How to incorporate carbon credits into your sustainability strategy

As companies aim to meet their net-zero commitments and reduce greenhouse gas (GHG) emissions, decarbonization strategies are becoming the norm. And every strategy needs to include compensation for residual carbon emissions. 

That’s where carbon credits come in. Carbon credits allow organizations to offset residual emissions by investing in projects that actively remove or reduce carbon from the atmosphere. In this blog, we’ll walk through 5 steps to get started with carbon offsetting: 

1. Understand your company’s sustainability objectives
2. Check which regulations apply 
3. Set your carbon reduction targets
4. Define your approach to carbon offsetting and carbon removal 
5. Select a carbon credit portfolio

But first, let’s define what we mean by carbon credits and carbon offsetting. 

What are carbon credits? 

Carbon credits are digital certificates that companies can purchase to compensate for the carbon dioxide and other greenhouse gas emissions emitted from their activities. One carbon credit equates to one tonne of CO2 or the equivalent of other GHGs.

The cost of a carbon credit (excluding service and other costs) represents a direct investment into a carbon reduction project e.g. a reforestation project. This is known as carbon offsetting. 

And the impact of carbon offsetting is huge. If 1,700 of the world's highest emitting companies compensated for 10% of their emissions, we could mobilize more than $1 trillion of climate finance before 2030.

5 steps to incorporating carbon offsetting and carbon removal into your sustainable strategy

Most companies will be aware of carbon offsetting, but how it fits into your overall sustainability strategy can be confusing. That’s why we’ve compiled this list of 5 steps to get started with adding carbon credits to your sustainability strategy: 

1. Understand your company’s sustainability objectives  

Every company will have a different set of sustainability objectives, depending on its activities, resources, locations, and budget. Before you start with carbon offsetting, you need to understand how it can help support your organization’s overall sustainability strategy. Then you can set some objectives for your carbon offsetting efforts, such as:  

• Mitigate residual emissions 
• Support progress towards net-zero targets
• Support projects in regions your organization operates in
• Secure long-term access to carbon credits
• Build a sustainable brand
• Stimulate technological innovation

Clearly defining these strategic goals together with internal stakeholders can help to create buy-in for your carbon credit strategy. It will also influence what type of carbon credits fits best for your organization. 

2. Check which regulations apply 

Although carbon credits are usually part of a voluntary market (the Voluntary Carbon Market or VCM), most companies will already be bound by sustainability guidelines and regulations. Which specific regulations or guidelines are applicable depend on the industry, geography, company size, and type of activities.

Companies need to map out which regulations apply to their business, before developing their carbon strategy.  In Europe, these regulations include: 

The Corporate Sustainability Reporting Directive (CSRD)

The CSRD describes how companies should report on a broad range of sustainability topics, including the use of carbon credits. For carbon credits, reporting requirements include describing the quality of carbon credits used, the method of removal or avoidance, and the carbon credit standard used. 

The Green Claims Directive 

The Green Claims Directive describes how companies should substantiate their sustainability claims by providing adequate supporting documentation. Also the claim itself should be clear and not misleading towards customers or the public. 

3. Set your carbon reduction targets 

The next step is to define the carbon emissions reduction goals for your company and understand what has been done to date. This will allow you to create a carbon reduction strategy which should set out your plan for achieving your carbon reduction targets over a set time period. Check out resources from SBTi and ISO 14068 for carbon reduction best practices.  

Your carbon reduction end-goal should be net-zero emissions, meaning that residual emissions are fully compensated for by carbon removal. But credible reduction strategies also include near-term reduction targets. Once a reduction strategy is developed, you can proceed to the next step. ‍

4. Define your approach to carbon offsetting and carbon removal

Now you know your carbon emission strategy, it’s time to determine your company’s approach to carbon offsetting and carbon removal, whether that is following existing carbon credit approaches or by defining your unique approach. In any case, it should: 

• Define goals that the company intends to reach
• Outline the types of carbon removal projects you’ll invest in
• Take a multi-year approach to carbon offsetting
• Align with relevant regulations and policies 

Existing approaches include the VCMI Silver, Gold, and Platinum Carbon Integrity Claims, which involve different levels of commitment to funding climate action and different levels of responsibility for company emissions. 

At Cawa, we understand that each company has different needs and resources for their carbon offsetting and carbon removal approaches, so we’ll work with you to define your carbon credit strategy and ensure it can be delivered within your budget. 

5. Select a carbon credit portfolio 

Once your carbon offsetting approach and budget have been determined, you can explore carbon credit portfolios to find which one fits best. Any carbon credit portfolio that you choose should be aligned with the Oxford Offsetting Principles:

• Cut emissions as a priority, ensure the environmental integrity of credits, and regularly revise as best practice evolves.
• Transition to offsetting with carbon removal projects for any residual emissions (away from emissions avoidance or reduction) by the global net zero target date.
• Shift to removals with durable storage and low risk of reversal.
• Support the development of innovative and integrated approaches to achieving net zero.

All of the carbon credit portfolios developed by Cawa adhere to the Oxford Offsetting Principles, and we’re always on hand to tailor a portfolio specifically to your needs. 

Considerations when choosing a carbon credit portfolio. 

Now you know the steps to take when developing your strategy for carbon credits, but how do you pick which carbon credit portfolio suits your needs? Here are some factors to consider: 

• Type of carbon credits: decide on your preferred balance between carbon removal and avoidance credits, and pick a portfolio that aligns with this. 
• Geography: you may have a preference for projects in one location, or prefer to invest in global projects. 
• Multiple benefits: consider whether the portfolio includes projects that also support local communities, biodiversity, or other sustainable development goals.
• Project verification: double check that your chosen portfolio of projects was vetted to ensure they are truly removing carbon as predicted. 
• Transparency: ensure that you can easily see which projects are receiving investment and where your money will be going. 

It’s also important to note that many carbon credit marketplaces use intermediaries, meaning that a lot of your money isn’t going to the projects in your chosen portfolio. Don’t forget to check the fee structure of a marketplace before investing in a carbon credit portfolio. 

Ready to get started with carbon offsetting? 

At Cawa, we’ll guide you through the process of developing a coherent carbon credit strategy. Book a call with one of our experts for a tailored 30 minute demo of our platform and advice on getting started with carbon offsetting and carbon removal.