Every organization wants to lower its carbon footprint and reduce its greenhouse gas (GHG) production. But some industries — aviation, for example, can only go so far without fundamentally shifting their business model. Airlines need aircraft in the sky to make money, and jet engines (for now) have limits to fuel efficiency.
That’s why carbon offset programs are so useful. Organizations and national governments instead purchase carbon credits to balance out their own GHG emissions by investing in schemes that lower pollution elsewhere in the world.
For example, the United Nations’ carbon offset program is committed to certifying projects in developing countries that aim to reduce emissions with investment through carbon offsetting.
But what does this mean for the commercial real estate (CRE) sector? This guide will help explain how carbon offset programs can support your business and its carbon reduction targets. How to identify the most suitable schemes for your organization, and emerging trends in the industry for 2024 and beyond.
The growth of carbon offsetting
Combating climate change and creating a more sustainable world are two cornerstone principles behind the UN’s Sustainable Development Goals. Carbon offset programs aim to tackle key challenges through positive action and investment towards schemes that reduce the world’s GHG emissions.
Carbon offset programs become increasingly popular as commercial and societal pressure heightens to lower emissions and meet ambitious net-zero targets. According to industry research by Morgan Stanley, the voluntary carbon-offset market is expected to grow from $2bn in 2020 to $250bn by 2050.
While the Kyoto Protocol established the rules around emissions trading in 1997, the subject remains a source of debate in international policy circles. Critics argue that the framework is an example of greenwashing, and excuses the world’s major polluters from taking positive action to lower their emissions.
Climate scientists and policymakers are still seeking consensus on international carbon offsetting standards. The Integrity Council for the Voluntary Carbon Market is establishing itself as an independent regulator for the private market, where a host of private companies, including Verra, Gold Standard and the American Carbon Registry all certify and issue carbon credits to the beat of their own respective drums.
Balancing carbon offsetting with corporate decarbonization initiatives
Nevertheless, carbon offsetting continues to be a vital mechanism in creating a more sustainable world. Gold Standard CEO Margaret Kim argues that the market can drive genuine change, but credits should be used to complement, rather than substitute corporate decarbonization.
She adds that “businesses must do the hard work of reducing emissions throughout their value chain in line with science-based targets, transforming business practices where needed, while simultaneously taking responsibility for those emissions they cannot yet eliminate.”
Emerging trends in carbon offset and sustainability
Navigating the complex and ever-growing carbon offset economy can seem overwhelming, but there are still plenty of exciting trends within the industry that promote genuine sustainability. Nature-based climate solutions are a popular investment choice, currently worth $133bn annually. These schemes can provide as much as 30% of the global reduction needed to meet net-zero targets.
‘Blue carbon’ is a growing trend in this space. 72% of the earth’s surface is covered in water, and protecting the world’s marine ecosystems is vital. A McKinsey report found that established and emerging investment in blue carbon programs can reduce three metric gigatons of CO2 per year by 2050.
Another positive trend to note is ‘carbon insetting,’ where organizations invest directly in sustainable initiatives within their own supply chain. These solutions can be nature-based. For example, coffee brand Nespresso collaborates closely with Rainforest Alliance to adopt regenerative agriculture for the company’s coffee beans, while promoting greater sustainability in the wider industry.
Carbon offset initiatives in commercial real estate
With such a wealth of opportunities within the voluntary carbon market, how can those in commercial real estate (CRE) ensure they contribute correctly? For CRE in particular, carbon offset programs help bridge the gap between an organization’s operating emission levels and net-zero, particularly where on-site decarbonization and energy efficiency upgrades take longer than expected.
The blueprint within CRE is already there, and major players are demonstrating the impact of offset plans without shirking from their own decarbonization efforts. American logistics real estate giant Prologis, for example, is ranked second in the U.S. for on-site solar energy, producing 500 MW of power from its installations to entirely offset the carbon emissions from their commercial portfolio and meet its carbon neutrality targets.
Construction firm Skanska is a well-established industry leader in carbon trading. Their model focuses on sustainability within their supply chain; the use of sustainable construction materials and working towards net zero energy buildings through their procurement. In 2023, the firm completed Sweden’s first carbon-neutral office building — Hyllie Terrace in Malmö.
How to find the best carbon offset projects for your business
Everyone wants to do their bit for the environment; to set eye-catching net-zero targets and implement wide-reaching decarbonization strategies. CRE as a sector is no different, with an industry-wide desire to construct and maintain sustainable buildings that positively impact the environment.
While an actionable decarbonization strategy must still be a priority for CRE businesses, carbon offset programs are a worthy investment towards net zero for your business. But how do you find the most suitable projects for your business? Here are a few tips:
Consider carbon insetting first
While carbon offsetting requires minimal action to reduce GHG emissions, businesses should consider whether they can form partnerships within their own supply chain to reduce emissions.
In CRE, many organizations have committed to operating ‘green leases,’ with contract clauses to incentivize tenants to promote sustainable practices. One of the industry’s largest players, Cushman & Wakefield is a leader in green leases, using environmental data across their portfolio to work closely with tenants on sustainable use of their facilities.
Commit to credible, honest solutions
Any offset program you invest in should be certified by an accredited organization. Examples include the Verified Carbon Standard, the Gold Standard, and the UN’s Clean Development Mechanism. These organizations thoroughly vet carbon offset schemes to ensure their methods are backed by science and are committed to sustainably reducing GHG emissions.
Transparency is also key in the voluntary carbon market. If you can’t demonstrate why an investment is a force for good, why invest in the first place? To avoid fears of greenwashing, consider the motives behind the choice of carbon offsetting. Does the scheme align with your business values, and is it honest with its GHG reduction intentions?
Supporting local vs global
Another important caveat to consider with carbon offset programs is whether to invest in schemes within your country or further afield. The UN’s schemes predominantly focus on sustainability programs in developing countries, which contribute to wider ESG goals alongside carbon reduction.
However, your organization might also choose to invest in projects closer to home. While these schemes may be advantageous in that they support clean growth and the creation of jobs within your domestic economy, the pool of investment becomes more limited. In the UK for example, just two carbon offset programs — the Woodland Carbon Code and the Peatland Code are officially certified by the British Government’s Environment Agency.
Measuring and verifying the impact of carbon offset programs
To maximize the impact of your investment in carbon offsets, understanding the data behind the scheme is key. Beyond the reduction of CO2, it’s important to factor in the wider impact on a program, and how this factors in with your organization’s ESG goals.
For ESG and sustainability data management, Proptech OS’s Certify is an invaluable tool in all aspects of property portfolio management. It can be used to track the emissions reduction of carbon offset programs your organization invests in, putting all of your data in one place and allowing your organization to make smarter and more sustainable decisions.
Whether you’re investing in carbon offset to meet your ESG goals or to supplement your decarbonization strategies, Certify automates certification, making it easier to see if your investments meet the appropriate criteria.
Your CRE business can sign up for a free trial today.