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In this post, you’ll learn:
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As more companies deepen their commitment to sustainability and explore the Voluntary Carbon Market (VCM), the question of how to best purchase carbon credits becomes increasingly critical. While it may be tempting to purchase and retire credits from individual projects based on ease of purchasing, location, stories, or price, building a carbon credit portfolio from multiple projects offers several key benefits for buyers looking to drive meaningful climate action.
Trust the Experts
Experts across science and industry agree that buyers should consider a portfolio approach when purchasing carbon credits. The Oxford Principles for Net Zero Aligned Carbon Offsetting, widely regarded as “best practices” in the field and endorsed by the World Economic Forum, recommend diversification across project types, while transitioning to removals with long-term storage over time.
Experts like World Business Council for Sustainable Development (WBCSD) with Bain & Company have suggested that companies use portfolios to mitigate risk while pursuing their climate leadership goals and follow the “Oxford Principles” to do so.
The Four Key Benefits of a Portfolio Approach
Much like financial portfolios, carbon credit portfolios allow buyers to balance risk and impact by diversifying their investments. Here’s a closer look at the benefits:
Mitigate Risk
Despite rigorous due diligence and monitoring safeguards, it is impossible to fully eliminate the risks that exist in the carbon market, as with any market. Projects can face challenges such as environmental disruptions, delayed construction timelines, or regulatory changes. For example, a reforestation project could be impacted by a wildfire or an Enhanced Rock Weathering (ERW) facility could face a years-long delay awaiting permit approval.
A portfolio approach reduces your overall risk and minimizes overreliance on one specific project or technology, to ensure that the overall investment remains resilient.
Diversify Impact
All projects provide different benefits that go beyond their climate impacts based on project type, geography, and specific project activities. For example, the Katingan Mentaya peatland conservation project in Indonesia provides biodiversity benefits by preserving a vast area of peat swamp forest, protecting numerous endangered species like proboscis monkeys and Sunda pangolins. Meanwhile, the Heartland Methane Abatement project in Oklahoma plugs orphaned oil wells which supports community and environmental health, as unplugged wells leach toxic chemicals that pollute the air and contaminate groundwater.
By investing in a portfolio of projects, you’re able to maximize and diversify your overall impact.
Balance Impact & Affordability
With a wide variety of project types, there is a huge range in the price per tonne of each project. For example, a high-quality natural gas leak repair project can cost <$10/tonne, while a Direct Air Capture (DAC) project can cost up to $600-$1,000/tonne. It would be impossible for most organizations to achieve their climate goals of supporting the necessary range of projects while sticking to their budgets, by investing in just one project or project type.
Portfolios enable organizations to strike a balance between high-cost, high-impact removals and more affordable reduction projects. This ensures alignment with best practices while staying within budget.
Build a Sustainable Future
According to the IPCC, we need to achieve net zero carbon emissions by 2050 to meet the Paris-aligned goals and avoid the worst impacts of climate change. In order to do so, we need to be avoiding and reducing our emissions now, and removing any residual emissions. There are currently technological and financial constraints that limit the amount of carbon we can remove, but supporting the most promising technologies in the space is critical to catalyzing development of their technologies in a way that helps them scale. While we’re not there yet, we hope that over time we will have collectively reduced emissions to a point where we are able to invest only in removal projects and reach net zero.
Portfolios play a vital role in this transition by supporting:
The only way to secure a sustainable future for ourselves is to support a range of projects through a high-quality portfolio.
Take the Next Step
We understand firsthand how complicated it is to design a carbon portfolio; from sourcing high-integrity projects and negotiating contracts across multiple suppliers to determining the appropriate allocation that meets both your budget and risk tolerance. That’s why at CNaught, we’ve done the work for you. We offer the simplest way to get instant, high-quality climate impact, with our curated selection of science-backed portfolios.
Talk to us to learn more about how our climate solutions can help you reduce your carbon footprint.
