Sustainability is often considered a cost, a tax, and overall a burden to businesses. It is considered an effort that you make because it is your responsibility towards future generations.
However, sustainability (impact) related efforts can actually be valued as an integral part of your business model in the form of credits, offsets, derivatives, attributes, tokens, property rights, allowances, and/or reductions that can be verified and proven at the source and are quantifiable in regards to the Paris agreement, Sustainable Development Goals or other climate change or adaptation action requirements.
This is a lot to unpack in regards to opportunities for business model innovation. In this post, we will briefly touch upon a few of the different types of sustainability credits that are currently being used by organizations and might provide insight and opportunity for your organization whether you are a investor or enterprise..
In our earlier publications, we have shared our expertise regarding the carbon markets and how SmartB helps organizations to prove their additionality, however, we wanted to highlight other types of credit systems that are also based on additionality can be used to value your sustainability efforts or offset your way to net zero.
Plastic credits
Plastic credits are created in an attempt to introduce a process that would allow organizations to take transparent and actionable action for their consumption and reduction of plastics circulating. Plastic credits are measurable, verifiable, and transferable units that essentially report on a specific amount of plastic that has been recycled or collected from the environment.
The structure of the credits is based on the carbon credit system which was developed through the 1997 Kyoto protocol, naturally, some carbon market players have started to include plastic credits/offsets, such as; Verra the standard-setter, and some frameworks for enterprises to reduce their negative impact to the excess of plastic in the environment.
This strategy provides ample opportunity for the ecosystem, standard-setters, financers, and enterprises. Firstly to contribute to building the infrastructure for a cradle-to-grave circular economy and can create new business model opportunities for organizations participating who are industrious in recycling their products and re-using as much as possible.
Like in every nascent industry, before plastic credits can scale to their potential there are some hurdles to overcome.
Firstly, the aim is not to shift focus to offsetting your use but to produce less plastic. Enterprises should first focus on changing their business model fundaments and plastic offsets can be utilized together with these efforts. Avoiding the use of plastic as much as possible and avoiding its arrival in nature is the most important.
Secondly, there must be an end-to-end traceability ability to assure that the recovered plastics really end up at a positive location where for example it is being recycled, or at least contained in a safe location. At this stage there is no end-to-end assurance on the collected plastic after being collected, this can lead to issues of inequitable distribution of global waste.
Also, carbon credits have been defined as standards as a unit of one carbon credit. Plastic credits are more local and do not have one standard which defines what one plastic credit represents globally and this could lead to some inconsistencies in accounting for the collected plastics and the value of a credit.
Whilst there are still bridges to build to create a trusted plastic credit ecosystem there are ample opportunities that can drive financing for plastic waste collection and building a resilient recycling infrastructure.
Biodiversity credits
According to the NSW, these biodiversity credits are common units of measurement for offsets in the Biodiversity offset scheme. These credits are used to measure the unavoidable impact on biodiversity from developments or measure the improvement in the biodiversity condition as a consequence of preservation at stewardship.
Biodiversity credits are tailor-made sustainable finance mechanisms, they are measurable mandatory or voluntary investments in biodiversity. Each credit represents a specific transaction unit of an area in conservation and has a monetary value assigned to it.
There are several different types of biodiversity offset credits, where The Biodiversity Assessment Method (BAM) defines two broad groups of biodiversity credits. The first one is; ecosystem credits which are considered credits for native vegetation and plant community types. Secondly; species credits represent threatened animal species.
In principle, anyone can buy the generated biodiversity credits subject to regulation. usually, buyers include developers that need to offset their negative impact on projects, other common buyers are governments to support conservation efforts or philanthropic organizations.
The proceeds from credits that are sold from a conservation site are usually used to manage the site, this is called the ‘Total Fund Deposit’ once this is fully paid and managed the rest of the proceeds will be paid directly to the landowner.
This article is the first introductory article which will be part of a series on value and credits within the sustainability ecosystem we will do a deep dive into some of the credits to improve your understanding regarding the opportunities, pros, and cons for you as an investor or enterprise.
