· 4 min read
Financial support to climate from companies needs to become orders of magnitude larger. A new emerging consensus on how companies should do beyond value chain mitigation is the first step.
Last month the Science-based Target initiative (SBTi) released a consultation for guidance on how companies best should be giving support to external climate projects, as a way to take responsibility for their ongoing emissions whilst emission reduction targets are progressing. This is also called beyond value chain mitigation (BVCM). Corporate support to climate projects in this way is crucial to company credibility and is equally important to help reach global net zero targets and can accelerate the type of activities that have difficulty getting other types of climate financing.
Until now, companies have typically sought to take responsibility for ongoing emissions by buying carbon credits on the voluntary carbon market, often to make claims such as carbon neutrality. Under the SBTi rules, such claims are not allowed, companies need to reduce their own emissions by 90 percent and can only use permanent carbon removal credits to neutralize (effectively a form of offsetting) the last ten percent to reach net zero. New guidance from the Voluntary Carbon Markets Integrity Initiative (VCMI) also recommends companies not to make compensation claims, and instead just claim contributions.
It is not enough to just work on decreasing your own emissions. In isolation, this would represent only a harm reduction. To be credible, companies must also take responsibility for the externalities caused by the carbon they are still emitting, and have emitted historically, by funding climate actions as a contribution to reaching global net zero. This beyond value chain contribution can, for example, go to funding climate actions through traditional carbon credits in the voluntary carbon market, to nascent methods for permanently removing carbon from the atmosphere, or to NGOs working to protect nature or pushing decision-makers to adopt policy changes to accelerate climate actions.
Some have expressed a worry that broadening the scope of corporate climate support and moving away from carbon neutrality claims would dissuade companies from contributing. In reality, the recent criticism of numerous offset projects and neutrality claims made on their behalf are already perversely dissuading companies from acting.
"To be truly meaningful, the amount of money going to beyond value chain mitigation will need to be in the order of 100 times more than what is spent on carbon credits today"
The Voluntary Carbon Market, one of the tools available to companies to fund climate action, peaked at around 2 billion in revenue in 2021. Size isn’t everything, given the actions it targets are additional (i.e. not those financed through other means). All the same, it remains a small but promising market. As an example, the world spends over ten times more on chewing gum. To be truly meaningful, the amount of money going to beyond value chain mitigation will need to be in the order of 100 times more than what is spent on carbon credits today.
Ambition must therefore be raised. Gold Standard and Milkywire are currently working on extended guidance for beyond value chain mitigation, complementing the work of the SBTi by providing a detailed ‘how to’ manual.
One way of determining how much to contribute to climate is for companies to implement an internal carbon fee. Here companies voluntarily tax themselves for each tonne of CO₂ they still emit, using the funds to support external climate projects. The size of contributions will differ between companies, those with low emissions and high profit per tonne can pay the full social cost of carbon for each tonne they emit. While those with higher emissions and larger needs to use money internally to decarbonize will likely need to spend a bit less on external projects. Last year Milkywire published a white paper with guidance on levels.
"Paying for climate should be the default expectation for all companies."
A core objective for everyone active in the corporate climate sector should be to make it the norm for every company to contribute financially to climate as a necessary complement to their own value chain abatement efforts. In this new era of corporate climate support, it is imperative that every company embraces its beyond value chain responsibility, making paying for the climate the default expectation for all companies.
BVCM creates an opportunity for ambitious companies to separate themselves from the rest, by financing environmental measures that will aid them in taking responsibility, not just for their current ongoing emissions but also their historical emissions. As guidance develops and we have a clearer understanding of how to set targets for a wider range of social and environmental responsibility and more ways to finance wider environmental impacts, we will be able to include nature, water, social development and adaptation investments into BVCM. This will create an umbrella idea that companies can rally under to rectify past environmental damage and support the forging of new inventions to create a sustainable world.
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