Date: 25 March 2021
Climate Governance Malaysia, in collaboration with INSEAD
- Bill Winters, Group CEO Standard Chartered Bank and Chair of the Taskforce Scaling up Voluntary Carbon Markets (TSVCM)
- David Antonioli, CEO Verra. Verra’s VCS is the world’s largest voluntary carbon offset certification programme
- Ken Newcombe, CEO CQuest Capital. Ken is a pioneer of project based carbon offsets having developed the first carbon fund while at the World Bank
- Bill Pazos, COO Air Carbon Exchange; an exchange for trading carbon credits recently launched in Singapore
Lucie Tepla, Senior Affiliate Professor of Finance at INSEAD
Non-executive directors are faced with the daunting task of ensuring their businesses achieve net zero emissions by 2050. As such, the focus for many will be on reducing their company’s emissions through a transition to clean energy and decarbonisation of operations. However, many companies (especially those in ‘hard to abate’ sectors) will need to offset residual emissions over a potentially long-term basis.
This session, held on the last day of the CGI’s Global Summit, provided non-executive directors (NEDs) with the opportunity to hear advice from four of the world’s most experienced professionals in carbon offset markets on the workings of voluntary carbon markets.
NEDs must first stress, the panellists argued, the importance of developing, publishing and regularly reporting on clear net zero plans that prioritise company emission reductions over offsetting. For many companies, this is still work in progress. The panel cited five key issues that NEDs need to be aware of:
- Greenwashing and over-relying on offsets
Investor coalitions, such as the Net Zero Asset Owners Alliance (NZAOA), are working closely with companies to set specific decarbonisation targets, including critical medium term (2030) milestones.
- Acting now to avoid huge bills
The cost of carbon offsets is rising rapidly. Carbon allowances in the EU’s Emissions Trading System (ETS) compliance market have traded over $45 per tonne in 2021 and direct air carbon capture is expected to cost over $200 per tonne. Those prices are only set to skyrocket further with increased demand and high-quality thresholds for carbon offsets (as advocated by the Taskforce on Scaling Voluntary Carbon Markets (TSVCM).
- The broader impact of the offsetting funds
The money flowing to carbon offset projects can have a significant impact beyond reducing emissions. It can be targeted at poorer countries to boost development finance, or used to fund transformational technologies. Beyond biodiversity or health, choosing projects related to a company’s value chain can have further advantages.
- Purchase options
The market has evolved rapidly from bespoke to over-the-counter trade. Exchanges are now expected to bring price transparency, content standardisation, reduce transaction costs – all leading to liquidity. The issue here isn’t in finding a great project to get involved with, David Antonioli, CEO Verra explained, it’s needing “help to know where to start”.
- The evolution of standards
NEDs need to understand that as technologies improve (eg. cheap solar power) or regulations get tougher (eg. compulsory landfill gas capture), certain types of project will no longer qualify for carbon offsetting. “Would this project exist in the absence of carbon credits? If yes, then it is not a carbon project” explained Bill Pazos, COO Air Carbon Exchange.
Finally, the panel argued that key decisions around carbon offsetting only need to be made once. A company needs to agree on a quality standard which they want to put their brand to, then hand that over to the treasury department.