Benchmark prior transactions, bonds, loans or company profiles using over 300 credit metrics.

Comparables

AI transcripts & instant analysis, making earnings season easier than ever.

Earnings

Say goodbye to CTRL + F with our powerful search. Thousands of documents text searchable for any keyword or phrase.

Search

A full suite of ESG data and analysis. Built for your workflow

Spot undervalued credits and potential future restructurings with our purpose-built tools.

Distressed and Restructuring

We use AI to aggregate newsflow from 2,000 sources, and deliver it to your inbox quicker than anyone else.

News

Full Financial profiles with 3 statements, KPIs, segment splits & credit metrics. All traced to source documents.

Financials

New deal analysis and covenant comparison tools, understand key risks in seconds not days.

Covenants

We've successfully predicted more than 65 price sensitive events - before they happened.

Deal predictions

Track high yield deals from issuance through to maturity, with integrated legal, credit and ESG analysis.

High Yield Bonds

Shine a light on private markets with 9fin's news and legal analysis of syndicated loans

Leveraged Loans

21st century tech and expert analysis to help CLO teams make informed decisions faster.

Structured Credit 

Find information others can't see in one of the fastest growing corners of finance

Private Credit 

Oliver Wise

In the first section of 9fin‘ s two-part educational series on carbon offsets, we examine the credibility of carbon offsets traded on voluntary markets and provide insights into how to identify best practices for LevFin issuers

Companies are under increased pressure to achieve emissions targets, but in some sectors decarbonisation is not yet possible at the scale required. Carbon offsets can help companies to compensate for any unavoidable emissions by financing a reduction in emissions elsewhere (more on emissions targets in 9fin’s Educational).

Carbon offsets are priced per tonne of carbon dioxide reduced or removed from the atmosphere and are traded on voluntary or mandatory markets.

In voluntary markets, companies purchase offsets derived from projects, such as clean energy and reforestation projects, to achieve emissions reduction targets. Offsets traded in mandatory markets, also known as 'cap and trade' systems, function more like permits. In mandatory markets, a regulatory body places a cap on the greenhouse gases (GHG) that each corporation can emit each year, and if a company's emissions exceed the cap, it can purchase offsets from other companies whose emissions fall short of their cap.

In this 9fin educational, we focus on offsets traded on voluntary markets.

How do I know if a company’s offsets are credible?

There are four main offset standards used by external verifiers to assess the credibility of offsets:

Each standard has its own methodologies and criteria for assessing the validity of a project, as well as estimating the offsets generated by each project. However, in general, all offsets standards are designed to ensure:

Additionality: the offset project leads to reductions or removals that would not have occurred in the absence of the project

Robust estimation: the estimated emissions reductions/removals do not overestimate or underestimate the emissions the project will remove/avoid

Permanence: the reductions/removals are permanent

No negative impact on local communities: the offset project does not have a negative impact on the local community, for example, by displacing the local population

Recently, offsets approved by some of the largest external verifiers have been criticised by media outlets, such as Bloomberg and the Guardian. For this reason, it is important for investors to carry out their own assessment where possible.

There are two main ways that investors can go about this:

Assess the credibility of offsets, following guidance from organisations such as the Integrity Council for VCMs (ICVCM)

Assess the use of offsets, following guidance from organisations like the Voluntary Carbon Market Integrity (VCMI) initiative

Assessing credibility can be extremely hard as it’s difficult to determine the true carbon reduction achieved by an offset project. Complex statistical estimation is required to predict what would have happened in the absence of a project and there isn’t an industry-wide consensus on the best methods.

As such, guidance released by organisations such as the ICVCM is limited in its usefulness, and has been criticised for not providing clear enough instructions for companies and investors to follow. Their guidance can be found here.

The more useful method is to focus on how offsets are used and integrated into a company’s climate strategy. As such, investors can follow guidance from organisations like the VCMI.

The Voluntary Carbon Markets Integrity initiative

9fin spoke with Lydia Sheldrake, Director of Policy and Partnerships at Voluntary Carbon Markets Integrity (VCMI)initiative to gain greater insights. The VCMI is a non-profit organisation that works to promote best practice on the buy side of the voluntary carbon market. According to Lydia Sheldrake, “investors should be looking for use of high-quality carbon credits as part of robust climate transition plans, credible claims and full transparency”. 

The VCMI outline a number of key points in terms of good practice:

Climate transition plans: Investors should check the company has a credible climate transition plan. Credible plans should consist of: 
undefinedundefinedundefined

Credible claims: Investors should check that the company is buying offsets in addition to having achieved or being on track to achieve the interim targets set out in their climate transition plan. This means that offsets should only be purchased to cover some or all of its unabated emissions. When companies make carbon neutrality/net zero claims, investors should look for certifications, such as the PAS 2060, which attest to an organisation's true carbon neutral/net zero status. Alternatively, for companies that have not yet claimed to be net zero/carbon neutral, investors should check if a company’s targets have been verified by the SBTi (more info in our ESG Educational). Companies with SBTi targets commit to only use offsets to neutralise unavoidable emissions


Transparency: Companies should provide detailed information regarding the offsets they purchase. The information should be publicly reported and include:
undefinedundefinedundefinedundefinedundefined

Establishing a global carbon market that represents the true cost of carbon is considered by many to be one of the best strategies we have to address climate change. Currently, 23% of global emissions are represented under mandatory initiatives and The World Bank estimates that a carbon price of $50-100 per ton is required by 2030 to meet the goals of the Paris Agreement. 

In the voluntary market, price cannot be consistently relied upon as an indicator of quality. However, offsets that are priced very low likely lack credibility. Low-cost-low-quality offsets undermine climate goals by disincentivising companies to reduce their own emissions, an often more costly but more impactful option.

Are offsets purchased by LevFin companies aligned with VCMI guidelines?

9fin found that numerous LevFin companies have bought offsets in the past. The examples below are assessed against VCMi criteria.

Zenith Leasedrive: In 2021, Zenith Leasedrive claimed to achieve carbon neutrality by offsetting its scope 1 and 2 emissions. The offsets it purchased were derived from tree planting, biomass cookstove and solar power projects. 9fin found that Zenith Leasedrive’s offset purchases were partially aligned with good practice.

Climate transition plan: Zenith Leasedrive plans to set SBTi targets and has committed to reaching net zero by 2050. It is also undertaking initiatives to reduce its emissions. This is partially aligned with good practice as it has not yet set intermediate emissions reduction targets

Credible claims: It’s carbon neutrality claim has been certified. However, its emissions increased significantly between 2021 and 2022. This is not in line with good practice

Transparency: Zenith Leasedrive has provided information on the project type and host country of the purchased offsets. However, 9fin has not found information related to the credit vintage, project name and methodologies for the offsets purchased. This is partially in line with good practice

Starwood Property Trust (SPT): SPT claims to be carbon neutral through the purchase of offsets. 9fin found that SPT’s offset purchases were not aligned with good practice.

Climate transition plan: SPT has outlined some initiatives which will enable it to reduce emissions, however, it has not set emissions reduction targets and does not have a net zero target. This is not in line with good practice

Credible claims: SPT has not provided data for emissions over time, meaning it is not possible for 9fin to track its progress in reducing emissions. It is also unclear whether its carbon neutrality claim has been externally verified. 9fin cannot therefore determine whether its claims are in line with good practice

Transparency: SPT has provided no public information related to the number of offsets it purchased, the credit vintage and the type of project etc. This is not in line with good practice

Marks and Spencer: In 2021 Marks & Spencer claimed to achieve carbon neutrality by offsetting its emissions through the purchase of offsets generated in cookstove projects. 9fin found that M&S’s offset purchases were mostly aligned with good practice.

Climate transition plans: Marks & Spencer has SBTi verified near-term emissions targets and aims to achieve net zero by 2050 (not yet verified by the SBTi). The company has announced initiatives aimed at helping the company to decarbonise. This is in line with good practice

Credible claims: Its carbon neutrality claims has been certified and in 2021, it had reduced its emissions in line with its SBTi emissions reduction target. This in line with good practice

Transparency: 9fin found limited detail regarding the offsets M&S purchased in order to achieve carbon neutrality. This is not in line with good practice

Springer Nature: In 2022, Springer Nature claimed to achieve carbon neutrality by offsetting its scope 1, 2 and partial scope 3 emissions through the purchase of REDD offsets. 9fin found that Springer Nature’s offset purchases were mostly aligned with good practice.

Climate transition plans: Springer Nature has submitted near-term targets to the SBTi and commits to achieving net zero by 2040. The company has outlined initiatives aimed at helping it to decarbonise. This is partially aligned with good practice. Good practice would be to have robust near-term targets. This may change once its near-term targets have been verified by the SBTi

Credible claims: Its scope 1 and 2 emissions have decreased significantly since 2019. However, 9fin has not identified external verification for its carbon neutrality claim. This is partially aligned with good practice

Transparency: Springer Nature provides details on the number of offsets it purchases as well as the programme from which it purchased the offsets. On the programme website, details can be found regarding the project certification, host country, credit vintage etc. This is in line with good practice

Carbon markets part 1 — How to assess carbon offsets

Carbon offsets: A brief overview

Read all our public content for free

Recently Published

European LevFin Wrap — Pour one out for Stonegate

Taking the Credit — Beware the Ides of July

9Questions — Dan Matthews, SMBC — Sat at the BSL/PC crossroads

Excess Spread — Do bankers do it better? Turning round the Haus

What are you waiting for?

Cookies & Privacy