Nearly two thirds (63%) of all sustainability targets set by large businesses in the UK will be achieved by the purchase of carbon credits, with companies planning to spend on average £20 million to do so, according to new research by global risk management and insurance broker, Gallagher.
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  • Study of sustainability leads at large UK businesses highlights widespread and growing use of carbon credits in sustainability planning.
  • Nine in ten large UK businesses have already purchased carbon credits, spending on average £2 million; nearly all businesses plan to buy more, planning to spend an average of £20 million.
  • One firm surveyed plans to spend £1.2 billion on carbon credits to reach net zero goals.
  • A quarter of businesses do not currently have a back-up plan to reach their goals should their carbon credits fail.
  • Only half (51 per cent) of businesses have taken out insurance despite the substantial funds invested and the significant risk of non-delivery.

The multi-sector study of over 100 sustainability leads at UK businesses with over 250 employees found that 88 per cent have already bought carbon credits to achieve their sustainability targets, with an average spend of £2 million each; 96 per cent say they will buy more, with one business planning to spend £1.2 billion on carbon credits to reach their goals.

Carbon credits – permits that allow the owner to emit one tonne of carbon dioxide, or an equivalent amount of another greenhouse gas – are becoming an increasingly popular tool in the fight against climate change. However, as highlighted by Gallagher’s new research, they are not without risk and are currently underinsured across the market, putting at risk billions of pounds of investment and the validity of scores of net zero goals.

Specifically, the study found:

  • more than a quarter (27%) of large UK businesses do not have a back-up plan in case their credits fail.
  • barely half (51%) reported that their investments are covered by carbon credit insurance.
  • more than four in ten (44%) cited reliability concerns as a key barrier to greater investment in carbon credits.

Together, these risks could leave businesses both suddenly unable to reach their sustainability targets and out of pocket. Regardless, 85% of ESG directors say that credits are a reliable way to meet their sustainability targets and nine in ten (91%) believe carbon credits will play an important role in helping the UK to reach its 2050 net zero target. There is also little evidence of buyer’s remorse among sustainability leads, with just 2% of those who have bought credits saying that they will not do so again.

While projected levels of spending on carbon credits is high, barriers to greater investment remain, with six in ten of the large UK businesses considering the high cost of credits (61%) to be prohibitive, while nearly 9 in 10 (88%) believe that the UK’s carbon credits market needs to be better regulated.

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.

“Whilst carbon credits are increasingly seen as a crucial tool in the world’s bid to limit global warming, the voluntary market is unregulated and complex, exposing clients to challenging loss scenarios. 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 back-up 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.

“While carbon credits may be a crucial tool as part of the transition to net zero, businesses cannot become complacent about their reliability. Firms can help protect themselves by taking out carbon credit insurance, which insulates them should the credits they purchase be of lower quality than expected or indeed fail.”

In June, Gallagher launched a new carbon insurance solutions service to help mitigate against carbon credit risks including non-delivery, reversal events or the risk of credit invalidation.

According to the Gallagher research, the most popular types of carbon credits that have been bought by large UK businesses are renewable energy credits (74% said they have purchased), energy efficiency credits (68%), waste management credits (54%), fuel-switching credits (45%) and enhanced weathering / carbon mineralisation credits (35%). This is also true of the future, with UK businesses most likely to buy the following: renewable energy credits (68%), energy efficiency credits (58%), waste management credits (56%), fuel switching credits (49%) and enhanced weathering / carbon mineralisation credits (40%).

Carbon removal credits are also expected to see an increase in uptake in the coming years as firms move away from offsetting. The most popular forms of carbon removal credits at present are enhanced weathering / carbon mineralisation (30%), afforestation/reforestation (26%), marine carbon dioxide removal (25%), direct air capture (23%) and biochar (16%). Yet in the future these figures are expected to rise, with the most popular removal credits being enhanced weathering / carbon mineralisation (40%), afforestation/reforestation (34%), direct air capture (33%), biochar (32%) and marine carbon dioxide removal (28%).