Environmental commodities are becoming increasingly pivotal in the realm of corporate sustainability. They represent a unique blend of environmental responsibility and economic pragmatism, offering companies a viable path to meet their sustainability goals.
Understanding these commodities, particularly Renewable Energy Certificates (RECs) and carbon credits, is crucial for businesses aiming to enhance their environmental credentials and comply with evolving regulations and societal expectations.
Common Environmental Commodities
Environmental commodities are instruments that represent environmental good practice. We’ll look at two of the most common environmental commodities: renewable energy certificates and carbon credits.
Renewable Energy Certificates (RECs)
A REC is evidence that a unit of electricity was generated from a renewable source, tying corporate energy consumption directly to renewable energy production. RECs are issued and purchased on the basis that one certificate is for one megawatt hour of renewable electricity. RECs can only be issued in relation to renewable energy.
Outside of the EU and the US, the most common standard for RECs is the International Renewable Energy Certificate (I-REC). The global registry for I-RECs is maintained by Evident and the standard is overseen by The International Tracking Standard Foundation (I-TRACK).
You can read more about RECs here.
Carbon Credits
Carbon credits represent a quantifiable and verifiable reduction in greenhouse gas emissions. Carbon credits are issued on the basis of a tonne of carbon dioxide equivalent (tCO2e), and can be issued for a wide range of emission reduction activities from nature-based solutions to technology-based solutions.
The most common standards for carbon credits are Gold Standard (GS) or Verra’s Verified Carbon Standard (VCS), although there are others. These standards are responsible for the registration, issuance and retirement of carbon credits from their specific standard. The standards work with independent auditors, known as validators and/or verifiers.
Carbon credits are intended to reward new activity that is above ‘business as usual’, so the rules and eligibility criteria for certain emission reduction activities are always evolving and changing.
You can read more about carbon credits here.
The Uses for Environmental Commodities
These environmental commodities are used for different purposes.
RECs are used to reduce a company’s Scope 2 emissions. Almost all companies should have made the switch to renewable energy!
Carbon credits are typically used to offset a company’s Scope 1 emissions. While the priority for a company should be to reduce emissions, this isn’t always possible and offsetting emissions is likely a necessity.
Why Corporates Invest in Environmental Commodities
The investment in environmental commodities by corporations is driven by several key factors. Firstly, they provide a direct pathway to achieving sustainability targets, a growing priority in today’s environmentally conscious consumer market. This investment significantly bolsters a company’s public image, showcasing a commitment to combating climate change.
Financially, it can lead to compliance with environmental regulations or incentives such as tax benefits, which can be pivotal in some industries.
Beyond these, investing in environmental commodities aligns with broader global trends towards sustainability, positioning a company as a forward-thinking, responsible entity in the corporate landscape.
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