Comments to the SEC

Why carbon offset disclosure matters


by Sadie Frank +Danny Cullenward +Freya Chay

Feb 08 2022

Interest in net-zero-aligned investing is significant and growing. BlackRock, the largest asset manager in the world, recently wrote in a client letter that “the issue … is no longer whether the net zero transition will happen but how.” Financial-industry-led coalitions managing trillions of dollars have committed to net-zero climate targets that will be implemented via net-zero transition plans.

The most critical element of a credible net-zero plan is a company’s strategy for rapidly cutting its own emissions. But the pace and extent of promised mitigation is often conditioned on a company’s view about the extent to which it can rely on carbon offsets, which are a common part of net-zero plans.

Despite the centrality of carbon offsets in corporate climate plans, investors in public markets lack access to basic information about companies’ offsets use. What public data are available are usually inadequate for investors to form a view about whether a publicly traded company’s reliance on carbon offsets is net-zero aligned. Investors are also likely to care about growing media and advocacy attention to the fact that many carbon offsets are not delivering on their promised climate benefits. As such, investors have a direct interest in better disclosures about carbon offset use.

This post explains why an investor in public markets today cannot adequately characterize most companies’ use of carbon offsets, and by extension the adequacy of their net-zero transition plans, on the basis of existing public information. We explain how straightforward, company-level disclosures about offset use could close this information gap.

Who is claiming which carbon offset credits?

Most carbon offset credits are minted by registries, which are standards-setting organizations that develop crediting rules (called protocols) and track the issuance and retirement of carbon credits. Registries maintain public databases which are set up to protect against double counting by ensuring that each carbon credit is issued and retired only once. These databases also surface information about the projects to which carbon credits are issued.

For example, the Climate Action Reserve (CAR) maintains a public registry where anyone can obtain information about the credits CAR has issued. Each credit in the database is connected to a protocol and documentation about the underlying project. The database also specifies when each credit was issued, and if applicable, when a credit was retired on behalf of a third-party beneficiary. (Similar databases are available for other major registries, including Verra, the American Carbon Registry, and Gold Standard.)

When companies use carbon credits to make a climate claim — such as achieving carbon neutrality or net-zero emissions — they are asserting ownership over the climate benefits generated by carbon offset projects. Companies can buy and hold carbon credits issued to these projects, but to claim the underlying climate benefits the credits must be retired and taken out of circulation.

Unfortunately, registry databases do not provide a complete picture of who ultimately claims a credits’ climate benefits. As a result, an investor seeking to assess a company's net-zero transition plan — or any corporate claim based on carbon offsets — has no consistent way of knowing which credits a company has retired.

The reason is that registries do not always report the identity of the credit user for whom the credit was retired. Although some retirements specify a clear beneficiary, many do not — and thus, while registry data provides consistent information about carbon credit supply, the same data present only limited insights on carbon credit use. Company-level disclosures of carbon credit use would close this information gap.

To be clear, this is a problem that is specific to the voluntary carbon offsets market. In contrast, so-called compliance markets — such as the offsets that are eligible for use in California’s mandatory cap-and-trade program — do report basic data on offset usage that are missing from voluntary markets today.

The rise of brokers and non-registry offset credit issuers

Interpreting public information about credit retirement is further complicated by the growing role of brokers and secondary marketplaces. These organizations do not issue carbon credits themselves, but rather sell credits issued by the registries to companies who then claim the associated climate benefits. CAR’s registry database, for example, might list a broker like Pachama as the retirement beneficiary for a swath of credits — even though Pachama resells those credits to other companies, who ultimately make the final claim on the credits’ environmental attributes.

When a carbon offset registry accurately tracks a broker’s retirement of credits, but not the ultimate beneficiary of those credits, it provides limited benefits. Such a reporting outcome, if accurate, would demonstrate that the credits have not been double-counted: the registry would report their exclusive retirement only once. But if only the identity of the broker is disclosed, as in the example provided above, a prospective investor cannot use this information to identify whether a particular company has claimed those credits.

In addition, a number of new entrants into the carbon offsets industry have elected to work outside of the conventional carbon offset registry systems. Sometimes these companies are developing novel technologies that don’t align with existing registry standards; other times the companies simply choose to issue and track their own credits directly. A number of efforts also seek to transfer credits listed on conventional registries to blockchain-based markets, which by design don’t report credits’ ultimate beneficiaries (or any other information) in conventional registry databases.

For now, most supply remains in the conventional registry ecosystem. But because non-registry suppliers generally do not have public disclosures of buyers’ credit use, their emerging role in the carbon offsets industry could further contribute to the information barriers facing investors.

Which carbon offset credits are net-zero aligned?

Despite common misperceptions, not all carbon offset credits are the same. One of the most critical distinctions has to do with the type of climate benefit a credit claims. Each carbon credit claims to represent one of two possible climate outcomes — avoided emissions or carbon removal. For example, offset projects that avoid burning fossil fuels or harvesting standing forests for commercial timber generate avoided emissions credits. In contrast, growing forests or deploying direct air capture technologies results in carbon removal.

The distinction is critical because net-zero aligned carbon offsetting strategies require a shift to carbon removal claims. Thus, it is essential for an investor seeking to build a net-zero portfolio not only to know whether a company is offsetting its emissions with carbon offset credits, but also whether those credits reflect carbon removal or avoided emissions.

Unfortunately, the offsets industry today doesn’t provide adequate information to describe company-level approaches. Carbon offset registries do not generally track the distinction between avoided emissions and carbon removal credits, likely because the offsets industry developed long before the scientific and policy communities converged on net-zero emission targets. Nevertheless, it is often a trivial task to assign this typology to existing offset credits because many offset project categories deliver only one type of credit or the other. That is, for many offset projects, the outcome is clear because the project categorically produces only one kind of climate benefit.

Although most offset project types fit neatly into avoided emissions and carbon removal categories, the forest sector presents an additional challenge that is both important to resolve and readily addressed. Because these projects typically involve promises to both avoid timber harvests and allow forests to grow larger, they produce a mix of avoided emissions and carbon removal benefits. About 40% of credits tracked on major offset registries are issued to temperate and tropical forest offset projects, which highlights the need to clarify offset credit claims.

While to date offset registries have not differentiated credits generated from forest projects into their constituent avoided emissions and carbon removal claims, standard forest project documentation already calculates the breakdown in claim type before credits are issued. Registries and offset brokers know they have a problem to fix — one that’s a natural evolution of their business models, as a growing number of buyers are interested in carbon removal as a distinct climate service. What’s more, there are no technical barriers to reaching this outcome, as existing project documentation already provides all of the necessary details.

What other attributes should be tracked?

In addition to the critical distinction between credits that claim avoided emissions versus carbon removal, two other carbon credit attributes are important to track and are readily disclosed by purchasing companies — the permanence and vintage of each credit used.

The first attribute, permanence, reflects the duration the claimed climate benefit is intended to last. Some climate benefits are essentially permanent in nature, such as the successful underground injection or physical mineralization of carbon dioxide in solid form. Other benefits are more temporary, like carbon that is stored in a forest that might succumb to fire, disease, or intentional harvest in the future.

Because carbon dioxide emissions have their biggest impacts over a timeframe of hundreds to thousands of years, it’s important that carbon removal achieves benefits on similar timeframes. Temporary climate benefits have value, but can also lead to additional costs in case of unexpected carbon losses or if regulators require companies to eventually procure permanent solutions. For this reason, the permanence of a carbon offset can materially affect the validity of a company’s climate strategy.

The second attribute, credit vintage, reflects the year in which the claimed climate benefit manifests. If a new forest is planted in 2022, for example, it will grow each year and remove carbon dioxide from the atmosphere. Each credit is issued to reflect a share of growth in a particular year, and thus is marked with the appropriate vintage year, such that 2023 vintage credits represent carbon removal that occurs in 2023 and 2024 vintage credits represent carbon removal that occurs in 2024.

Tracking credit vintages is relevant because a glut of older vintage credits are available in voluntary offset markets but reflect particularly questionable climate claims. In light of this well-known problem, many offset standards limit offset usage to recent vintages. For example, the International Civil Aviation Organization’s CORSIA offsets program for airlines generally requires that credits no older than vintage 2016 be used to offset emissions in the years 2021 through 2023. The COP26 negotiations in Glasgow implemented a similar type of restriction on the use of offsets for complying with countries’ climate pledges.

Disclosure of both permanence and credit vintage is essential for participants in public markets. Without such information, investors cannot get a full picture of the quality and net-zero alignment of corporate offsetting claims. And because permanence and credit vintage information are standard parts of existing registry disclosures, companies should face no barriers to reporting the permanence and vintage information associated with their offset credits.


Existing public information does not provide an adequate basis for characterizing a company's carbon offsetting strategy. As a result, investors cannot meaningfully assess the rigor and net-zero alignment of companies’ transition plans without new, company-level disclosures about carbon offset use.

A relatively small number of objective criteria can help resolve this issue. The most important data to report include the volume and type of carbon offsets used. Specifically, companies should disclose when they have retired carbon offset credits, and the extent to which those credits reflect avoided emissions versus carbon removal claims. This is critical as investors — whether net-zero aligned or not — need to distinguish among companies that are pursuing different climate strategies.

In addition to disclosing the extent to which companies are relying on avoided emissions versus carbon removal credits, it is also helpful to disclose the permanence and vintage year of offset credits. These additional disclosures also have a material impact on a company's transition plan, as evidenced by existing carbon offset standards and common market practices.

Almost all of this information is readily available to offset purchasers, with the limited exception of the breakdown between avoided emissions and carbon removal claims associated with forest offset credits. Since the breakdown in claim type is already indicated by public registry documents and demand for credit differentiation is growing as companies pledge to procure only carbon removal offsets, carbon offset registries and buyers have everything they need to easily bridge this gap.

Corporate-level carbon offset disclosures have the potential to help investors and the general public track the climate claims companies make. Despite the complexity of offset markets, standard disclosures of just a handful of objective criteria can significantly improve the quality of information available to investors who need to understand the benefits, risks, and net-zero alignment of companies’ climate strategies.

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