What Every Leader Needs to Know About Carbon Credits

Dec 15, 2023

In the absence of government regulations requiring dramatic reductions of greenhouse gas (GHG) emissions that are causing climate change, a growing number of companies are adopting “net zero” targets. More than one third of the world’s 2,000 largest publicly held companies have declared net zero targets according to Net Zero Tracker, a database compiled by a collaboration of academics and nonprofits. These targets typically entail public commitments to reduce GHG emissions through measures such as process modification, product reformulation, fuel switching, shifting to renewable power, investing in carbon removal projects — and a pledge to zero-out their remaining emissions by purchasing carbon offsets, also known as carbon credits. Carbon credits are financial instruments where the buyer pays another company to take some action to reduce its greenhouse gas emissions, and the buyer gets credit for the reduction.

As companies creep closer to their net zero target years, many have already begun purchasing carbon credits. The market for carbon credits is projected to grow 50-fold within a decade, from nearly $2 billion in 2022 to nearly $100 billion by 2030, and as much as $250 billion by 2050, according to Morgan Stanley. But navigating the world of carbon credits creates brand risk because the market remains immature and complex, with wide variation in project types, developers, location, and cost, resulting in unclear quality, transparency, and credibility.

Continue reading at Harvard Business Review