The Role of Natural Solution in Corporate Climate Commitments: A Spotlight on Investor Engagement Selected additional Q&A from May 18, 2021 webinar

Q: Where can I find a link to the report and webinar? A: You may download The Role of Natural Climate Solutions in Corporate Climate Commitments: A Brief for Investors on the Ceres website here. Our webinar recording is also available on our website here.

Q: How do natural climate solutions work? A: Natural climate solutions protect, restore, or improve the management of natural or working lands. NCS mitigate by reducing or avoiding GHG emissions (e.g. avoiding deforestation) or removing CO₂ (e.g. or revegetation) from the atmosphere.

Q: What is the difference between natural climate solutions and nature-based solutions? A: NCS not only mitigate climate change, but can also help maintain other forms of natural capital that underpin our economy, such as biodiversity, freshwater, and healthy soils. In that way, NCS can be thought of as a subset of nature-based solutions, which are defined more broadly as protection, management, and restoration actions that address a range of societal challenges, simultaneously providing human well-being and biodiversity benefits.

Q: What is the process for having afforestation projects turned into carbon credits by an accreditation program? A: The GHG crediting programs set out the rules and requirements for project development and GHG accounting. The methodologies set out steps for determining additionality, conservatively estimating baselines, quantifying emission reductions or removals, and monitoring. Projects are developed following an applicable methodology and validated to ensure that the project complies with the requirements set out by the GHG crediting program. Following implementation, the project periodically monitors progress and uses the methodology to quantify the emission reductions or removals generated. The emission reductions or removals are verified before carbon credits are issued by the GHG crediting program and transparently listed on a registry.

Q: Are you seeing any carbon sequestration solutions from the shellfish aquaculture sector? In particular the ability for oysters to sequester carbon? A: Ceres is focused on engaging investors and companies on land-based natural climate solutions, but a myriad of other types of natural climate solutions or nature-based solutions, including and aquatic-based solutions, are being explored and developed.

Q: How are avoided emissions different from carbon offsetting? A: Carbon offsetting counterbalances emissions which are or will be released into the atmosphere. Avoided emissions are emissions that do not occur due to a change in practice. They can be achieved, for example, by switching to where possible or eliminating deforestation from the supply chain. Carbon offsetting should only be used to increase the ambition of a climate commitment, meaning that carbon credits should not be used where emissions could have otherwise been avoided. For example, companies that produce or source agricultural or forestry products--which are concentrated in the consumer goods, consumer discretionary, and materials sectors--will need to reduce emissions from agriculture and land use from their own operations and value chains. For many of these companies, GHG emissions from deforestation and other land-use change contribute a large part of their scope 3 supply chain emissions. Companies should make addressing those emissions a key component of their climate action plans prior to relying on carbon credits.

Q: To what extent are NCS more effective than switching to cleaner technological solutions? A: There is a clear but limited role for NCS. We will not meet the goals of the without protecting and restoring forests and other ecosystems and better managing agricultural land. Companies that produce or source agricultural and forestry products must support the necessary transition to sustainable land use within their own value chains. However use of NCS to offset emissions is not a substitute for rapid and deep decarbonization. There is growing consensus that social license to use carbon credits requires that companies prioritize reducing emissions within their own value chains (e.g. switching to lower-carbon technologies).

Q: The use of carbon offsets by companies is widely criticized by advocates as a way to avoid reducing pollution in disproportionately impacted EJ/low-income/BIPOC communities in the Global North. Is there a way to develop offsets in a more equitable way that addresses these concerns? A: It is important for companies to focus on deep decarbonization, including in areas where low-income or BIPOC communities are disproportionately impacted. In the brief, companies are encouraged to set robust net-zero targets and should reduce their own value chain emissions consistent with a level that limits warming to 1.5 °C. Only residual emissions should be balanced with carbon removals. While companies are transitioning to net-zero, they can additionally purchase high-quality carbon credits or financially support emission reduction or removals efforts. Aligned with the Ceres Roadmap, companies are also encouraged to consider potential solutions and technologies through the lens of impact to people and communities and implement strategies that support a just and equitable transition. Likewise, companies should purchase NCS credits that are demonstrated to achieve social and environmental benefits. Companies can purchase credits in addition to deep decarbonization, not as a substitute.

We recommend that investors ask companies to disclose: 1) short-, medium-, and long-term goals, 2) credible climate action plans for achieving those goals, and 3) how much of targets are met through carbon credits. Ultimately, increased transparency will create greater confidence in the integrity of net-zero targets and ensure that companies can deliver on their commitments, including a just and equitable transition.

Q: You talked about Indigenous communities. Should we be concerned about impacts to these communities as investors in timberland assets in North America, such as in Oregon and Washington where Indigenous peoples are living? Should we make sure free prior and informed consent is achieved in our investments in this area? A: NCS projects should protect the rights of local and Indigenous communities in which they are located. This includes Native Tribes in North America and other Indigenous communities in developed countries (e.g. First Nations in Canada and Aboriginals in Australia) and in developing countries. Local and indigenous communities should be included in the design and implementation of the project, including free, prior, and informed consent. Please consult the brief for further discussion on how NCS projects can protect the rights of and provide benefits to local and Indigenous communities.

Q: Where do you position avoided deforestation within this framework? Especially given its unique potential to support Indigenous land use and tenure? A: NCS includes activities that reduce emissions from deforestation and degradation (REDD) (also known as avoided deforestation). NCS can help deliver on the UN Sustainable Development Goals (SDGs) both by supporting the ecosystem services that underpin health and livelihoods and by generating monetary and non-monetary benefits for local and Indigenous communities. REDD projects in particular have the potential to support Indigenous land rights and tenure if implemented correctly and appropriately. Companies that produce or source agricultural or forestry products--which are concentrated in the consumer goods, consumer discretionary, and materials sectors--will need to reduce emissions from agriculture and land use from their own operations and value chains. For many of these companies, eliminating deforestation should be a priority.

See the Ceres Investor Guide to Deforestation and Climate Change for complete guidance on identifying exposure to deforestation within investment portfolios and engaging companies on deforestation and conversion of natural ecosystems.

Q: What is possible for Indigenous peoples and local communities where companies don't observe safeguards as required by the various standards? A: NCS projects should have access to grievance and conflict resolution mechanisms. These mechanisms should be culturally appropriate and easily accessible by communities impacted by the project, and maintained throughout the life of the project.

Q: In light of Microsoft’s goal to remove their historical carbon by 2050 (which follows their goal to be carbon negative by 2030) and the amount of tropical deforestation that continues to occur, can this type of approach be encouraged elsewhere to help to reforest in these areas? A: Corporate net-zero or carbon-negative commitments can be powerful drivers for forest finance, however, reforestation should not take the place of reducing emissions, especially through eliminating deforestation; it is highly preferable from a climate and biodiversity standpoint to preserve existing forest rather than replant it later on.

Q: How much of an NCS mix is acceptable for an oil and gas company in its net-zero goal, and who sets those limits? A: The precise degree to which each sector may rely on carbon removals to achieve net-zero emissions is a debate that is not yet fully resolved. Future publications from Ceres and IIGCC will reflect emerging consensus on these topics, including from the Science Based Targets Initiative and other standard-setters in this space.

Q: Following up on costs issues, do you think an assessment of project financials is an important element of project additionality? A: There are two approaches to determining additionality: a project-specific approach and a standardized approach. Following the project-specific approach, projects determine additionality based on a series of tests. One of the tests includes reviewing project financials to ascertain whether the project activity is financially economical without carbon market financing. Another test includes examining other obstacles that might hinder the implementation of the project, such as technological, institutional, cultural, or regulatory barriers. Following a standardized approach, additionality is determined for a class of project activities. Such approaches usually examine market penetration rates or project performance. These tests do not necessarily require a review of project financials. In summary, project financials can help in determining the additionality of a project, but it is not the only factor.