encourage more CEOs to invest and disclose more about their carbon credit investments,” he said.

The research findings show companies engaging in the VCM were 1.8 times more likely to be reducing emissions from their business year-on-year, 1.3 times more likely to have supplier climate engagement strategies in place, and were investing three times more in emissions reduction efforts in their value chain, such as by ramping up renewable energy supply, when compared to corporates reporting through the CDP platform that do not purchase carbon offsets.

In addition, corporate carbon credit buyers were found to be 3.4 times more likely to have a climate goal in place approved by the Science Based Targets initiative, were 1.2 times more likely to have board oversight of their climate transition plans, and three times more likely to include Scope 3 value chain emissions in their climate targets.

Maria Mendiluce, CEO of the We Mean Business Coalition, said the new research findings showed that, rather than “being laggards or greenwashers,” companies investing in carbon markets were using CO2 credits to support “ambitious, holistic decarbonization strategies.”

The companies that were buying carbon credits are already taking climate change seriously.

“Participation in high integrity carbon markets is a credible action against climate change and nature depletion,” she added.

It is not the first time research has indicated that firms engaged in the voluntary carbon market tend to be taking greater action to decarbonize their operations. In June, Trove Research published the findings of a similar study that analyzed the performance of more than 4,000 firms and found those buying a “material” amount of carbon credits were reducing their absolute emissions twice as fast as those that had not bought any offsets at all.

“The received wisdom is that companies are using offsets rather than making any efforts to decarbonize,” Guy Turner, CEO of Trove Research told BusinessGreen at the time. “That was a test that we’ve set out to examine. And it turns out to be the opposite of that hypothesis. The companies that were buying carbon credits are already taking climate change seriously.”

The latest research from Forest Trends further supports such conclusions, and also suggests the voluntary carbon market has seen an uptick in demand for pricier, higher quality carbon credits, presumably partly due to the reputational risks associated with backing low-integrity credits that struggle to deliver promised emissions savings. The results suggest firms are willing to pay more to try to ensure the carbon credits they purchase are of high integrity and credibility, and back projects that promise genuine climate, environmental and social benefits.

Despite concerns and criticism over the integrity of many carbon credits traded on the VCM, the report confirmed that industry experts still expect the voluntary market to grow at least fivefold from $2 billion in 2021 to between $10 billion and $60 billion by 2030, driven in part by rising demand for higher cost and higher integrity carbon credits, including from the nascent engineered carbon removal market.

M. Sanjayan, CEO of Conservation International, said that given the short window of time to drive down emissions so as to hit global climate goals, carbon credits had a critical role to play in helping to unlock much needed private sector investment in a range of climate solutions worldwide.

“We are in a race against time, and the global scientific consensus is clear: We must invest in nature to combat climate change,” he said. “Carbon credits offer an immediate way for businesses to reduce global emissions right now, and today’s report reaffirms what we’ve long known: Carbon credit buyers tend to be leaders in taking climate action. Those criticizing them or lagging on the sidelines should take note.”

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