Investors warn on carbon offsets

A climate-change focused group of investors managing assets worth $39 trillion said it’s advising its members that carbon offsets shouldn’t be the primary solution to greening their portfolios.

Companies can’t offset their way to net zero, and actual reductions in emissions will need to happen to tackle climate change, the Asia Investor Group on Climate Change said in a response to questions.

Carbon offsets — or reductions or removal of emissions to compensate for those elsewhere — have come under increased scrutiny in recent years over whether they are actually effective in combating climate change and due to a lack of common industry standards. Shell Plc recently renewed a controversial attempt to sell “carbon neutral” natural gas by purchasing credits to offset the environmental impact of the fossil fuel.

“Using offsets may be an easier option for purchasers, but they are not risk-free,” said the group, which counts BlackRock Inc., BNP Paribas Asset Management and JPMorgan Asset Management Inc. among its members. “Pursuing the use of poor-quality schemes, including those which have negative social and ecological impacts, potentially creates reputational risks.”

If offsets are used, investors should pursue long-term carbon removal where there are no technologically, and or financially viable alternatives to reduce emissions, the AIGCC said. Failure to cut emissions will increase energy transition risks for companies and economies, it said.

The UN-convened Net-Zero Asset Owner Alliance, a group of institutional investors that manages a combined $11 trillion, also said last month that it’s discouraging its members from using carbon removal initiatives to meet their emissions targets before 2030.