Climate change is the defining issue of our time, and we are at a defining moment. We face a direct existential threat.
According to the World Economic Forum’s 2022 Global Risks Report, climate change risks are now classified as worlds’ biggest threats.
The Urgency of Climate Change Risks
Failure to take climate action and extreme weather events top the list of threats for the next 5-10 years. These risks lead to additional environmental issues such as biodiversity loss, resource scarcity, and environmental degradation. In 2022, environmental risks dominated the top five global risks for the first time.
Financial Impact on Global Companies
Climate-related risks significantly impact a company’s revenues, costs, operations, and strategy. A 2019 report found that over 200 of the largest global companies faced nearly $1 trillion in climate impacts over five years.
Climate Change – An Investment Concern for SMEs
Climate change is not just an environmental issue but also a critical investment issue for small and medium-sized enterprises (SMEs). The SEC’s 2021 examination priorities reflect a growing focus on climate-related risks as investors increasingly consider these risks in their decisions. SMEs face new and growing risks such as natural hazards, technological risks, real estate loss, and rising energy and raw material costs due to climate change. Furthermore, concerns regarding costs for maintenance and infrastructure reconstruction must also be addressed.
Financial Risk Mitigation for SMEs
By proactively managing their environmental impact, SMEs can mitigate these risks and safeguard their financial stability.
Regulatory Compliance
Governments are increasingly implementing policies and regulations aimed at reducing GHG emissions, such as carbon taxes, emissions trading systems, and stringent reporting requirements. SMEs need to comply with these regulations to avoid penalties and remain competitive in their markets.
Investor Expectations
Increasingly investors are considering climate risks and prioritizing sustainability. SMEs that fail to address their environmental impact will find it harder to attract investment, while those that demonstrate robust environmental management practices are likely to gain traction.
Market Competitiveness
Millennials’ and Gen Zs’ attitudes and demand for environmentally friendly products and services is growing steadily. SMEs that want to appeal to these increasingly dominant demographics must commit to reducing their GHG emissions and developing sustainable products. These are tactics that can lead to increased market share and customer loyalty with these consumers.
Operational Efficiency
Monitoring and reducing GHG emissions can lead to increased energy efficiency and lower operational costs. By optimizing energy use and reducing waste, SMEs can achieve cost savings and improve their bottom line, which in turn also increases their appeal to potential investors.
Corporate Reputation
Companies that manage their environmental impacts proactively are seen as responsible and forward-thinking. This enhances their brand reputation, builds trust with internal and external stakeholders, and leads directly to better financial outcomes:
- Sales increase due to increased customer satisfaction and loyalty
- Employee retention increases in response to employees’ higher job satisfaction, leading to increases in operational efficiency, and savings on recruitment costs.
Businesses’ Perspective on Climate Change
Michael E. Porter and Forest L. Reinhardt from Harvard Business School emphasize that treating climate change as a business problem, rather than just a corporate social responsibility issue, is essential. Companies that fail to adapt will face severe consequences. By monitoring and reducing GHG emissions, businesses can increase energy efficiency, which lowers costs and enhances profitability.
Starting Sustainable Business Practices
In the context of managing climate-related risks and optimizing operational efficiency, it’s clear that integrating sustainable practices, such as utilizing carbon credits (more on this below) is vital for SMEs. According to Michael E. Porter and Forest L. Reinhardt from Harvard Business School: “Companies that persist in treating climate change solely as a corporate social responsibility issue, rather than a business problem, will risk the greatest consequences”.
Achieving Net-Zero: Key Steps
Unlocking the aforementioned benefits, reducing financial risks, meeting regulatory compliance, and meeting investor expectations all hinge on a company’s ability to, not only manage its carbon footprint, but also bring it to net-zero. This requires the company to:
- Have awareness for, and keep tabs on, its greenhouse gas (GHG) emissions.
- Create and enact a plan for reducing these emissions through improvements to operational efficiency, technology, and practices.
- For those GHGs that cannot be reduced or removed thanks to improved efficiencies and changed business practices, companies must engage in carbon emission trading, where they buy and sell carbon credits to account for whatever emissions remain.
But before we can consider these trades, it’s important to understand the global frameworks that have been developed and approved to help businesses do their greenhouse gas emission accounting correctly.
Introducing the GHG Protocol Standard for SMEs
The GHG Protocol Standard, published by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), is a crucial framework for SMEs aiming to manage and reduce their greenhouse gas emissions. It is the most comprehensive, policy-neutral evaluation tool for quantifying GHG. This globally recognized standard helps define, measure and report emissions across three scopes:
- Scope 1 – Direct emissions
- Scope 2 – Indirect emissions from purchased energy.
- Scope 3 – Other indirect emissions within the value chain.
The GHG Protocol Corporate Standard requires businesses to report their scope 1 and 2 emissions, whereas scope 3 is voluntary, however companies that report all three scopes stand to gain the most definitive and sustainable advantages. Let’s dive in and understand these three scopes a little better…
Scope 1: Direct Emissions
Scope 1 emissions are those directly produced by the company’s activities. These include:
- Stationary Combustion: Emissions from fuel used for heating and other stationary sources.
- Mobile Combustion: Emissions from company-owned vehicles.
- Fugitive Emissions: Greenhouse gas leaks from equipment like air conditioning units.
- Process Emissions: Emissions released during manufacturing and industrial processes.
Scope 2: Indirect Emissions-Owned
Scope 2 emissions are indirect emissions from the consumption of energy that the company purchases from utility providers, such as electricity.
Scope 3: Indirect Emissions-Not Owned
Scope 3 emissions are all other indirect emissions occurring in the company’s value chain. These emissions come from sources not owned or directly controlled by the company, such as:
- Purchased goods and services
- Financial investments
- Storage by other companies
- Transportation and distribution of manufactured goods
- Use and disposal of sold products
- Activities of the company’s franchisees
- Leasing of assets
- Business travel and staff commuting
- Waste management and processing
- Capital goods like machinery, vehicles, buildings, and offices
Aggregate and Report Emissions
Once the company is aware of its emissions across all three scopes, these should be aggregated into the company’s total emissions value, which may then be reported using standardized formats, such as the GHG Protocol reporting template.
Using the GHG Protocol Standard helps companies not only to create effective strategies for managing and reducing emissions, but also to achieve related business goals:
- Identifying GHG Reduction Opportunities: Find ways to lower emissions.
- Managing Emission Risks: Assess and handle risks related to GHG emissions.
- Public Reporting: Participate in voluntary programs for monitoring and reducing GHGs.
- Regulatory Compliance: Meet mandatory GHG emissions reporting requirements.
The GHG Protocol Standard can be viewed as the roadmap by which a company may align its sustainability efforts to global best practices. It’s a research backed pathway towards better environmental and business performance.
Financial metrics
While measuring a company’s environmental impact is a painstaking process, it’s ultimately an exercise in accounting. As can be expected, this accounting becomes more complex when a number of companies are working together to complete a project, since it becomes increasingly difficult and messy to figure out how to allocate the projects’ environmental impact among the participating companies. This is where financed emissions come into play.
Understanding Financed Emissions
Financed emissions involve aggregating GHG emissions at the portfolio level, linked to the underlying entities or projects. These emissions are allocated proportionally based on the financial stake in the underlying entity or project.
The Role of Carbon Credits
Once a company has a clear insight into its overall carbon footprint, it can start formulating a plan on how to reduce it. This typically includes steps towards optimizing energy consumption and reducing waste, however in most cases there’s a certain portion of the company’s environmental impact that can’t be “optimized” away. It’s precisely for handling the zero-ing out the carbon accounting of this remainder that Carbon Credits were invented.
Carbon credits are certificates denoting audited equivalents for the removal of one metric ton of carbon dioxide, or its equivalent in GHGs, from the atmosphere, and can be bought and sold on specialized markets.
Companies can purchase these credits to cover whatever emission deficit they have remaining after eliminating as much as their footprint as possible through process, energy and waste optimizations.
By effectively managing their GHG emissions and utilizing carbon credits, companies can reduce their environmental impact, comply with regulations, and meet investor expectations.
The Practicality Aspects of Carbon Accounting
In terms of practicality, the effort required to estimate GHG emissions/financed emissions at the group level is highly dependent on the level of accuracy desired – Tracking such emissions from the bottom up for each relationship can become impractical and exceed the estimated value of the entire effort. Approximation methods exist, but these are subject to critiquing over their accuracy and value.
Conclusion
Ultimately an organization’s commitment to becoming net-zero comes down to the degree to which every individual in the organization feels committed to this goal. The existing frameworks provide best practice guidelines for organizations’ for strategy, reporting, and implementations, but the degree to which execution is motivated by mere compliance or by deeply held beliefs are what will dictate the outcome. The overarching principle should be to focus on the forest – becoming net-zero, rather than the trees – overthinking the accounting.
Image Credit
Insetting program design starts with your supplier map. The carbon claim comes much later.
Consider a coffee procurement team that funds a farm intervention before checking its sourcing data. The supplier aggregates coffee lots from several regions. The buyer lacks farm-level traceability. Another purchaser expects to report the same outcome. A more attractive project brochure solves none of these problems.
If the distinction between a value-chain intervention and a purchased credit is still open, read CCC’s Insetting vs Offsetting guide before you set the brief.
Insetting program design begins with the purchasing relationship and works outward. You need to decide 1) where an intervention belongs, 2) what business problem it addresses, 3) who pays for it, 4) how results will be measured, and 5) what the evidence will let you say about them. This five-step playbook turns that sequence into a procurement plan.
Step 1: Insetting program design starts with supplier mapping
Start with the commodities that matter most to your Scope 3 inventory and sourcing continuity. Ask finance for spend by supplier, sustainability for the emissions baseline, and category managers for origin and volume records. Then identify which suppliers can trace material to a jurisdiction, sourcing region, producer group, or individual land-management unit.
The level of traceability affects what you can account for. Under the GHG Protocol Land Sector and Removals Standard, the spatial boundary for purchased land-based products depends on the traceability associated with each volume. Farm-specific factors or removals require physical traceability through an acceptable chain-of-custody model. A contract with a tier-one trader, by itself, does not establish a link to the farms behind its deliveries.[1]
Build a first-pass table with five columns: commodity and annual volume; supplier and origin; current traceability level; land-use and production risks; and the business owner who can change the purchasing terms. Mark missing data plainly. A blank cell is cheaper to fix before a program starts than after a claim is drafted.
If your company sets an SBTi Forest, Land and Agriculture target (FLAG), keep its land-related target boundary separate from energy and industry emissions. The current FLAG guidance also requires relevant companies to assess primary deforestation-linked commodities in their value chains.[2]
Step 2: Choose a commodity and jurisdiction for a pilot
Select one supply corridor where the sourcing connection can be established and procurement has a reason to stay. A useful pilot has repeat purchases, suppliers willing to share records, an intervention matched to a diagnosed problem, and a defined plan to measure the result. Carbon potential alone is a poor selection rule if the supplier cannot deliver the crop your business needs.
Compare candidate regions on land-use risk, supplier concentration, local rights and tenure, the availability of baseline data, and exposure to drought, erosion, or forest conversion. Check the relevant legal requirements separately. A nature project does not satisfy a due-diligence obligation merely because it has a carbon method attached.
Consider a coffee buyer sourcing from two districts. In the first, producer-group records identify the farms, while recent dry seasons have increased rejected green coffee lots. In the second, deliveries pass through several intermediaries and farm origins are unknown. Pilot shade management in the first district, with local agronomic advice and quality checks built into the plan. The buyer can trace purchases there and test the intervention against a defined sourcing problem.
Use a short decision memo to record why the selected corridor beats the alternatives, what remains uncertain, and what would stop the pilot. That memo is the first control against a project drifting toward whatever happens to photograph well.
Step 3: Design the supplier engagement and commercial model
The intervention needs an owner on each side of the contract. Decide who supplies planting material or training, who maintains the practice, who bears the cost if a harvest disappoints, and how long the buyer expects to purchase from participating suppliers. Where smallholders participate, budget cash flow and technical support for practices that offer a later return.
Put these terms in a supplier agreement or pilot addendum. It should cover eligible farms and volumes, consent to data collection, access for monitoring, any land or carbon rights that matter, benefit sharing, and what happens if the purchasing relationship ends. Ask local counsel and producer representatives to review the arrangement. The Accountability Framework is a useful reference for supply-chain work involving forests, ecosystems, and human rights.[3]
Avoid assigning an automatic carbon benefit to the buyer. The contract should say which party has the right to report each outcome, how overlapping claims will be checked, and how any issued credits will be handled. A reduction reported in a buyer’s inventory cannot simply be sold for someone else’s offset claim without an accounting review. SBTi FLAG guidance excludes purchased credits used as offsets from near-term FLAG target achievement.[2]
Set commercial measures beside environmental ones: delivered volume, rejection rate, supplier retention, and procurement cost. They tell you whether the program works as a supply-chain investment, even if carbon accounting takes longer to resolve.
Step 4: Build monitoring, reporting, and verification before rollout
Agree on the baseline and data flow before paying for a full rollout. Identify the land units or sourcing regions in scope, the practices that change, the records suppliers already keep, and the additional measurements the program requires. Decide which data can come from field visits, transaction records, or remote sensing, and who checks each source.
For carbon, separate three questions. Did the practice happen? Did emissions or removals change under an applicable method? Can the buyer attribute a defensible share to its purchased goods without double counting? The GHG Protocol’s 2026 guidance includes dedicated chapters on spatial boundaries, data and methods, evaluating actions, credited outcomes, and assurance.[1] These are distinct jobs. A photograph of a planted tree answers only part of the first.
CCC’s MRV and Additionality article explains the separate evidence questions a project reviewer will ask.
Create an evidence file for every reporting period: dated supplier and farm records, purchase volumes, methods and emission factors, uncertainty, quality checks, and changes from the baseline. Specify who can challenge the data and how corrections are recorded. If a project also seeks credit certification, keep project accounting and corporate inventory accounting separate. The GHG Protocol says its land standard focuses on entity-level inventories and does not set the rules for credit certification.[4]
Start with the minimum viable measurement design that can survive review. Add complexity when the pilot tells you which data actually changes a decision.
Step 5: Decide what can be reported and claimed
Insetting program design needs reporting rules before the marketing copy. Procurement, sustainability, finance, and legal should agree on four distinct outputs: operational performance; observed land or nature outcomes; inventory effects, if the accounting criteria are met; and any separately issued credits. One dashboard can display them, but they should not share a single unqualified headline.
SBTi FLAG guidance allows certain land-based removals within a company’s operations or supply chain to contribute to FLAG pathways, subject to criteria including permanence, traceability, data quality, and allocation. It does not allow purchased offsets to meet near-term FLAG targets.[2] Eligibility therefore depends on evidence and the applicable target rules, not on calling an activity “insetting.”
Draft a claims register. For each proposed sentence, record the period, boundary, data owner, calculation method, reviewer, and whether the result is measured, estimated, or still a goal. If the evidence supports only “we funded a pilot with 200 farms,” say that. Do not turn a funding fact into a verified emissions reduction.
What good looks like by year three
Treat year three as a review point, not a promised payback date. A mature pilot should have mapped participating supply volumes, a stable supplier agreement, a repeatable data collection process, and a comparison of commercial and environmental results against the baseline. It should also have a documented answer for outcomes that cannot be included in the buyer’s inventory.
Scale only where the pilot improves a sourcing decision and the evidence can follow the product. If neither condition holds, redesign the intervention or change the corridor. A disciplined program can conclude that a site is unsuitable. That is useful procurement intelligence.
Discuss your insetting program with CCC
Carbon Credit Capital designs nature-based supply chain investments around sourcing needs and measurable sustainability outcomes. Schedule a consultation with our carbon and sustainability experts to map your tier-one supplier network, FLAG exposure, and first pilot decision.
Sources
[1] GHG Protocol, Land Sector and Removals Standard, version 1.1, and companion Guidance, June 2026: https://ghgprotocol.org/land-sector-and-removals-standard ; https://ghgprotocol.org/land-sector-and-removals-guidance
[2] Science Based Targets initiative, Forest, Land and Agriculture Science-Based Target-Setting Guidance, version 1.2, March 2026, especially pp. 16–17, 37, and 41: https://sciencebasedtargets.org/resources/files/SBTiFLAGGuidance.pdf
[3] Accountability Framework initiative, Accountability Framework and guidance for companies: https://accountability-framework.org/
[4] GHG Protocol, Frequently Asked Questions: Land Sector and Removals Standard, questions 10 and 18: https://ghgprotocol.org/blog/frequently-asked-questions-land-sector-and-removals-lsr-standard
Nature-based carbon investments deserve consideration when they address a specific business dependency and produce outcomes you can measure. Imagine Moonbucks, a global coffee roaster planning next season’s espresso blend. It is considering natural Grade 4 coffee from Jimma, in southwestern Oromia, Ethiopia. Its sourcing decisions affect the roasting schedule and the cash tied up in coffee purchases. Moonbucks needs to understand which measures could protect that supply, what they would cost and how it would judge the results.
1. Define the sourcing problem before choosing a project
Moonbucks needs a dependable component for its espresso blend. Its procurement team wants continuity of volume and an agreed cup profile. Replacing a shipment at short notice could require new sample approval and changes to the blend, and given the schedules for cultivation, processing, and freight delivery, is practically impossible. Moonbucks needs to get this right, and its initial concern is inconsistent deliveries. It commissions an assessment of the supplying farms and post-harvest chain. The questions cover land condition, harvest availability and whether drying or storage problems are affecting saleable lots.
This distinction changes the investment brief. A tree-planting proposal cannot be assumed to fix drying problems. Better storage cannot restore eroded land. The team must establish which problem exists before selecting the response.
CCC’s guide to finding nature-based solutions in your supply chain explains where to look. Here, the next task is to turn a broad concern into a testable proposal.
2. Develop nature-based carbon investments around the actual supply chain
The assessment would trace Moonbucks’ purchases back through the exporter and supplying producer groups. Which farms supply the contracted lots? Who controls land-management decisions? How long does the buyer expect to maintain the purchasing relationship?
Furthermore, Jimma natural Grade 4 cannot be treated as interchangeable with every Ethiopian coffee. Moonbucks would need to test any substitute against its own blend and quality requirements.
Suppose Moonbucks’ assessment identifies an opportunity to maintain shade trees and restore vegetation along exposed streambanks. The IPCC describes agroforestry as a way to store carbon in vegetation and soil, with potential benefits for erosion control and water quality.1 Moonbucks would need local advice on species, growing conditions and maintenance before deciding how these measures fit its sourcing plan.
The proposal now has a defined sourcing connection and a candidate intervention. The next steps are to test its effect on production, assess carbon eligibility and build the financial case.
3. Compare the proposal with other ways to protect supply
WBCSD’s Nature-based Solutions Blueprint recommends comparing nature-based options with other responses across their benefits and costs.2 For Moonbucks, that means evaluating the landscape proposal alongside drying improvements, storage controls and alternative sourcing arrangements.
The product’s natural-process designation matters. Moonbucks should examine the drying and dry-milling chain alongside land conditions. Its team would check storage practices, contamination risks and incoming-lot quality to see whether problems arise before or after the coffee leaves the farms.
The revised proposal might combine land stewardship with separate post-harvest controls. Each component needs its own purpose and budget. A sustainability label should not obscure which activity is expected to solve which problem.
The project develops as the evidence improves. Its scope should follow the diagnosis rather than preserve the first idea unchanged.
4. Establish what the carbon outcome could count toward
Moonbucks’ sustainability team now tests the proposed carbon case separately from the sourcing case. Is the objective a measurable change in Moonbucks’ value-chain emissions, verified credits for separate voluntary use, or distinct outcomes under carefully defined arrangements?
Scope 3 covers value-chain emissions. A purchasing relationship alone does not prove that a farm intervention can be included in Moonbucks’ inventory. The team needs an applicable accounting method, defensible boundaries and evidence supporting attribution.
SBTi’s FLAG Guidance (forest, land and agriculture), version 1.2, says purchased credits used as offsets cannot meet near-term FLAG or energy and industry targets. Eligible land-based removals are subject to accounting requirements.3 Moonbucks needs to test its proposal against those rules before including an outcome in its targets.
For Moonbucks’ Jimma proposal, maintaining existing trees and establishing new vegetation could involve different carbon questions. Specialists must examine the baseline and additionality, meaning what changes because the project proceeds. They must also assess measurement and the risk that stored carbon is lost. CCC’s MRV and additionality article introduces those tests.
Until that work is complete, Moonbucks should not budget an assumed Scope 3 reduction or credit-sale receipt. Direct emissions reductions remain the priority.
5. Build a financial case that survives weaker assumptions
Moonbucks’ finance team would now build a multi-year budget. UNEP’s State of Finance for Nature 2023 compares current finance with the investment needed to meet climate, biodiversity and land-restoration goals.4 The company would cost its proposed activities, farmer participation and ongoing monitoring. Verification, where required, is a separate expense. Maintenance and responsibility for replacing failed plantings must remain visible after the initial establishment budget ends.
Operational benefits need equally careful treatment. If fewer rejected lots reduce emergency purchasing, count that saving once. Do not add “supply resilience” as another financial benefit when it represents the same avoided cost.
Moonbucks should compare a base case with slower benefits, higher implementation costs and no carbon revenue. It should also distinguish production outcomes from quality and shipment outcomes. A single good harvest would not prove that the landscape intervention caused better delivery performance.
A project can remain worth funding even when its carbon case needs more work. That decision must rest on the operational evidence and the company’s objectives, without unsupported environmental claims.
6. Fund a pilot with a clear expansion decision
Moonbucks’ first approval would fund a bounded pilot, rather than commit the entire sourcing program. Before spending, Moonbucks would agree on participating farms, responsibilities and the evidence needed at review.
Its scorecard could track farmer participation, implementation costs and plant survival, alongside accepted coffee volumes and lot-quality results. Carbon measurements would follow the selected method. Farm-level traceability must connect the intervention to the actual sourcing relationship.
Suppose Moonbucks’ review later finds that storage changes explain most quality improvements, while the land measures need longer observation. Those findings would shape the next decision: expand the proven component, adjust the landscape work or pause further spending. They would not justify crediting all improvements to tree planting.
This gives nature-based carbon investments a practical place in a multi-year strategy. Funding increases as the evidence supports it, and the project can change direction before a larger commitment.
Discuss a sourcing opportunity with CCC
Carbon Credit Capital’s nature-based supply-chain investment service uses its Dual-Value Model to examine supply-chain economics alongside potential sustainability outcomes.
Schedule a consultation to discuss your sourcing exposure and the questions to resolve before allocating capital.
Sources
- Intergovernmental Panel on Climate Change (IPCC), Climate Change 2022: Mitigation of Climate Change, Chapter 7, Agriculture, Forestry and Other Land Uses, section 7.4.3.3 (Agroforestry).
- World Business Council for Sustainable Development (WBCSD), Nature-based Solutions Blueprint, 5 June 2024.
- Science Based Targets initiative (SBTi), Forest, Land and Agriculture Science-Based Target-Setting Guidance, version 1.2, March 2026, section 3.1.4, pp. 37–38.
- United Nations Environment Programme (UNEP), State of Finance for Nature 2023, 2023.