As the climate crisis intensifies, companies must urgently decarbonise their value chain operations to comply with the scientific demands of the 1.5°C target established by the Paris Agreement. In parallel, while prioritising their own decarbonisation trajectories, companies should also fund high-quality climate action beyond their value chains as a means of taking responsibility for their unabated emissions.
Traditionally, companies have purchased – and retired – carbon credits on the voluntary carbon market in the form of “offsetting” or “compensation” claims, whereby they often present themselves, their services or their products as being “carbon neutral”. Such claims give the misleading impression that carbon credits, usually far removed from a company’s value chain, can reliably neutralise or counterbalance the climate impact of value chain actions and have come under increased scrutiny in recent years.
The examination of such claims has revealed a need for more responsible and accurate communication from companies about climate contributions outside of their value chains. As a result, there has been a push for companies and other relevant actors to move away from the legally – and reputationally – risky compensation approach to the “beyond value chain mitigation” (BVCM) model.
In this context, “climate impact funds” – broadly defined as initiatives or platforms that channel capital towards various climate or environmental projects and organisations – have received more attention as they align well with the BVCM model. This briefing explores the landscape of “climate impact funds” by providing an informative assessment of how a small sample of select funds operate. The purpose is to provide stakeholders with a clearer understanding of the climate impact funds landscape in order to facilitate more informed and impactful choices when it comes to beyond value chain mitigation.
Our research finds that climate impact funds support varying mitigation actions, with most funds conducting their own due diligence and encouraging companies to adopt a BVCM approach without misleading compensation claims. Where it is lacking, climate impact funds should establish independent advisory boards and provide greater clarity on the types of claims that contributing companies can, and cannot, make. Moreover, there is a need for clearer BVCM metrics. For companies, BVCM actions should be viewed as a responsibility rather than as philanthropy.
Recommendations are presented to both climate impact funds, and companies navigating the climate impact funds landscape. These outline steps to add credibility, transparency and accountability to the BVCM model and its actors.
