Net Zero: The Importance of Carbon Offsetting

July 26, 2023 admin

Cutting through the jargon on Net Zero, especially when it comes to carbon offsetting, is a tough ask for many businesses, let alone SMEs, which are dealing with many asks from Government as well as the daily trial of running a profitable business. Tackling the environmental side of this can be daunting, even with helpful online tools such as carbon footprint calculators, which are provided by organisations including the British Chamber of Commerce and O2.

Only a small amount of effort is actually needed to achieve a clear, sustainable solution that can help both your business and the environment.  Equally, navigation and streamlining of some of this advice is necessary, and that is one of the many areas in which Sovereign Strategy can help.

The importance of sustainable initiatives

After the ravages of the pandemic and lockdown, environmentalism is unlikely to be the first priority for most SMEs. However, it is more important than ever to start taking sustainability seriously so that companies are aligned with upcoming new regulations and laws. 

In practice, this future-proofing of businesses is vital. Without it, further internal measures linked to Net Zero could be stunted, leading to faltering investment and a lack of adherence to new carbon emissions laws or norms. This can cost your business more in the longer term if action is not taken now.

Carbon Credits

A key part of this is carbon offsetting can be done through a system of carbon credits.  These carbon offsets or ‘credits’ can be bought by companies from projects that either remove carbon from the atmosphere or prevent emissions from being produced. They are essentially permits which allow the owner to emit a certain amount of carbon dioxide or other greenhouse gas. One credit equals one tonne of carbon dioxide, or equivalent.

Companies that pollute are awarded credits that allow them to pollute up to a certain limit.  Meanwhile, a company can sell any unneeded credits to other companies  which needs them. An SME can therefore make money by reducing their emissions and selling their excess allowances. SMEs can also benefit from the global carbon credit offset trading market, which was an initiative agreed at COP26 in Glasgow in 2021.

There are a huge variety of different methods used to generate offset credits, from natural means, such as tree planting or peatland restoration (which absorb and lock away carbon), to technological means such as renewable energy projects.

For every tonne of carbon saved, a carbon offset credit can be created and sold on the market. The purchaser then effectively ‘retires’ the credit so that it can claim the saving towards its own carbon reduction target.

To ensure their credibility, credits must be monitored and verified by a third-party to ensure that they are provable, permanent and not double-counted.

Long term opportunities 

From the perspective of SMEs, carbon offsetting can seem daunting and complex. Only one in ten of over a thousand firms surveyed by the British Chambers of Commerce (BCC) are measuring their carbon footprint and currently 26% of larger firms with more than 50 employees are measuring theirs.

The good news is that both carbon credits and many core aims of carbon-neutrality are already being achieved. SMEs can replicate this and survive and thrive by investing in carbon offsetting.  This is particularly useful especially if it is difficult to make your own SME carbon-neutral, as some SMEs struggle in this area.

The law and the framework for SMEs changes constantly. Getting on the front foot when it comes to carbon credits now can really help SMEs in the longer term, as the regulation and environment evolves.

By Peter Cardwell, Senior Counsel, Sovereign Strategy