As climate change accelerates and corporate sustainability targets become increasingly ambitious, the complexity of the voluntary carbon market continues to challenge companies of all sizes as they consider their next steps.

In a recent webinar moderated by Margaret Morales, Director of Carbon at Trellis Group, CEEZER gathered industry leaders to address top questions regarding risk and strategy in building carbon credit portfolios.

The panel featured:

• Dr. Carla Woydt, Chief Impact Officer & Co-Founder of CEEZER
• Jennifer Holm, Research Scientist at Lawrence Berkeley National Laboratory
• Taylor Wright, Head of Strategy & Carbon Management at JPMorgan Chase & Co.

Defining Carbon Credit Risk and Quality

Spoiler alert: There is no one definition of “high quality” that will serve every carbon project or buyer. Instead, companies must consider low-risk and high-risk concerns across a variety of factors, such as leakage, geopolitical landscape and delivery conditions.

Indeed, said Dr. Woydt, companies should first define their own internal values and purpose for engaging in the voluntary carbon markets before stepping into procurement. “Define what you want to buy and why you want to buy it, and then make it transparent,” she said, adding that “it's really valuable to see different approaches from different players in the voluntary carbon market, whether on the buyer’s side or the supplier’s.”

Morales agreed, noting that defining internal values and quality standards is often the most time-consuming part of the process. Still, this foundational step is crucial before companies can effectively navigate the markets’ offerings. “I think that can't be emphasized enough,” Morales said.

Carbon Credit Portfolios Aren’t Only for Big Buyers

The panel also addressed the question of when companies should consider diversifying their carbon credit portfolios. Dr. Woydt noted that while CEEZER focuses on large enterprises where a portfolio approach is natural, the need for diversification isn't necessarily tied to company size.

Or portfolio size either, added JPMorgan Chase's Taylor Wright. "I don't think you should think about diversification of the size of the portfolio,” she said. “There are so many ways to access credits today, even at individual credit, that the diversity and strategy is really just to mitigate potential risks that any one project could face."

Wright emphasized, too, the importance of building a robust, diverse portfolio of carbon credits across various project types: “What’s key here is making sure you are bringing in different product types from the functions that we think about, which are nature based, hybrid and engineered,” she said. 

“But even within those categories, you want to make sure that you're identifying different project types in different geographic regions,” noted Wright. “Because ultimately, you can really only understand the delivery risk at the project level — to understand what unique risks each project faces and ensure that you're building other projects into your portfolio that don't have the same risks. So that you're not imbalanced.”

Alternative Approaches for Smaller Companies

While large-scale carbon credit purchases may be challenging for smaller organizations, alternative approaches to carbon credit procurement can offer more flexibility, more accessibility — and importantly, the ability to get started now.

Dr. Woydt suggested, for example, using a "money per tonne" approach to carbon credit accounting instead of the widely spread "tonne for tonne" approach supported by most net-zero frameworks. 

Alternatively, she said, separating portfolios into different emissions scopes can help companies kickstart their compensation activities. Having a separate portfolios for Scope 1+2 and scope 3 emissions can help create budget-friendly options while getting started to counterbalance residual emissions. Dr. Woydt noted too that a diverse portfolio approach allows smaller companies to build a mix of carbon project types that can shift as it grows. 

"It can even be just, 'I believe in biochar as a technology and I want to put some budget towards biochar to give me the best projects’ or finding projects that match your operation for your location and value chain,'" she said. “The point is to get started now.”

Navigating Potential Carbon Credit Shortages

Active market players remain concerned about potential shortages in carbon credits — particularly as more companies aim to retire credits in milestone years like 2025 and 2030. Berkeley National Laboratory’s Jennifer Holm noted, however, that while projections are challenging, the current investment in nature-based solutions is still very low. She said this suggests that there is significant room for growth in supply, while also underscoring the need for increased funding and development of carbon projects.

Wright agreed, adding that while there have been first movers in the space, "we haven't really seen that second wave of buyers in the market. That's stifling a lot of projects — both on the nature-based side as well as the engineered removal side — from being able to grow and start to build a pipeline to meet that bigger demand that we expect to see when a lot of these corporate commitments come due."

Balancing Carbon Credit Quality and Price

While new buyers often approach the market with the challenge of balancing credit quality with price considerations, Wright pointed out that there isn't necessarily a direct correlation in today's market. "There are certainly really good projects in every project type, and there are bad projects in every project type," she said, emphasizing the need for thorough due diligence at the project level.

Added Wright: "There is not yet one definition of quality in the market, and so it's been left to many of the different stakeholders in the market, buyers being the primary one, to figure out what quality means to them and be really clear on that when they're out in the market trying to procure credits."

For companies of all sizes, the lessons are clear: define your strategy, understand your risk appetite, diversify your portfolio, and above all, be transparent about your approach. As the market grows and evolves, these principles will help guide organizations towards more effective and impactful carbon credit investments.

Find out more on how CEEZER assesses carbon credit risk, here in our recent white paper.

Want to learn more about about CEEZER can help you build your carbon credit portfolio? Schedule a demo today!

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