The world is changing. To stay competitive, companies must look beyond risk and revenue when making decisions. They now must also be aware of the impact their actions are having on the world — especially regarding Greenhouse Gas (GHG) emissions. There are two reasons for this. First, governments have started to create mandatory reporting, legally holding companies accountable for their carbon output. This form of carbon reporting will continue to grow. Second, people care — especially millennials. They are choosing to work for and buy from companies with a shared ethos. Companies are now realizing that reducing their carbon footprint is not just the right thing to do, but also a smart business decision. Quality carbon credits are an avenue for companies to become carbon neutral as they transition away from fossil fuels, while simultaneously empowering good causes and making the world a better place.
The Regulatory Landscape
In the EU, large companies are required under the European Union’s Climate Monitoring Mechanism to disclose their GHG emissions. In California, the state Senate passed the Climate Corporate Accountability Act in January 2022, requiring any company doing business in the state and generating $1 billion in gross annual revenue to disclose emissions across all scopes — direct emissions, emissions from purchased electricity, and indirect emissions from the supply chain. Mandatory reporting is likely to take effect in 2025 or 2026. But it doesn’t make sense for companies to wait for governments to force them to act. Companies should voluntarily begin analyzing their carbon footprint and reducing it now, before they are obligated to — demonstrating that protecting the environment is a priority independent of what the law requires.
Why Companies Should Act Now
It’s an unrealistic expectation to anticipate companies acting purely altruistically regarding GHG emissions — especially when it cuts into their bottom line. So why should a company voluntarily invest significant time, capital, and resources into reducing its carbon footprint if there are no laws requiring it? The answer is simple: because people care about the impact companies are having on the environment. Customers, clients, employees, and investors are using their power to do business only with companies whose values reflect their own.
Consumers are choosing, whenever possible, to support companies with a positive environmental impact. Employee retention is equally important. Many companies waste time and money training employees only to see that talent leave within six months. According to a 2016 engagement study from Cone Communications, 64% of millennials consider a company’s social and environmental commitments when deciding where to work and will decline jobs at companies without strong corporate responsibility values. The same study found that 83% of millennials are more loyal to companies that contribute to environmental issues. Companies that don’t care about their impact don’t attract top talent — and don’t keep the talent they train.
“Impact investing” — which demands that institutions seeking capital deliver both positive impact and financial return — is also reshaping markets. A study from US Trust found that millennials, who are slated to inherit $30 trillion in the US alone in coming decades, are twice as likely to invest in companies with a positive impact and are demanding their pension funds act accordingly. Simply put: businesses that don’t care about their carbon footprint are going to lose customers, investors, and employees.
Industry-Specific Paths to Carbon Neutrality
Once a company commits to reducing GHG emissions, calculates its carbon footprint, and sets a timeline, the next step is figuring out how to get there. Some common steps include switching to LED lighting and allowing employees to work remotely. But what any particular business needs to become carbon neutral depends on its industry. Consider conventional agriculture and air travel.
Studies show that if a conventional farm transitions to regenerative agriculture, it can not only sequester a tremendous amount of carbon but also increase profitability. If by 2050 there are a billion acres of regenerative farmland, 23.15 gigatons of CO₂ will be sequestered from the atmosphere. Airlines, on the other hand, simply cannot operate without fossil fuel. They must investigate design changes — lighter aircraft, winglets, jet biofuels derived from algae — but to become carbon neutral within the timeframe required under the Paris Agreement, airlines will inevitably need to purchase carbon credits. In October 2016, nearly 200 nations agreed to the Carbon Offset and Reduction Scheme for International Aviation (CORSIA) to curb the industry’s climate impact.
The Power of Voluntary Carbon Markets
When companies act with due diligence and integrity, Voluntary Carbon Markets (VCMs) are an indispensable tool for combating climate change and reaching sustainability development goals (SDGs). Companies can invest in projects focused on reforestation, protecting indigenous livelihoods, building renewable energy sources like wind and solar, biochar, capturing and repurposing methane from landfills, and a host of other causes aligned with their SDGs. Financing these projects is only possible because companies voluntarily purchase carbon credits. VCMs make a significant contribution toward aligning company emissions with the Paris Agreement’s goal of limiting global warming to 1.5°C above pre-industrial levels, enabling climate action at massive scale and record pace.
Integrity in the Market
It is important to note that some VCM actors behave without integrity. Greenwashing, double counting, and purchasing cheap, low-quality credits are practices that must be eliminated. New technologies like blockchain are being leveraged to address concerns around transparency and double counting. Consumers need to hold VCM actors on both the supply and demand sides accountable. Companies should refuse to buy credits from bad actors, and individuals can use collective power to demand their pension funds divest from companies that refuse to take climate action seriously.
Most companies understand the importance of leaving a positive environmental impact. New roles are being created — such as “Sustainability Manager” — specifically to direct and advise corporations on achieving their SDGs. Businesses are beginning to calculate their footprints, make transparent commitments, and purchase quality carbon credits to reduce emissions and make the world a better place.
Conclusion
It is not a matter of if companies should invest in carbon offsets, but when they will start. Will they start because they are legally forced to? Or will they start because they understand it helps their business grow? Investing in carbon offsets helps retain employees, grow a loyal consumer base, increase investment, and signals a corporate vision that prioritizes impact alongside profit.
Works Cited
Aligning Voluntary Carbon Markets: Accelerating Action. VCMI, 2021. vcmintegrity.org.
“California Senate Passes Bill for First Law in US Requiring Companies to Disclose All GHG Emissions.” ESG Today, 31 Jan. 2022. esgtoday.com.
Cohen, Ronald. Impact: Reshaping Capitalism to Drive Real Change. Morgan James Publishing, 2021.
Dailey, Whitney. “2016 Cone Communications Millennial Employee Engagement Study.” Cone Communications, 12 May 2017. conecomm.com.
Hawken, Paul. Drawdown: The Most Comprehensive Plan Ever Proposed to Roll Back Global Warming. Penguin Books, 2018.
“Mandatory Emissions Reporting around the Globe.” UL. ul.com.