Climate financing — what should you consider?
You have started reporting on your company's carbon emissions and you have identified the areas where you can reduce them. You may even have begun introducing measures to cut your emissions, but you quickly realise it won't be enough. However you turn and twist the problem, there will be emissions you simply can't do anything about. After all, you still need to use some electricity and heating, for example. That's when it occurs to you that you can compensate for these emissions by financing climate projects — also known as “carbon offsetting” or, more accurately, “climate financing”.
How does climate financing work?
In principle, if a company emits a certain amount of carbon dioxide equivalents (CO₂e), it can make a financial contribution to a project that prevents, reduces or removes a corresponding amount of CO₂e somewhere else. Common offsetting projects include reforestation, renewable energy installations, methane capture and energy efficiency projects.
Many companies use the financing of offsetting projects to reach “Net Zero” or to become climate neutral (Climate Neutral or Carbon Neutral). The key difference between the climate concepts Climate Neutral/Net Zero and Carbon Neutral lies in the choice of offsetting project. Becoming Climate Neutral/Net Zero requires an offsetting project that actually absorbs greenhouse gases, for example through tree planting or DAC (Direct Air Capture). To become Carbon Neutral, on the other hand, it is enough to choose an offsetting project that prevents greenhouse gas emissions, such as renewable energy. For this reason, Carbon Neutral is considered an intermediate step towards achieving Climate Neutral/Net Zero status.
No magic pill, but one of the solutions
Climate projects have come in for a fair amount of criticism recently. One common criticism is that carbon offsetting is not always the most effective method for reducing carbon emissions. Critics point out that it can be more effective to invest in clean technology, energy efficiency and the transition to renewable energy sources than to pay to plant trees or undertake other offsetting measures.
Some critics also argue that companies use carbon offsetting as a way to appear environmentally friendly and Net Zero without making real changes to their operations — so-called greenwashing.
Criticism has also been raised about how effective offsetting projects actually are when it comes to reducing carbon emissions and countering climate change. It can be difficult to verify and measure how much carbon has actually been reduced as a result of a climate project.
Even though much of the criticism levelled at these projects may be true, the reality is far more nuanced. The truth is that we will never be able to counter climate change by reducing our own emissions alone; many different types of measures must work together to reach the 2-degree target. Carbon offsetting is no magic pill that solves all our climate problems, but it is one of the solutions. Beyond directly reducing or absorbing carbon emissions, climate projects can contribute, among other things, innovation to the energy transition, accelerate social development in developing countries, promote biodiversity and help with education and raising awareness around the climate issue.
The most important thing is to take responsibility for your emissions
It is worth remembering that climate projects are not a substitute for direct emissions reductions, but they can complement those efforts. We will never be able to reduce our emissions to zero. We emit carbon dioxide equivalents the moment we send an email, switch on a lamp or make a phone call. What we can do is continuously monitor and calculate our emissions, find ways to reduce them as much as possible, and take responsibility for the remaining emissions. Financing a good climate project is a highly effective way to take that responsibility and is one of the tools you should have in your toolbox for mitigating climate change.
Do you want to finance climate projects and take responsibility for your emissions?
Through our partnership with Solvatten, we offer a verified form of carbon offsetting that not only reduces emissions, but also transforms the living conditions of families in Kenya and Uganda.