Finance & Investment

When Do Carbon Credits Make Sense for Companies?

Addressing your company’s carbon footprint takes a comprehensive approach. Carbon offsets are a viable component of a larger strategy; and when procured smartly, can also help companies meet their other sustainability needs and goals.

Sponsored Content | / This article is sponsored by American Forest Foundation | By American Forest Foundation | Published 4 years ago | About a 3 minute read

Image: American Forest Foundation/Facebook

The mantra of the recycling movement, ‘reduce, reuse, recycle,’ can serve as a model for a company’s approach to carbon mitigation today. The order of the actions in the refrain is important, because it taught us that while recycling is a critical component, we should first find ways to minimize waste all together and repurpose the materials we have already used. Today, companies, when implementing their climate strategies, should adopt a similar mantra — the carbon-mitigation hierarchy: ‘avoid, reduce, restore, offset.’

What does this mantra mean for companies interested in natural climate solutions and carbon credits?

It means that first, companies should explore ways to evolve their business practices to eliminate or substantially reduce unnecessary emissions and switch to more sustainable energy sources. Once this is accomplished, companies should address the emissions they cannot avoid through options to restore and offset. By deploying the carbon-mitigation hierarchy, companies are minimizing the amount of carbon they create before they invest in carbon offsets.

Once companies move to finding options for offsetting, or compensating for their residual emissions, they should consider the potential of forest carbon as a natural climate component of their overall credit portfolio. Research from The Nature Conservancy shows that natural climate solutions hold the potential for 37 percent of the needed climate change mitigation globally through 2030. Improved forest management and reforestation (replanting) present the greatest opportunity among land-based options.

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For many companies, investing in forests can mean going beyond simply addressing their carbon footprint with credits. Forests and forest products make up an important part of many companies’ supply chains. Ensuring forests remain healthy can mean de-risking future supply for their business operations. Forests also provide critical infrastructure for our natural clean water system, a key resource for nearly every business. These considerations can help stakeholders understand how forests can be a larger contributor to a company’s overall sustainability efforts.

One additional important sustainability co-benefit for companies to consider is where the forest carbon offsets originate. There are a growing number of opportunities to purchase premium forest carbon credits directly within a company’s local communities or supply sheds.

For example, forestland owned by families and individuals make up 36 percent, or the largest portion, of all US forests. What’s more, 1 in 4 rural Americans owns forestland, mostly in parcels between 20 and 1,000 acres. These are not wealthy landowners. In fact, 33 percent of these family forest owners fall well below the US median household income. These individuals are often the same individuals within a company’s value chain or customer base. Yet, the vast majority of existing carbon projects are developed for industrial or other private tracts of 5,000 acres or more.

Luckily there are new programs, such as the Family Forest Carbon Program, to address this. Created by the American Forest Foundation and The Nature Conservancy, the Family Forest Carbon Program is designed specifically for families that own smaller tracts of forestland; helping them access the financial benefits of carbon markets, and working with them to take on an active role in improving their forests for carbon sequestration and other benefits. In return, verified credits are created that can be sold to companies who have, after moving through the carbon-mitigation hierarchy, realized a need to address emissions that they cannot eliminate in any other way than offsets. This provides companies with a premium avenue of addressing their overall carbon footprint, while also supporting rural American communities.

Addressing your company’s carbon footprint cannot be done with one tactic alone; it will take a comprehensive approach. Carbon offsets are a viable component of a larger strategy; and when procured smartly, can also help companies meet their other sustainability needs and goals.