Carbon Innovation for Business Impact Accelerating climate solutions and private sector finance to make real change possible Contents Executive summary ............................................................................................. 3 Introduction ........................................................................................................... 4 Advancing practical and scalable solutions ................................................ 6 Evaluating carbon finance projects ............................................................... 8 Proven methodologies ................................................................................ 9 Emerging methodologies .........................................................................13 High-potential technologies ...................................................................15 Experimental technologies .....................................................................16 Adding value with values.................................................................................17 Delivering quality carbon credits .................................................................19 Ensuring credible standards ..........................................................................20 Conclusion ............................................................................................................22 Teak Afforestation, Mexico Cover Photo: SELCO Solar Energy Access, India 2 Executive summary Since the Paris Agreement was existing and new methodologies to signed in 2016, the scale of corporate make projects accessible to businesses climate ambition is growing—and at as part of their sustainability strategies. an exponential rate. Businesses are In this paper, we assess a series of seeking innovative solutions to achieve current project types at four different ambitious carbon neutrality and net stages of development for carbon zero goals. markets—proven, emerging, high- We need even greater speed and scale potential, and experimental. For each to meet the Paris Agreement’s target—a of these project types, we address the world in which average temperatures role of carbon innovation to: rise by no more than 2°C and ideally Efficient Cookstoves, Malawi • drive practical and scalable growth no further than 1.5°C. This requires all of climate solutions overall. the tools available today along with cost, availability, credit potential, natural sources of energy, protect new innovations to drive the global • advance new opportunities and co-benefits, time horizon, and biodiversity, reduce emissions, and so transformation of our economy. new methodologies to make more communication of projects. By much more. projects available and accessible. structuring a carbon finance portfolio What were considered ‘innovations’ We outline the carbon credit lifecycle of projects, they can achieve their not so long ago have become integral and the ways to create business value • harness the value of private sector goals while managing their own to climate action. In 2019, solar at each stage. We then describe the finance to create positive outcomes priorities and risk tolerance. installations were almost 15 times for business, the environment, existing methodologies and how they higher than in 2010. For wind power, and society. Any strategy should also consider deliver the highest levels of quality for which started earlier, it was three the broader implications and the role programmes to offset—or compensate to four times.1 Carbon finance was Even the most ambitious businesses of carbon finance to advance the for—carbon emissions. one enabler of this progress, and it seek practical solutions to address Sustainable Development Goals. For more than 20 years, Natural Capital continues to be a highly effective tool. urgent social and environmental Each project and portfolio can Partners has been at the forefront of challenges. We offer an approach address business requirements and Carbon innovation plays a critical the voluntary carbon market. We bring for companies to make smart add value with values: generating role in closing the finance gap. It that experience to light in this paper as business decisions by evaluating additional benefits to conserve accelerates climate action by applying we look ahead to what comes next. key considerations, including nature, improve lives, provide 3 Introduction Gas Distribution Leak Reduction, Bangladesh How can we achieve our ambitions for a net • empowering communities to clean energy and more efficient today—and those that show promise zero future? adopt sustainable and climate- household devices, and deploying for the future. We approach these smart practices while finding new new technologies. It has been a topics through the lens of business This critical question is the inspiration economic opportunities. vehicle to reduce and mitigate our decision-makers who are seeking for this white paper on carbon climate impact while enabling the practical and scalable approaches to • protecting and restoring natural innovation. We know what we need communities most vulnerable to deliver on ambitious climate goals. ecosystems as thriving carbon sinks to do—deliver as many reductions in climate change and its effects to adapt and to prevent biodiversity loss. For more than two decades, carbon emissions now as possible and remove and become more resilient. finance has been building up to this the residual to keep temperature rise • equipping companies to drive The challenge turns to financing more moment. The voluntary carbon market below 1.5°C—and many, if not all, finance to carbon removals and solutions and driving impact at scale. has pioneered methodologies and the solutions are available. So what’s avoidance and deliver on their The Taskforce on Scaling Voluntary standards to ensure measurement stopping us? climate goals. Carbon Markets, for example, is calling and credibility and raise funding for As global climate action intensifies, At the project level, carbon finance on the need to grow the voluntary critical projects. It has repeatedly carbon finance has proven to be a builds on the premise that market- carbon market 15-fold by 2030 to demonstrated that it is effective and 3 highly effective tool to deliver action. based incentives are necessary to shift align with a 1.5°C pathway. Now, in adaptable at making funding of new For businesses seeking to align with from carbon-intensive activities toward this decisive decade for action, there and emerging projects more widely the Paris Agreement and pursue low-carbon alternatives. In practice, is an imperative to drive investment available and accessible. carbon neutrality and net zero goals, this premise has strong supporting in all the solutions available—from Carbon finance harnesses the essential offsetting unavoidable emissions evidence. By the end of 2019, the established to experimental—and to elements of nature—renewable solar directs funding to raise finance for market had achieved over 600 million incentise new innovations. and wind energy, clean water, healthy projects where it’s needed most: tonnes of CO e in emission reductions 2 This paper is about the meaningful forests, grasslands, and marine or removals, equivalent to taking 130 • implementing large-scale renewable ways carbon finance is accelerating habitats—to restore and regenerate million cars off the road for a year.2 energy projects to reduce innovation and the ways businesses our world. dependence on fossil fuels. In the process, carbon finance has can apply carbon finance to make If you ask us, it’s only natural. accelerated sustainable development a lasting positive impact. We aim to • enabling social entrepreneurs and globally, advancing natural climate provide an overview and assessment nonprofit enterprises to grow and solutions, improving health and of innovative climate solutions that expand their work. livelihoods through access to are available through climate finance 4 Fortune Global 500 companies that have delivered a significant climate milestone or are publicly % committed to do so by 2030. 30Natural Capital Partners, 2020, Response Required: How the Fortune Global 500 is delivering climate action and the urgent need for more of it 5 Advancing practical and scalable solutions Improved Water Infrastructure, Sub-Saharan Africa Defining the role of innovation in Projects at each stage also carry Credit potential—Projects must go are expected to be validated, verified, different risk profiles. In working with through third-party review to become and registered under an approved carbon finance our clients, these are the primary registered under a credible standard. standard later. considerations that shape the While some newer technologies may Communication—It is important to Carbon innovation accelerates climate decision-making process: seem promising, there is no guarantee effectively engage stakeholders— action by applying existing and new that they will meet all the criteria to Cost—The overall cost of a project including customers, employees, methodologies to make the funding generate carbon credits in the near will influence the price per tonne investors, civil society, and supply of projects accessible to businesses as term. Where methodologies do not yet of carbon. Higher costs can be chain partners. As sustainability part of their sustainability strategies. exist, creating a methodology with a determined by the technology, the becomes more central to corporate It is based on the recognition