The future for nature-based carbon offsets

In recent years, ESG investing has become increasingly popular among asset managers as a way to build portfolios that generate both financial and environmental returns. One of ESG investing’s goals is to reduce the risk of long-term carbon emissions and make positive contributions towards global climate change efforts.

Enter nature-based carbon offsets – an innovative mechanism for ESG investors looking to accelerate the reduction of carbon emissions in a bid to hit net-zero targets. Carbon offset credits are market-based tools that can account for the unavoidable emissions caused by companies and individuals. By buying carbon credits from certified activities that support community development, protect ecosystems or install efficient technology to reduce or remove emissions from the atmosphere, said companies can balance this contribution against their own carbon footprint and declare neutrality.

A fast growing market

We share this blog in the month that easyJet formally ends its offsetting programme. Historically a known and keen supporter of the concept, 2021 saw the UK airline face allegations of greenwashing the environmental damage caused by its passenger jets. Greenpeace’s investigative arm Unearthed and The Guardian newspaper found easyJet to be one of several airlines using ‘phantom’ credits to reach neutrality on the basis that the offsetting schemes that were used lacked adequate proof of emission savings.

Moving from a ‘compensation’ to ‘contribution’ mindset

Despite easyJet’s decision to drop their scheme, the total value of voluntary carbon offsets traded globally was almost $2 billion in 2021; a rapid rise from $320 million in 2019. Mark Carney’s Taskforce on Scaling Voluntary Carbon Markets predicts their scale in 2050 may be up to 160 times larger than in 2020. But as we look ahead to 2023 – forecasts abundant with the term ‘nature positive’, and net zero deadlines looming – is hitting neutrality enough? 

Environmental campaigners would argue it’s not, and that offsetting doesn’t work. Greenpeace feels that offsetting is a PR tool that merely enables the continuation of unsustainable behaviours, while transferring responsibility elsewhere. Reducing, eliminating and reversing GHG emissions is always the more effective approach to reducing emissions.

That said, ESG investors may want to consider how nature-based carbon offsets can play an effective role in the mobilisation of large scale investments required for natural climate solutions. Tackling climate change necessitates the collaboration of all actors across varying sectors working in a complimentary manner to maximise outcomes; an all-solutions approach. 

The journey to carbon neutrality

Carbon offsetting has a role to play but, like many ESG factors, it’s still imperfect and fragmented. Voluntary carbon markets require standardisation to improve efficiency and ultimately scale on a global level. While we wait for  the Integrity Council for the Voluntary Carbon Market (ICVCM) to impose its Core Carbon Principles, it’s important that every business adopts a systematic process for continually understanding, evaluating, reviewing and reducing greenhouse gas emissions. 

Talk to us to find out how SI Engage will support you in monitoring, reporting and improving the ESG performance of your portfolio companies.


Sign up for weekly insights, including SI Engage and industry news