A recent multi-sector study of over 100 sustainability leaders at large UK businesses has highlighted that 88% have invested in carbon credits to meet their sustainability goals, with an average expenditure of £2 million ($2.6 million) each. The study, conducted by Gallagher – an insurance and risk management firm, reveals that 96% of these businesses plan to increase their carbon credit purchases, including one firm anticipating an expenditure of £1.2 billion.
Carbon credits, which permit the emission of one tonne of carbon dioxide or an equivalent greenhouse gas, are gaining traction as a tool in the battle against climate change. However, Gallagher’s research highlights significant risks associated with these investments.
The study finds that more than a quarter (27%) of large UK businesses lack contingency plans if their carbon credits fail, and only 51% have carbon credit insurance coverage for their investments. Additionally, 44% of respondents express concerns about the reliability of carbon credits as a major barrier to further investment.
Despite these risks, 85% of ESG directors view carbon credits as a reliable method for achieving sustainability targets, and 91% believe they will be crucial for the UK to meet its 2050 net zero goal. The study also indicates that buyer’s remorse is minimal, with only 2% of those who have purchased carbon credits expressing intentions not to buy them again.
The report reveals that high costs and inadequate regulation are significant obstacles to increased investment, with 61% of businesses citing the high price of credits as prohibitive and 88% calling for better regulation of the UK carbon credit market.
James Bosley, Head of Climate Strategy, Carbon Insurance & Parametric Solutions, at Gallagher said, “UK businesses clearly see carbon credits as a vital tool, alongside existing decarbonisation initiatives, in meeting their climate and decarbonisation targets. We’re seeing increasing uptake of new innovative carbon removal technologies, as well as wider offset credits, and businesses are committing significant amounts of investment as they work toward their sustainability goals. The consensus around the use of carbon credits suggests that they will play a significant role in the transition to net zero in the coming years, especially where decarbonisation options are limited.”
“It’s a real concern that just half of carbon credits purchased by UK businesses are covered by insurance and that a significant number of businesses have no backup plan should their credits fail. This could leave businesses millions, or even billions, of pounds out of pocket and unable to hit their emissions targets – there are clearly concerning reputational risks, too,” he added.
The study also notes that the most commonly purchased carbon credits among UK businesses are renewable energy credits (74%), energy efficiency credits (68%), waste management credits (54%), fuel-switching credits (45%), and enhanced weathering/carbon mineralisation credits (35%). Looking ahead, the most anticipated future purchases include renewable energy credits (68%), energy efficiency credits (58%), waste management credits (56%), and carbon removal credits, particularly enhanced weathering and carbon mineralisation.
The research predicts a rise in the uptake of carbon removal credits, with enhanced weathering/carbon mineralisation and afforestation/reforestation expected to become increasingly popular in the coming years.