How can you manage potential reputational risks when purchasing an emission reductions portfolio?

Managing reputational risk on a carbon reduction project requires extensive experience and expertise in project development, delivery and measurement – something frequently overlooked by advisors and Corporates themselves when selecting a new portfolio of projects to support.

Purchasing a carbon credit through an approved standard such as those recognised by ICROA means an assurance level that the carbon reduction is real and verified, and that where applicable your investment supports the delivery of measurable, positive impacts on the ground. However, project work in developing countries is, by its nature, a complex and drawn out process, often involving multiple counterparties across national and local government, communities and NGOs as well as private corporations.   It is essential that your advisor or project supplier has an Enhanced Due Diligence programme in place to identify, screen and exclude any projects where the involvement or actions of a counterparty could damage your brand and reputation – whether those actions are specifically related to the project in question or not.

Such Enhanced Due Diligence is not always routinely practiced, but is, in our view a vital and standard part of selecting project portfolios for clients.

Even where such a process is in place, it is advisable to choose a partner who has extensive on the ground experience, as well as portfolio management experience – as many of the best intentioned projects still require experienced management support to avoid common pitfalls and to ensure that they remain viable over the long term.

As an award winning project developer, and the trusted carbon partner for some of the World’s leading companies and brands, ClimateCare has unique expertise in this area, built over more than two decades.

Our team has extensive, first-hand knowledge of project development, management and carbon asset development. In addition, we have developed best practice approaches for the industry, initiating the development of the voluntary market body, ICROA (the International Carbon Reduction and Offsetting Association).

ClimateCare formed part of the cornerstone of J.P. Morgan’s Environmental Markets division – and that time helped us refine our own Enhanced Due Diligence process – as well as counterparty risk, allowing us to identify, anticipate and focus on mitigation of end to end risks, including those related to the project on the ground, credit delivery and issuance, specific country concerns, currency management, market outlook and double counting or claiming of credits.

Our sector leading project screening process is tailored to the specific project and conducted by experienced members of staff.  We only use credits generated from the highest quality standards available, this ensures that the credits we include in a client’s portfolio are verified and additional.  We then use our proprietary due diligence procedures to evaluate individual projects, taking into account a wide range of potential risks and impacts.

As well as a review of the full carbon and independent audit paperwork, we also review other public and private documentation through Derogatory Information Assessments, which cover both the specific project and wider activities of key counterparties involved. These processes have been developed further through our application of Investment Bank grade KYC (Know Your Customer) procedures for contracting project partners.

This whole process means we know as much as reasonably and appropriately possible about the emission reductions that we provide our clients, and crucially, the projects and associated counterparties, reducing risk and ensuring full accountability.

Whilst identifying and excluding such issues from your emission reduction portfolio might sound complicated, thankfully, it is something that your portfolio advisors should be doing as a standard part of the service they offer you. However, in an effort to reduce costs, or present a lower face value ‘price per tonne’, many advisors omit these checks from their programmes. The provision of such service has always been and remains one of the most important elements of your programme, and is something that the team at ClimateCare will always include as standard for every client.

We are delighted to talk to Corporates about how our enhanced risk management process can help protect their brand and reputation, and to offer advice for any business concerned about the portfolio of projects they currently support.

Contact the Client Services team on +44(0)1865 591000.

ELIZABETH WILLIAMS

Lizzy is an expert in the carbon markets. She helps ClimateCare partners procure carbon credits quickly, efficiently and cost effectively through projects which match their requirements and pass our strict assessment criteria.