Evaluating the Use of Carbon Credits
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This report provides critical guidance to help investors assess the integrity of corporate net-zero commitments and companies’ use of carbon credits to deliver on those commitments. It arms investors with cutting-edge research and best-in-class practices that allow them to navigate the risks involved with commitments and make better, more informed investment decisions.
This guide aims to share best practices and compare existing standards for carbon projects. It is not intended to create a new standard for carbon projects or recommend new safeguards. Rather, it references social and environmental safeguards recommended by leading development and conservation organizations and the perspectives of Indigenous Peoples and local communities who were consulted in the report review process.
What is a carbon credit?
A carbon credit represents one unit of greenhouse gas (GHG) emissions reduced or carbon dioxide removed from the atmosphere. Most companies and financial institutions currently purchase carbon credits through the voluntary carbon market, which encompasses all carbon credit transactions that occur outside of regulated cap-and-trade systems implemented by governments to reduce emissions (e.g., European Union Emissions Trading System and California Cap and Trade system). The terms “carbon credit” and “offset” are not synonymous. Following convention, a “carbon credit” describes the verified GHG emission reductions or removals generated, traded, and retired. “Offset” describes the act of financing other climate mitigation to balance out a company’s GHG emissions footprint. Carbon credits can be used to offset emissions.
As companies develop climate transition plans to achieve their net zero targets, it is in the financial interest of investors and banks to ensure that companies invest in carbon credits in a way that reduces the systemic risk of climate change and does not expose them to additional reputation or litigation risks. This guide is a resource for those in financial institutions evaluating the role of carbon credits in corporate climate strategies. It also provides guidance on how those credits can contribute to a just and equitable transition. This guidance is intended to provide critical questions for investors interested in evaluating and engaging portfolio companies on their corporate commitments and use of carbon credits. Similarly, banks can use this guidance to inform due diligence and engagements with their clients.
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Critical questions for financial institutions when engaging with companies
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By downloading this resource, you’ll receive email updates from Ceres. Ceres uses the contact information you provide to contact you about future reports and news. You may unsubscribe from these communications at any time. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, please review our privacy policy.