ACS 2023: carbon credit retreats cast shadow over investor-focused climate summit

Despite ambitious calls from a range of high-profile officials to kickstart the climate finance space and embrace carbon offsetting schemes, the mood among investors at the Africa Climate Summit in Nairobi seems somewhat different.

Even yesterday’s announcement by the United Arab Emirates, host of the upcoming COP28 summit later this year, to buy $450 million in carbon credits could not obscure some hard numbers. Two freshly released reports are casting somewhat of an uncomfortable shadow over what is largely seen as an investor-focused climate conference.

At Africa’s first major climate conference, taking place in Nairobi this week, two reports are doing the rounds that make unwelcome reading for those that are working to push investors towards greener allocations by including carbon offsetting in their investment strategies.

Rather than growing, the voluntary carbon market is actually shrinking, for the first time in nearly a decade, with companies worldwide acquiring less carbon credits.

The appetite for offsetting among corporates and investors is expected to experience an unprecedented drop before the end of this year, with demand already down by 6% during the first six months of 2023, according to a BNEF report.

A second research document that is widely shared among delegates at the summit in Nairobi, from consultancy firm Ecosystem Marketplace, shows an even steeper decline over the same period, namely 8%.

Stephen Donofrio, managing director of Ecosystem Marketplace, pointed out that potential buyers simply struggle to appreciate the quality of the different schemes in place.

“A number of negative studies on carbon credits caused enough concern for some companies to pause purchasing and wait for more guidance on what sort of credits they should buy," he explained.

Particularly the much-talked about carbon offset player South Pole is reportedly feeling the heat in Nairobi.

Several conference insiders claim that fashion giant Gucci, among a range of other companies, has stopped buying carbon credits from the company altogether because of quality concerns.

"Gucci is in the process of reviewing its climate strategy and commitments with a view to achieving the most positive overall impact," a spokesperson for the company said.

South Pole CEO Renat Heuberger hit back at the claims, reportedly saying the company had followed the approved methodology for its projects at all times.

"There is no other way to do deforestation projects. You cannot know ten years in advance what the deforestation rates will be," he said.

In addition, the two reports warn that a range of forest protection projects had failed to deliver promised emissions savings.

Naomi Swickard, senior director at carbon offsetting certification provider Verra, pointed out that a continuous stream of damaging and critical reports and data sets have led to investors gradually changing their minds about carbon offsetting.

“This has driven some to ask ‘why would I do this and invest in something that might just result with being attacked in the press?’ In some cases, that is undermining corporate willingness to act on climate at all," she noted.

In the last decade, the voluntary carbon market experienced a steady growth as a growing number of corporates, often following pressure from investors and shareholders, included the approach in their investment decisions in order to accelerate their net zero strategies.

In 2021, the market had an estimated value of $2 billion but the Boston Consulting Group calculated last year the space could swell up to $40 billion by 2030.

However, one delegate in Nairobi pointed out that investors have picked up plenty of red legs.

For example, prices of carbon offsets, as traded on the world’s largest carbon exchange, CBL, have nosedived by more than 80% in the last year and a half. This is a direct result of demand dropping rapidly.

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One company that is not gaining much sympathy in Nairobi this week is Swiss multinational Nestle. Its decision to stop using carbon offsets altogether is receiving a lot of criticism. 

The food giant is seen as an example where investors allow their company to move in the wrong climate direction.

Apart from the U-turn in its carbon offset approach, Nestle also no longer plans to make many of its sweet snacks carbon neutral.

"We are moving away from investing in carbon offsets for our brands to invest in programmes and practices that help reduce GHG emissions in our own supply-chain and operations, where it makes the most difference to reach our net zero ambition," Nestle explained to Net Zero Investor.

Some industry insiders in Nairobi do applaud corporates' reluctance to embrace carbon offsets, however, as they label the market a “dangerous distraction” and a “false solution”.

Mohamed Adow, the director of Kenya-based climate think tank Power Shift Africa, does not think carbon offset projects have the ability to lead a reduction in emissions, an increase in fresh climate investments or will lead to more sustainable investment strategies.

“There is no room for the illusion of offsets in a world where we have exhausted the remaining carbon budget,” said Adow.

“The very design of these markets is for us to proffer pollution permits to wealthy industrialised countries and companies, locking them into a high emissions pathway and shifting the burden to African people."

Focus on investors

Meanwhile, on day 2 of the summit, the widely shared reports are downplayed by the Kenyan government, the host of the climate summit, as the country is keen to turn this week's gathering into a pro-investment conference with an ambitious carbon offsetting program taking centre stage.

Only yesterday Kenya’s president William Ruto announced the largest carbon credit deal ever in Africa.

In order to boost the continent's carbon credit production nearly 2-fold before 2030, Ruto confirmed pledges of hundreds of millions from a range of different actors.

The United Arab Emirates, host of COP28 later this year, said it will acquire $450 million of carbon credits from the Africa Carbon Markets Initiative.

Launched during COP27 in Egypt last year, the ACMI aims to drive market-based financing instruments such as carbon credits, allowing heavy emitters to offset their pollution via various projects, such as planting trees or renewable energy investments.

Close to 30,000 delegates are in Nairobi this week for the summit, with dozens of side events taking place, covering a range of topics, from climate justice to private sector investment and climate security.

But the need for cash to firepower the green investment space is rapidly turning into the event's main theme.

A draft version of the final declaration, expected to be announced on Thursday, places investments in renewable energy investments centre stage, as well as biodiversity and nature assets.

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