The Business Case for Carbon Offsetting

The elephant in the room, is it a good financial decision for a business to purchase carbon offset?  

This is a topic few people like to engage in as the belief goes; surely the fate of the planet is reason enough!  The fact is, it isn’t. 

Short term agenda’s, goals and the perceived survival of the company (or even an individual’s job) supersedes longer term catastrophe.  So rather than shy away from the question, let’s take a deeper dive, starting with the obvious.

Offsets are one part of a bigger picture

Offsets should be considered after two other considerations;

  1. Reduction
  2. Reuse/Recycle

Reduction of carbon emissions generally means short term investments.  This could be in insulation, energy & water efficiency measures and local supply chains. Such short term investments have long term benefits.  This helps improve the company’s bottom line and makes it more resilient to global shocks (such as the COVID pandemic) with supply chains being able to respond locally.

Reuse & Recycling also has short term investment implications, with a longer term payout.  Similarly relying on offshore processing can fall short as those countries either increase in price, or stop working with you for political or economic reasons – this occurred with Australia sending recycling overseas that was then refused overtime.  Considering end-of-life as part of your product lifecycle and integrating that into your business at the beginning (or now!) will mean a better reuse of materials, particularly those that are expensive such as rare earth metals.

Once your carbon footprint is reduced, offsets are required for us to achieve future neutrality – we need negative emissions now to get us back to where we were.

Climate change adaptation will cost everyone more the longer we wait.

The research paints a very clear picture, the more we put off dealing with climate change, the bigger the bill at the end of the day – and not just bigger, exponentially bigger.  It’s deferred payment with huge interest.  As one report put it “wait and pay.”

The current economic cost of climate change is primarily seated around the larger costs associated with extreme weather events and the repair required post event.  The fact is more extreme weather events are happening with a direct correlation to climate change.  The recent Siberian heat wave and associated forest fires were 600 times more likely. 

So getting your house in order is fundamental and requires all of us to get on board and do our part – so that collectively the financial burden is less in the future.

Even in the less populated country of Australia, the costs mount to 100’s of Billions annually. Full report here.

Source: Climate Council – 2019 – Costs of Climate Change

Yeah, but what about buying carbon offsets for businesses?

Offsets are the final component to reach net negative emissions, and will be needed if we hope to avoid and reduce warming of two degrees.  We revert to the original argument of ‘it’s good for the planet’.  Offsets will be needed for better financial outcomes in the future, for everyone. The other factor is that the sustainability agenda is now paramount for share price. Blackrock, which has over $6.5 trillion US dollars under management, announced that “investment risks presented by climate change are set to accelerate a significant reallocation of capital…We believe that sustainability should be our new standard for investing.” 

Customers are also wanting and driving change;

  • “81% of global respondents feel strongly that companies should help improve the environment.” (Nielson, 2019) 
  • “88% of consumers want brands to help them live sustainably.” (Futerra, 2018) 
  • “Sustainable business practices are good for the planet, good for consumers, and—yes—good for business.” (PWC, 2019) 

By purchasing offsets, or facilitating offsets (with Future Neutral for example) you show to your customers, shareholder and suppliers that you want climate action and are doing more than lip service.

Customers are demanding change, investors are moving assets – it’s time to take a proactive stance on climate change – it’s just good business.