How to use climate investment to achieve net zero emissions


10. Mar 2022

Headshot of Kristian Rönn

Kristian Rönn

CEO & Co-founder

Headshot of Alexandra Palmquist

Alexandra Palmquist

Climate Strategy Advisor at Normative

Climate investment is a necessary – but tricky – waypoint on the path to net zero. Here’s what climate investment is, why it’s needed, and how to spot high-quality options.

Headshot of Kristian Rönn

Kristian Rönn

CEO & Co-founder

Read bio
Headshot of Alexandra Palmquist

Alexandra Palmquist

Climate Strategy Advisor at Normative

More businesses than ever before are committing to reaching net zero emissions by 2050 in alignment with the Paris agreement.

These commitments contribute to limiting global temperature rise to 1.5°C, which will mitigate some of the worst consequences of climate change. Businesses with net zero strategies also have an easier time attracting capital and talent, and experience increased interest from customers.

To reach net zero, climate investment (a form of carbon compensation) is a necessary endeavor – but also a risky one, as businesses try to navigate an industry that’s fraught with incomplete information and greenwashed “offsetting.”

What is climate investment?

A business engages in climate investment when it pays to remove carbon from the atmosphere to compensate for its greenhouse gas emissions.

Climate investment is the final stage of the journey to net zero emissions. 

Businesses committed to Paris-aligned net zero targets should begin by reducing their carbon emissions. Most businesses can’t completely eliminate their carbon footprint, so after minimizing their emissions they will need to engage in climate investment to compensate for the residual emissions.

To reach net zero targets in line with the Paris Climate Agreement, climate investment should increase as companies maximize their carbon removal.

How to distinguish high-quality climate investment from greenwashed offsetting

Navigating between different methods of carbon offsetting can be difficult, and while definitions of “climate investment” and “carbon offsetting” may look similar, the difference lies in their effectiveness. 

Today, “carbon offsetting” has become associated with businesses that buy cheap offsets that give the appearance of carbon neutrality without truly achieving it. One of the most common examples of these ineffective offsets is tree planting. Many schemes allow companies to offset emissions by planting trees that theoretically absorb equivalent CO2 from the atmosphere – but newly planted trees can take decades to capture the emitted carbon. Meanwhile, the carbon emissions they’re meant to compensate for are instantaneous.

This isn’t always done maliciously: businesses may believe they’re truly compensating for their carbon footprint. A lack of standardization and legal definition means that carbon offsetting is largely an unregulated frontier.

Besides being ineffective at mitigating climate change, low-quality carbon offsetting also results in a host of risks for companies engaging in it, from damages to reputation – like being accused of greenwashing – to the possibility of having to redo insufficient offsets as new legislative standards are passed. 

In other words, cheap offsetting isn’t a bargain, but rather a way of taking on climate debt that will come due in the future.

Normative offers high-quality climate investment to help you reach true net zero

Our Carbon Removal Portfolio features evidence-based carbon sinks and removal.

Learn more about climate investing with Normative

To ensure you’re using high-quality climate investment, options should be evaluated on four metrics: additionality, permanence, double-counting, and leakage.

  • Additionality – the climate investment will lead to a reduction of greenhouse gas emissions that would not have happened otherwise.
  • Permanence – the climate investment will result in a quantifiable piece of carbon being kept out of the air forever.
  • Double-counting – the same investment is not sold multiple times.
  • Leakage – ensuring the investment will not lead to negative consequences elsewhere.

How businesses use climate investment to reach net zero

Climate investment alone isn’t enough to achieve net zero. It needs to be used in combination with comprehensive carbon accounting and targeted, high-impact carbon emissions reductions.

The first step in bringing your business to reach net zero is to account for all your carbon emissions. This includes not only scope 1 and scope 2 emissions – the direct emissions from your business’s activities – but also the hard-to-measure scope 3, which encompasses the upstream emissions from your supply chain and the downstream emissions of your product lifecycles.

After accounting for your entire carbon footprint and discovering your emissions hotspots, you can set and implement a plan to reduce your business’s carbon emissions, beginning with your biggest sources.

After reducing your carbon emissions to the absolute minimum, you can begin the process of climate investment to compensate for your remaining emissions. Potential climate investments should be evaluated based on the four qualities described above – additionality, permanence, double-counting, and leakage – and vetted by a trusted source, like the nonprofit CarbonPlan

Quick facts

  • Climate investment is necessary to reach net zero, but it must be used in combination with carbon accounting and emission reductions.
  • Many carbon offsetting options are less effective than they claim, which results in long-term reputational and financial risks to companies using low-quality offsets.
  • To find high-quality climate investments, options should be evaluated on four qualities: additionality, permanence, double-counting, and leakage.
  • Normative offers high-quality, evidence-based climate investment to help businesses reach true net zero emissions.

Reach true net zero emissions

With Normative, you can measure your entire carbon footprint and find emissions hotspots. Our climate strategists devise a reduction plan tailored to your needs – and a climate investment strategy to compensate what you can’t reduce.

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