According to scientific reports from the United Nations, the clock is ticking on our global effort to reach net zero carbon emissions. We believe the financial services sector plays a critical role in enabling us to reach targets set by the Paris Agreement.
There is, however, a limit to the amount of emission reductions even the most environmentally friendly bank or insurer can do. When you’ve done all that is feasible with your direct and indirect emissions, you will still end up having a carbon footprint – unless you choose to shut down your business entirely.
The question is then how to walk the last mile, i.e. what to do about the remaining carbon footprint. This is where different carbon compensation mechanisms come into play. Essentially we’re talking about the purchase of carbon credits, i.e. you pay someone else for the reduction or removal of emissions elsewhere in order to compensate for your carbon footprint.
It’s important to distinguish between carbon offsetting and carbon removal, because they offer two very different outcomes when it comes to reaching net zero. With conventional carbon offsets, when one ton of CO2e is emitted, one ton is avoided elsewhere. With carbon removal, when one ton of CO2e is emitted, one ton is removed completely from the atmosphere.
Both the Oxford Principles for Net Zero Aligned Offsetting and the Science Based Targets initiative’s Net-Zero Standard argue for the importance of moving beyond offsets based on reduced or avoided emissions to offsets based on carbon that has been removed from the atmosphere.
The market for carbon credits purchased voluntarily (rather than for compliance purposes) is still developing. McKinsey & Company points out that if the demand for carbon credits continues to grow rapidly, it’s apparent that the world will need a voluntary carbon market that is large, transparent, verifiable, and environmentally robust. Today’s market, unfortunately, is still too fragmented and complex.
Considering the climate crisis we’re facing, it’s clearly not enough that financial institutions simply pay others to avoid emissions in their place, because emissions still enter the atmosphere and remain there. If we want to reach net zero before it’s too late, carbon removal is needed.
As Swiss Re put it, it’s time to change the old mantra “do your best, offset the rest” to “do your best, remove the rest”.
Featured image credit: Andrew Coelho @ Unsplash