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“Many companies are gearing towards net zero ambitions. Being able to provide carbon neutral LNG to customers will create a competitive advantage over time.” Rogier Beaumont, former global head of LNG portfolio and environmental solutions, Pavilion Energy
Whereas the commodity and shipping industry contributes the most to global greenhouse gas emissions (i.e. agriculture: 24%, oil and gas: 15%, mining: 7%, maritime industry: 3%, etc.), the demand for low carbon or even carbon neutral commodity supply chains, is driven by end-buyers targeting net zero in procurement (to mitigate their scope 3 emissions) and financiers.
Joining the Paris Agreement’s objective to limit global warming at 1.5°c, a growing number of companies and financial institutions publicly announced their own objectives and roadmap to net zero (e.g. TheClimatePledge). Nicolas Tamari, CEO of Sucafina, said, “The time is right for all companies to measure their supply chain’s carbon footprint and take action to reduce.”
Nestlé CEO, Mark Schneider gave a sustainability roadmap, saying, “Tackling climate change can’t wait and neither can we. It is imperative to the long-term success of our business. We will work together with farmers, industry partners, governments, non-governmental organisations and our consumers to reduce our environmental footprint.”
Financiers and banks are meeting pressure from regulators and shareholders to stop financing carbon-intensive industries that conflict with their own corporate commitments to net-zero targets.
During the COP26 meetings in November 2021, the Glasgow Financial Alliance for Net Zero (GFANZ) was launched by most of the leading financial institutions committed to accelerating the decarbonisation of the global economy, in collaboration with the UN Net Zero Banking Alliance.
Unsurprisingly, numerous criticisms are raised from environmental third parties highlighting the slow implementation of sustainable financing strategies in light of the urgent climate crisis.
There is valid criticism that most financiers are only now initiating sustainable investment policies. But critics, even if well-founded, often overlook from where we came.
There has been a considerable shift in the financial industries’ mid-to-long-term sustainability roadmap, even with the non-harmonised or non-standardised regulatory framework.
Laurence Fink, CEO of BlackRock recognised this paradigm change, saying, “Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance. Our investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors.” Laurence Fink, BlackRock CEO
This paradigm shift can lead to new avenues for the financial industry as well. Sam Matthew, Standard Chartered’s global head of trade sees these developments in a positive light, saying, “Sustainable financing presents a real opportunity for banks to finance projects that commit to sustainable trade.”
GHG footprint calculations
To be carbon neutral, or to achieve net zero emission targets on a specific scope, (e.g. corporate, product, service) requires calculating GHG (greenhouse gas) footprint, reducing, and finally offsetting residual emissions. Simply summarised, it is not as simple as only implementing in alignment with best standards and practices. Here are four examples of what is needed for GHG calculations.
- GHG calculation shall cover clear scopes and boundaries based on recognised carbon accounting standards (eg: GHG protocol, PAS 2050, ISO14064).
- Corporate GHG inventory shall not only cover direct emissions of companies (scope 1), but also emissions related to energy use (scope 2), and indirect emissions related to the companies’ value chains (scope 3).
- Each commodity transaction must report all direct emissions for each cradle-to-gate or cradle-to-grave life cycle (i.e. extraction, processing, shipping up to delivery or en-use) with justified data and/or emissions factors from recognised data providers.
- Carbon reduction programs shall be implemented as per a long-term reduction plan before offsetting residual emissions via the retirement of quality carbon credits.
Lack of standardised practices in the voluntary carbon markets
While consensus and recognised standards exist for carbon footprint measurement and reporting, carbon offsetting and the quality of underlying projects are still subject to debate. Various press articles in recent weeks highlighted the lack of standardisation of the voluntary carbon markets (VCM).
Indeed, VCM are not harmonised, with credits issued from diverse types of projects that enable to avoid, reduce (e.g. forest preservation, renewable energy, energy efficiency programs) or sequestrate carbon (e.g. reforestation or direct air capture solutions).
“Transparent reporting and accounting on progress against net zero transition plan” is one of the five core principles of the Glasgow Financial Alliance for Net Zero.
Standardisation methodologies and transparency are key values to ensure credible financing policies. Weak environmental (and more broadly ESG) claims may generate both reputational and financial risks. In recent months, several financial institutions have been investigated and fined due to miscommunication on ESG strategies.
Therefore, many decision-makers are concerned about implementing business conduct consistent with their own corporate environmental policies.
At Carbon Offset Certification initiative, a number of energy firms (producers, national oil companies, traders) approached us to help them implement ‘green’ commodity transactions and/or carbon reduction projects to respond to their financier’s funding prerequisites.
Carbon Offset Certification is a Swiss initiative that developed the first independent certification standard for commodity transactions, products or services (e.g. shipping) where emissions have been measured (based on recognised GHG accounting standards), verified by a third-party assurance provider, and offset with quality carbon credits.
Previously named Climate Neutral Commodity, it has been rebranded as Carbon Offset Certification, precisely to respond to new experts’ consensus on ‘carbon neutral’ and ‘climate neutral’ terminologies that shall be reserved for an achieved status reached after a long-term reduction plan.
Carbon Offset Certification labels enable companies to claim adherence to regulations based on a transparent, publicly available protocol. These protocols are developed by commodity, maritime, and carbon markets professionals with the contribution of diverse institutions and experts in carbon accounting and verification standards.