Carbon credits: a precision tool for the transition

380 gigatons, or about nine years of current emissions: that is the maximum amount of CO2 the world can emit if we are to limit global warming to 1.5°C, says the Global Carbon Project. That is where voluntary carbon credits (VCCs) come in. Demand for these certificates sold based on the quantity of greenhouse gas emissions reduced, avoided, or removed from the air is set to rise by a factor of 15 by 2030, says the Taskforce on Scaling Voluntary Carbon Markets. Could VCCs help us stay within the bounds of our global carbon budget? 

• By 2019, 32% of the companies listed on the world’s largest global exchanges reported they were purchasing credits, and by 2021, the VCC market was valued at around US$2,000 million. Yet VCCs should act solely as a complement to a GHG emission reduction strategy and compensate only residual emissions. For BNP Paribas, this means proposing VCCs exclusively to customers with robust climate strategies.
• VCCs are “an esoteric commodity,” writes Climate Focus, and their future hangs largely on “increased clarity on what makes a carbon credit a good quality credit”, says S&P Global. How can we tell high-quality VCCs from the rest? First, they must be generated by a project that creates value with social co-benefits, or at least has no negative impact. Second, they must not lead to a degradation of biodiversity; finally, and most importantly, they must lead to a verified, permanent reduction of GHG emissions or contribute to the protection, enhancement, or replenishing of natural carbon sinks, which are key to achieving the global net zero target.
• Another major hurdle to the rise of VCCs: the variety of accounting methods. Robust, transparent accounting methodologies are needed, that can, inter alia, ensure that VCCs have not been counted or claimed twice. Because carbon accounting is a complex, high-precision endeavor, BNP Paribas has chosen, along with eight other global financial institutions, to support Carbonplace, a new VCC marketplace that connects buyers and sellers through their banks and removes many of the obstacles we mentioned. On Carbonplace, buyers and sellers can share information in real-time, transactions are traceable, and digital wallets allow VCC owners to prove ownership, limiting the risks of double counting. Simple, transparent, secure transfer of certified VCCs is exactly what is needed to make them a power tool of the green transition.

New frontiers 

The Tokyo Metropolitan Government has issued its sixth annual green bond, with an aim to finance solar energy installations, greener fuel for public transportation, and new wastewater recycling facilities.

• Pioneering a new trend that is seeing local governments issue green bonds to reach their sustainability goals, Tokyo demonstrates the leading role cities can play in mitigation and adaptation and is inspiring other municipalities in Japan to follow its lead. “We were delighted to be included as a Joint Lead Manager on the 30-year tranche and the only European bank in the offering”, says Tatsuro Uesugi, Head Primary Markets and Syndicate Japan at BNP Paribas.

Explorers

Just as global investments in renewable energy reached an all-time high in 2021, they dropped by 35% in Africa, even as demand for electricity on the continent is on the rise.

• That is where the AFRIGREEN Fund comes in, with a goal to finance photovoltaic energy projects in Central and West Africa through direct project lending and asset-based debt facilities. “BNP Paribas Impact Investing team is glad to be one of the first private sector actors to participate in AFRIGREEN, to fill the funding gap of long-term debt financing for solar projects and unlock the potential of these projects,” says Astrid Behaghel.

Milestones

"A coherent and consistent top-down approach to ESG”: the eminent British publication IFR has named BNP Paribas Bank for Sustainability, rewarding “a pioneering approach to biodiversity and social issues”.

• IFR notably praises BNP Paribas’s ability to carefully coordinate an ecosystem across the bank, with “the sustainable capital markets team work[ing] closely with ESG financing advisory”, and both groups working “with a new 250-strong low-carbon transition group that supports large corporate clients with targeted sustainability advice and an internal group called the Network of Experts in Sustainability Transitions”. BNP Paribas was also named Bank of the Year, for “a clear strategic plan” executed in spite of “volatile markets, a global pandemic and geopolitical instability”, and “built on years of hard work and good judgment”.
• “Our strategy is threefold: align our portfolio with our net-zero commitment; measure and pilot our carbon-related risks; and broaden and deepen our client relationships to support them as they make their low-carbon transition,” noted Jean-Laurent Bonnafé, CEO of BNP Paribas.

From the observation post 

Looking for compelling reads on sustainability? We’ve got you covered. This month, Jérémy NEYROU, Sustainable Innovation Officer at BNP Paribas CIB, tells us of his four must-read books.