Almost two-thirds of net-zero goals set by large UK firms will be achieved by the purchase of carbon credits, new research by insurance broker Gallagher has uncovered.
The multi-sector study of over 100 sustainability leads at businesses with over 250 employees found that 88% have already bought carbon credits, with an average spend of £2m each.
It also looks like demand is set to increase after 96% said they would buy more, spending £20m on average, with one business set to spend £1.2bn to reach their goals.
However, the researchers warned that carbon credits are underinsured across the market, which is risking billions of pounds of investment and the validity of scores of net-zero goals.
Indeed, 27% of businesses do not have a back-up plan in case their credits fail, while just 51% reported that their investments are covered by carbon credit insurance.
“The voluntary market is unregulated and complex, exposing clients to challenging loss scenarios,” said James Bosley, head of climate strategy, carbon insurance, and parametric solutions at Gallagher.
“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.”
Despite these risks, 85% of ESG directors surveyed said that credits are a reliable way to meet their sustainability targets, and 91% believe they 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.
The most popular carbon credits that have been bought by large UK businesses are renewable energy credits, energy efficiency credits, and waste management credits, while demand for carbon removal credits is expected to increase in the coming years.
However, barriers to investment remain, with 61% of businesses considering the high cost of credits to be prohibitive, while 88% believe that the UK market needs to be better regulated.
“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,” Bosley continued.
“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.”
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