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Offsetting Investment Carbon Footprint

Published: 15 Jan 2022

Many investors want to invest in alignment with their values, but may also have significant barriers to making portfolio changes, such as incurring taxes or de-alignment with overall financial goals.  One approach to re-align investors to their values might be to focus their philanthropy on issues deemed important.  Investors who care about climate change might note that the S&P 500’s carbon footprint is 64 metric carbon tons emissions per $1 million of investment.  For these investors buying and retiring carbon offsets is becoming increasingly easier with greater transparency and may help offset their investment carbon footprint.

As explained in the carbon offset guide carbon offsets represent projects that reduce GHG emissions or increase carbon capture.  Land restoration or planting trees are examples of projects that offset GHG emissions.  A carbon offset credit is a transferrable, independently-certified instrument that represents an emission reduction of one metric tonne of CO2 or an equivalent amount of other GHGs. An offset credit buyer can “retire” the offset to claim the underlying reduction towards their GHG reduction goals.  Carbon offsetting is feasible because greenhouse gases are not localized, so reducing them anywhere contributes to global climate protection.

Carbon offset project quality is very important

Projects can be small or large in terms of impact and reach.  Some projects focus on community-level changes, while others are multi-country initiatives.  Projects are generally multi-year. Well-structured projects often result in social and environmental benefits beyond GHG reductions. Many offset credit buyers seek projects with a range of benefits, making carbon offsets a way to execute a more comprehensive strategy for addressing climate change with contributions to other social or public goods.

A carbon offset credit or project’s impact should equal how much the investor would have reduced their own carbon footprint had they forgone the carbon producing activity. For the offset to be credible, the project and results must be real, credible and quantifiable.  According to the Carbon Offset Guide quality carbon offset credits must be associated with GHG reductions or removals that are:

  • Additional, i.e. a project cannot be an offset if the outcome was already happening or going to happen
  • Not overestimated
  • Permanent
  • Not claimed by another entity
  • Not associated with significant social or environmental harms

Buying high quality carbon offsets

In the retail market, high quality carbon offsets are most frequently sold through a registry.  The registry sets out standards or principles by which they will evaluate carbon offset programs.  The registry conducts independent assessments of the programs and establishes baseline accounting.  The registry is also responsible for impact performance monitoring over time.  Finally, the registry is responsible for ensuring that carbon offset credits are not double counted or used multiple times.  Among the leading registries are The American Carbon Registry, The Gold Standard  and Verra.