Carbon credit portfolios balance emerging markets

By: Nathan Truitt, Executive Vice President, [American Forest Foundation](https://www.forestfoundation.org/)

As the climate crisis intensifies, businesses are confronted with various choices in carbon credit purchases, often presented as binary options. However, scientific literature on climate action emphasises the necessity of employing all available strategies to mitigate climate change effectively. With COP30 on the horizon, companies have an opportunity to transcend these false dichotomies and adopt a comprehensive climate action strategy that maximises impact across diverse solutions.

A practical approach to this is the utilisation of carbon credit portfolios, which combine a variety of credits to help companies achieve their net zero objectives. These portfolios, much like financial ones, should evolve in response to advancements in climate science and accounting. While perfect knowledge of an ideal portfolio composition may be unattainable, uncertainty should not hinder action. If financial investors ceased activity due to uncertainty, the global economy would stall.

To make carbon credit portfolios effective, it is crucial to use the best available information today and be prepared to adjust strategies over time. Here are some guidelines for constructing a science-based carbon credit portfolio that aligns with corporate climate goals.

### Balancing Reductions and Removals

The balance between emissions reductions and carbon removals is essential. Emissions reductions should be prioritised, addressing issues like deforestation and methane emissions as immediate actions. Concurrently, it is necessary to scale up carbon removal capabilities to meet IPCC-aligned pathways, which require significant increases in removal activities by 2030 and 2050. Companies should craft portfolios with a primary focus on reductions, gradually increasing the share of removals over time.

### Durability Considerations

Carbon credits vary in durability, presenting another challenge for buyers. Immediate climate action requires scalable solutions, though these may have durability concerns. Meanwhile, highly durable mitigations are still developing. Initially, portfolios should focus on scalable solutions, with a growing inclusion of durable credits. It is important not to categorise activities strictly as high or low durability but to remain open to evolving scientific and policy insights.

### Nature versus Technology

The debate between nature-based and tech-based solutions is largely unproductive. The focus should be on whether the mitigation efforts effectively achieve their intended outcomes, regardless of their basis. Successful portfolios will naturally balance both approaches without the need for excessive focus on this distinction.

### Managing and Communicating Portfolios

Effective management of carbon credit portfolios involves transparency about the balance between reductions and removals, regular updates in line with scientific and market changes, and metrics for evaluating intervention effectiveness. Flexibility and openness to change, akin to financial markets, are vital for success.

### Collaboration and Expert Guidance

Not all companies possess in-house expertise for managing carbon portfolios. Emerging initiatives, such as the [Permanence Trust](https://forestfoundation.sharepoint.com/sites/marcomexternal/Shared%20Documents/Media%20Relations/Op-eds%20and%20LTEs/forestfoundation.org/permanence-trust), offer third-party management of mitigation liabilities. Buyers should focus on establishing sensible principles, communicating transparently, and taking decisive action. Utilising external expertise can expedite progress, much like financial portfolio management.

Adopting a portfolio approach to corporate mitigation strategies is crucial for achieving net zero goals. Companies should act collaboratively, leveraging expert knowledge in emerging science, accounting, and policy, to maximise climate impact.