Opportunities for Indian corporates decarbonize and develop a portfolio of carbon credits

The Voluntary Carbon Market is an essential component of the global fight against climate change. It involves companies and organizations purchasing carbon credits to offset their emissions, supporting projects that reduce greenhouse gas emissions, and creating environmental and social benefits. However, the market faces many challenges and opportunities to scale responsibly, which is crucial to achieve climate neutrality. This blog post highlights five steps that Indian corporates can take to build a portfolio of carbon credits and ensure quality and integrity in their investments.

Step 1: Set a decarbonization pathway aligned with scientific recommendations.

Companies with credible near-term decarbonization plans must communicate how offsets will be integrated into those plans and complement direct carbon abatement. To ensure demand-side credibility in the use of carbon credits, corporates must set decarbonization goals that align with scientific recommendations. This step requires companies to understand their carbon footprint and the emissions reduction needed to achieve carbon neutrality. Once these targets are established, companies can identify the most effective carbon offset projects and establish transparent metrics to measure the impact of these projects.

Step 2: Acknowledge the urgency of protecting natural carbon sinks and other high-integrity community-based projects.

To promote environmental and social benefits beyond their value chain, companies should integrate nature and climate strategies into the core of their decarbonization efforts. The protection of natural carbon sinks, such as forests and wetlands, and the support of community-based projects that provide sustainable livelihoods, health benefits, and education, are vital to the long-term sustainability of the carbon market.

Step 3: Ensure transparency and trust by supporting global standards and integrity bodies.

To increase the integrity of the market supply, global standards and integrity bodies must define norms and instill confidence in the use of credits. The Voluntary Carbon Market Integrity Initiative (VCMI) aims to introduce and scale the use of new threshold standards for high-quality carbon credits. Additionally, consensus on legal definitions of terms such as “net zero” and “carbon neutral” can provide clear guidance and confidence to actors genuinely trying to create positive climate impacts, while reducing opportunities for companies trying to avoid meaningful, difficult actions that mislead consumers and investors.

Step 4: Develop regulatory regimes to provide clarity on how and under what conditions voluntary carbon markets can be used.

As the boundaries between voluntary carbon markets, compliance carbon markets, and sovereign carbon credit mechanisms increasingly blur, the need for direct regulation of VCMs is likely to become especially important. Regulatory regimes can provide upfront clarity on how and under what conditions VCMs can be used. For example, the recent introduction of the Singapore carbon tax mechanism provides an excellent model worthy of further assessment.

Step 5: Embrace the reputational benefits of carbon credits and communicate transparently.

Companies must understand the reputational benefits of carbon credits and communicate transparently about their investment in carbon credits. By demonstrating a commitment to environmental and social responsibility, companies can build trust with stakeholders and gain a competitive advantage. To do so, companies must communicate the environmental and social impact of their investments in carbon credits, provide detailed information on the projects they support, and be able to monitor the actual impact over time.

In conclusion, Indian corporates can take significant steps to build a portfolio of carbon credits and ensure quality and integrity in their investments. By setting decarbonization goals, protecting natural carbon sinks, supporting global standards and integrity bodies, developing regulatory regimes, and embracing the reputational benefits of carbon credits, companies can scale responsible engagement in the carbon market and accelerate climate action.