Measuring the Effects of Corporate Emissions on Forests

Declining Confidence in Forest-Based Offsets

A core part of corporate sustainability pledges has been massive promises to offset company emissions. Offset programs create a win-win for companies: they can both deflect criticism about their climate response while at the same time not needing to actually reduce company emissions or hurt profits. For many companies, the easiest method to offset emissions was simply promising to plant more trees.

However, this approach has begun to invite criticism, and the offset market has been shifting. Large companies such as Nestle and Gucci have shifted their sustainability strategy to focus on reducing emissions instead of offsetting them after the fact. In fact, for the first time in years, the largely forest-led carbon credit market is expected to shrink in trading in 2023. Why has this shift happened?

Issue One: The Market

Trust in the carbon credit market has been ebbing. There are only so many legitimate conservation projects that can be sold as credits. However, there are millions of acres of forests that are not in danger but are potentially monetizable as ‘conservation credits’. Because of ambiguity in credit verification, there can be a wide range in carbon credit efficacy. 

A recent study into Verra, one of the largest carbon credit verification companies, found that 90% of their rainforest offset credits did not cause actual reductions in emissions. These faulty credits have been tied to the offsets of major corporations. For example, independent research into Chevron concluded that 93% of their carbon credit offsets were ‘worthless’ and did not change emission levels. Consistent criticism of the carbon credit market, especially for forest-related emissions, has reduced corporate and consumer confidence in this offset strategy.

Issue Two: The Trees

All the gains of forest-based emission reduction can burn away in an instant. Forests sequester trees, but those emissions are released back into the atmosphere when large forest fires or other natural disasters destroy the forests. Unfortunately, rising temperatures and rolling heatwaves have made consistent forest fires a seeming inevitability.

One perfect example of this is Canada. Large Canadian forests have produced more emissions than Canada produces on average. However, since 2001, they have been emitting more than they sequestered. This year, the forest fires released 1.5 billion tons of CO2. Forests are becoming an unreliable ally in the fight against climate change, and a ‘return to nature’ has lost credibility as a silver bullet spending option to fight climate change.

The Real Solution to This Growing Problem

Historically, companies have been quick to propose ‘carbon offset’ and slow to create actual emission solutions. However, for a sustainable future, companies need to shift toward a strategy of emissions reduction and away from making empty promises. Current offsets have been facing growing skepticism from consumers, governments, and regulatory agencies. Companies ought to take steps to meaningfully reduce their emissions: cleaning up manufacturing, reducing transportation/shipping, and electrifying their supply chain. 

As companies shift to reducing their carbon footprints, Physis Investment can help make sense of ever-changing corporate sustainability pledges. Physis offers industry-ready data analytics to track the sustainability performance of thousands of companies and indexes.