FTSE 100 financial companies lead the way on voluntary carbon offsetting but more must be done in terms of quantity and quality

April 20th, 2011 by Carbon Retirement Ltd

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A new report by Carbon Retirement Ltd on offsetting in the FTSE 100 shows that the financial sector is leading the way with voluntary offsetting, but companies in other low and medium carbon intensity sectors need to follow suit if the FTSE 100 are to make significant steps towards reducing their collective environmental impact. The report also reveals that only two thirds of companies are clearly communicating the use of third-party standards.

Of the 21 companies that are offsetting, 14 are in the financial sector. Sixty-one percent of financial companies in the FTSE 100 are offsetting at least a portion of their emissions and the financial sector is also leading in terms of offsetting standards.

Ninety percent of companies using offsetting are non-carbon intensive, that is, have low carbon emissions per unit of revenue. All companies that claim to be carbon neutral have low carbon intensity. The latter group includes 3i, Aviva, Barclays, British Land, BSkyB and HSBC.

The use of offsetting only by low polluters could be due to the relatively low cost offsetting therefore represents for these companies. Non-carbon intensive companies are also less likely to be covered by regulation, and more willing to ‘self-regulate’.

The fact that offsetting is almost exclusively used by low polluters means that only 0.1% of the 2.8 billion emissions from the FTSE 100 are being offset.

Two medium intensity companies are bucking the trend and using carbon offsets. The Unilever brand Ben and Jerry’s, has been carbon neutral since 2007 and Reckitt Benckiser has offset its manufacturing operations since 2006.

Report authors at Carbon Retirement suggest that other medium carbon intensity businesses could look more substantially at their supply chain and consumer use of products and see what part reduction and offsetting could play.

The report also suggests that there is a part for the very low polluters to play.

The report states that if all non-carbon intensive companies went carbon neutral, offset volumes would increase by 39 million tonnes, which would almost double the size of the global voluntary market (currently 45 million tonnes).

Jane Burston, Director of Carbon Retirement and one of the authors of the report, said “Each year we see new companies going carbon neutral, or announcing their use of carbon offsets for some part of their operation. The financial sector in particular is very well represented in this space, with the majority of financial companies in the FTSE 100 using carbon offsets. “

“We’d like to see companies in other, more carbon intensive, sectors considering how they might use carbon offsets. Only will we see the volumes of reduction achieved start to marry up with what science demands is necessary.”

It’s not just quantity that could be improved, it’s quality too, with just under 65% of offsets being reported as verified by a third-party standard.

This is low given 90% of all voluntary offsets transacted globally in 2009 were third-party verified, and indicates that the low figure may be due to non-disclosure rather than companies not purchasing verified offsets.

Offsetting is a controversial area, with concerns about whether offset methods including forestry projects, energy efficiency projects and renewable energy projects are actually making a difference. Research from the University of Stanford shows that “between a third and two thirds of projects” have not achieved a net reduction in emissions.

Motivations for voluntary offsetting are: enhancing corporate reputation, plugging the gap until new low carbon technologies become available, taking responsibility, and engaging stakeholders.

With this in mind, it seems odd that FTSE 100 companies are disclosing reasonably low levels of information about their offsetting, as information about offset standards and methods are important to the credibility of offset claims

The most popular type of offset standard used was the Voluntary Carbon Standard (VCS), accounting for 55% of all offsets purchased; this is one of the cheapest standards at £0.75 – £7.50 a tonne. The Gold Standard accounted for 5% were Gold Standard, this is the only standard which measures and is accountable for social benefits for the local community.

In 2009 the UK Government introduced the Quality Assurance Scheme which recognises the highest standards in accurate measurement of emissions and offset methods. The scheme was introduced as “a shortcut to high quality offsets”.

Only 3i offset their total emissions through the purchase of Quality Assurance Scheme accredited offsets. 3i also used a new method of offsetting which involves purchasing “pollution permits” out of the EU Emissions Trading Scheme and permanently removing them from the system, a method which overcomes the systemic issues with purchasing offsets generated by projects.

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Carbon Retirement Ltd. is a carbon offsetting company that leverages the EU Emission Trading Scheme (EU ETS) to reduce emissions.

Carbon Retirement buys up emission allowances (EUAs) on behalf of clients in order to offset their unavoidable carbon emissions. This process permanently removes the emissions allowances from the EU ETS, forcing heavily polluting industries to pollute less and invest in cost-effective measures to reduce their emissions.

Our aim is to increase the transparency and effectiveness of the two markets we bring together: voluntary carbon offsetting and the EU ETS.

Existing carbon offsetting services work by funding projects – the vast majority of which are in the developing world – that reduce emissions below a ‘business as usual’ baseline. They work by estimating the difference between emissions with and without the project and creating an equal number of credits.

Carbon Retirement is fundamentally different in that it is not based on projects – rather it reduces the quantity of carbon dioxide that industry in Europe is allowed to release.

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