From expense to asset: Why carbon removal finally makes financial sense

Every sustainability officer knows the scenario. You've mapped the pathway to net zero. Identified the unavoidable residual emissions. Calculated the carbon removal credits needed. Then you walk into the CFO's office, and the conversation dies.

The reason is structural, not personal. Under traditional accounting treatment, carbon credits hit profit-and-loss statements as immediate expenses, reducing profitability and triggering resistance from finance teams focused on quarterly results. The outcome is predictable: delayed decisions, reactive purchasing at premium prices, and compromised quality as organisations scramble to meet commitments at the last minute.

But a recent initiative between global law firm Clyde & Co and carbon credit adviser Nature Broking demonstrates a refreshing approach, one that transforms carbon removal from financial liability to strategic asset. By applying existing accounting standards in innovative ways and combining forward procurement with comprehensive risk mitigation, the framework addresses the core objections that have prevented organisations from investing in carbon removal at the scale climate science demands.

More importantly, the approach is now available as a replicable framework.

The fundamental problem: when climate ambition meets the income statement

Traditional carbon credit purchasing creates an immediate accounting problem. Credits purchased today to address future emissions register as current-year expenses, reducing reported profitability even though they provide no immediate operational benefit. This timing mismatch makes sustainability teams appear fiscally irresponsible.

The result is organisational paralysis. CFOs trained to optimise quarterly performance resist investments that damage near-term metrics, regardless of long-term strategic value. Sustainability teams lack the financial language to counter these objections. Projects stall in budget committees. Organisations drift towards reactive, last-minute purchasing when regulatory or stakeholder pressure becomes unavoidable, precisely when prices are highest and quality hardest to verify.

Meanwhile, like a river the calendar keeps advancing towards 2030, 2038, 2040, the deadlines organisations have publicly committed to for net zero emissions.

The accounting innovation: treating climate commitments as what they actually are

The breakthrough starts with a simple–but vital–reframing question: if an organisation has publicly committed to net zero by 2038, isn't that commitment a future liability requiring capital allocation today?

Existing International Accounting Standards Board provisions provide the framework. Organisations can recognise their net zero commitment as a contingent liability and classify carbon removal credits purchased to meet that commitment as contingent assets. This shifts the accounting treatment from P&L expense to balance sheet asset.

The implications are significant. The profitability penalty disappears. Investment scale becomes possible. If credit values increase, which forward pricing curves strongly suggest they will, the asset value appreciates proportionally on the balance sheet. If decarbonisation accelerates ahead of schedule, surplus credits provide strategic flexibility for redeployment or monetisation.

So, for the first time, sustainability teams can present carbon removal as a strategic procurement decision with balance sheet treatment, rather than a budget-draining expense. As a result, an increasing number of CFOs are starting to look at the innovation with keen interest.

Implementation requires specialist accounting advice to ensure compliance with relevant standards, but the pathway exists within current regulations.

Why forward procurement changes the risk equation

Balance sheet treatment solves the accounting problem, but it doesn't address supply risk or price volatility. This is where forward procurement becomes essential.

Current market dynamics point towards significant constraints ahead. Corporate usage of carbon credits in the first half of 2025 exceeded the previous 15 years combined, according to MSCI Carbon Markets. Approximately $10 billion of capital has been committed to credit generation. Yet organisations are approaching net zero deadlines simultaneously, creating predictable demand surges for 2030-2040 delivery.

Bloomberg forward pricing analysis projects carbon removal credit values could multiply three-to-five-fold by 2038. Organisations purchasing on the spot market face the compound risk of paying premium prices for potentially constrained supply, whilst those securing forward contracts today hedge against both.

The Clyde & Co joint initiative demonstrates the approach in practice: a five-year procurement programme securing 10,000 tonnes annually for 2038 delivery addresses projected residual emissions after maximum reduction efforts. Rather than gambling on future market conditions, the organisation locks in current pricing and guaranteed supply.

De-risking through insurance and rigorous due diligence

Forward procurement introduces a different concern: project delivery risk. What happens if a forestry project fails? If a technology provider goes bankrupt? If carbon sequestration proves less permanent than projected?

These aren't theoretical questions. High-profile investigations into low-quality credits have created legitimate reputational anxiety. Organisations fear committing capital to projects that might not deliver, exposing them to both financial loss and stakeholder criticism.

The solution requires two complementary strategies. First, full insurance against project failure and non-delivery addresses the primary financial risk. Specialised providers now offer coverage for carbon credit portfolios, transforming uncertain commitments into insured assets. Second, enhanced due diligence separates high-integrity opportunities from greenwashing. Not all carbon removal projects are created equal; verification standards, permanence guarantees, additionality claims, and co-benefits vary dramatically. So it's vitally important to have rigorous assessment frameworks evaluating projects across multiple dimensions: technical methodology, financial viability, governance structures, and monitoring capabilities.

Combined, insurance and due diligence create the risk-mitigated confidence that CFOs require before approving significant capital allocation.

Portfolio construction: matching strategy to business reality

Carbon removal isn't a commodity purchase, it's a strategic decision requiring alignment with organisational characteristics and stakeholder expectations.

Geographic considerations matter. UK-based organisations may prioritise domestic projects for stakeholder engagement and site visit accessibility. Multinational corporations might seek geographic distribution matching their operational footprint.

Technology mix requires careful balance. Science Based Targets initiative guidance caps nature-based solutions at 41% of removal portfolios, recognising permanence limitations whilst acknowledging current technology availability. Organisations must plan transitions from available nature-based projects today towards more permanent technological solutions as they scale post-2030.

Diversification itself becomes a de-risking tool. Rather than concentrating investment in a single project type or geography, spreading exposure across multiple verified projects, different methodologies, and varied delivery timelines reduces portfolio-level risk. If one project underperforms, others compensate.

Co-benefits create differentiation opportunities. Some organisations prioritise biodiversity enhancement, others emphasise community development or water quality improvements. Portfolio construction should reflect organisational values and stakeholder priorities whilst maintaining removal integrity.

Of course, the framework isn't one-size-fits-all. Rather, it's a customisable approach requiring strategic thinking about organisational identity and climate positioning.

Prerequisites: what organisations need before pursuing this approach

This framework isn't suitable for every organisation at every stage of climate maturity. Success requires foundational capabilities.

Data infrastructure providing comprehensive emissions tracking across Scopes 1, 2, and 3 is essential. Without reliable baseline data, portfolio sizing becomes guesswork. Governance structures with clear leadership accountability, cross-functional coordination between sustainability and finance teams, and board-level oversight ensure strategic alignment and sustained commitment.

Audit readiness is non-negotiable. Documentation of valuation methodologies, independent validation of carbon credits, alignment with reporting frameworks, and financial audit capability for contingent asset treatment must be in place.

Most critically, this approach addresses residual emissions after ambitious reduction efforts. Organisations must demonstrate genuine decarbonisation progress, as carbon removal credits cannot substitute for operational improvement.

Common pitfalls: what to avoid

Even well-intentioned implementations can fail. Prioritising price over quality creates reputational damage that far outweighs savings from cheap purchases. Due diligence simply cannot be shortcut.

Treating carbon removal as a one-off transaction rather than ongoing strategy leads to portfolio drift and missed opportunities. Carbon markets require continuous monitoring and adjustment.

Underestimating measurement complexity is common. Verification, reporting, and validation systems require sophisticated capability and independent oversight. Skipping legal review of contractual terms—covering ownership, delivery, remedies for non-performance, and insurance coordination—creates downstream problems.

Perhaps most dangerously, expecting offsetting to substitute for reduction undermines credibility. Stakeholders increasingly scrutinise whether organisations are genuinely decarbonising or merely purchasing credits to maintain business-as-usual operations.

The pathway forward

The accounting innovation demonstrated in the Clyde & Co initiative proves that sophisticated climate finance is possible within existing regulatory frameworks. Balance sheet treatment removes the profitability penalty. Forward procurement hedges price risk whilst securing supply. Insurance and rigorous due diligence address integrity concerns.

These aren't proprietary secrets, they're reproducible frameworks requiring specialist expertise to implement correctly. Nature Broking's CSO Agenda assembles contributions from leading experts across accounting, insurance, market infrastructure, investment strategy, and climate science to provide implementation guidance.

Organisations ready to move beyond incremental carbon strategies now have the tools to make material investments in carbon removal without sacrificing financial performance. The question is no longer whether carbon removal makes financial sense, it's whether organisations have the capability and commitment to execute.

For those ready to explore how this framework might apply to their net zero strategy, specialist advisers can provide the customised analysis and implementation support that turns accounting innovation into climate action.

Get in touch

Nature Broking has released its VCM Playbook for 2026, a strategic overview of the Voluntary Carbon Market that brings clarity to the trends, priorities, and policy shifts set to shape the year ahead. The Playbook goes beyond analysis by outlining practical ways organisations can implement credible carbon strategies and by highlighting perspectives from leading voices across the market. Created in close collaboration with several partners, it offers a clear and actionable guide for organisations navigating the Voluntary Carbon Market in 2026.

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