Carbon credits vs. donations vs. purchasing impact: What’s the difference?

 People are becoming increasingly aware of the need for climate action and social responsibility. As a result, customers now expect brands to take a more active role in making the world a better place. In fact, studies have found 88% of consumers  believe companies and brands have a responsibility to take care of the planet and its people.

To preserve this planet for future generations, many businesses strive to reduce their emissions – or offset them by buying carbon credits. Companies can also prove that they’re socially and environmentally responsible by making charitable donations that support worthy causes. 

But what is a carbon credit? Do charitable donations really make a difference? And is there a better way for businesses to be more sustainable? Today we’ll be exploring all this and more to see how your company can make a change. 

What is a carbon credit?

A carbon credit is a permit allowing the owner to emit a certain amount of carbon dioxide or other greenhouse gasses. Each credit represents one tonne of CO2 removed from the atmosphere, or one tonne of CO2 emission that’s avoided. 

The market for carbon is currently split into a mandatory market – which exists in Europe and some other regions – and a global, voluntary market. 

The mandatory carbon market

The mandatory market is characterized by its ‘cap-and-trade’ program, which is designed to limit – or ‘cap’ – a company’s emissions. The government selects the industries that take part in the mandatory cap-and-trade program and assigns them ‘a cap’, a right to emit a specific amount of CO2 into the atmosphere. If a company exceeds its cap, it risks penalties or fines. To avoid this, companies can purchase carbon credits from other companies to balance the difference. This gives private companies a strong incentive to limit their emissions. Not only can they save money by staying under the cap, they can make money by selling excess credits. 

Cap-and-trade programs and carbon credits are somewhat controversial. Some say they offer incentive for companies to cut emissions and invest in cleaner technologies. Others, however, say the caps set by governments are too generous, and may therefore slow the transition to cleaner energy. In addition to this, if buying carbon credits or paying fines is cheaper than moving away from polluting industrial processes – as is the case within many industries – it may not be an incentive at all. 

The voluntary carbon market

Outside the mandatory carbon market, the voluntary carbon market exists to enable companies to make credible voluntary commitments (going carbon neutral or becoming Net Zero). If a company cannot achieve its objectives by reducing or eliminating carbon emissions associated with the production of goods and services, they can buy these carbon credits to meet their targets. 

Almost any project that reduces, prevents, or captures emissions can create a carbon credit. They’re usually created by agricultural and forestry practices, as well as clean cookstoves. For example, a reforestation project can work with a developer to register the project under a voluntary carbon mechanism. If successful, the project can start generating so-called Voluntary Carbon Units or VCUs, which represent a carbon credit in the voluntary market. These VCUs are often certified by incumbent agencies like Verra, Gold Standard, or Plan Vivo, although there is quite some innovation in the space and new VCU issuing agencies like OxCarbon are emerging. They can later sell those carbon credits – representing historically absorbed carbon – to another company through an intermediary.

Business donations to charity

In business, donations to charity can take a variety of forms. This includes a gift of money, property & equipment, or even time, as is the case with volunteer work. Businesses can choose from many different causes, allowing them to find charities that best align with their values. 

Charitable donations are an easy way to support the causes that matter most to your business – and your customers. They’re tax deductible, and charities are somewhat transparent about their finances and impact, typically through yearly reports. However, it can be difficult to verify and quantify the positive impact of your donations. You’ll also need to screen and verify charities to ensure they’re legitimate operations and not a scam. 

One drawback of donating to charity is that much of the money can often go to overhead costs rather than to the actual cause. 

The Handprint difference

Handprint allows businesses to buy positive impact from impact partners all around the world. Companies can select from a range of verified impact projects such as planting trees and providing clean water to communities. Through the Handprint platform, companies can seamlessly embed impact into their business functions, such as payment processes and e-commerce tools. 

By productizing impact, Handprint’s marketplace resembles any other online marketplace (be it Amazon, Lazada, Alibaba) although our product catalogs are very different. By selling impact units, rather than receiving donations, impact partners (charities, NGOs, social enterprises) can easily be held accountable. Anything you can buy on the Handprint marketplace creates a direct and quantifiable amount of good in the world. Handprint ensures you can trust the quantum of ‘good’ you buy is real, truly unique, additional, and verified. 

Unlike charitable donations, your handprint – which is the sum of all your positive impact – belongs entirely to you. This means you can claim the positive impact your contributions have had on the planet, such as the amount of carbon removed from the atmosphere through planting mangroves. You can then display your impact with real-time trackers embedded into customer touchpoints. You’ll also enjoy regular updates and photos from our impact partners, which you can share via blogs and social media. This allows you to show the world how your company has made a real difference.

Making every dollar count

Through rigorous verification and active digital monitoring processes, positive impact can be verified, quantified, and viewed in real-time. That means you’ll know exactly where you pledge goes and what it achieves. Unlike corporate sustainability approaches, Handprint allows business growth and positive impact to increase side-by-side, rather than at each other’s expense. 

Utilizing blockchain technology and satellite imagery for verification, Handprint is also able to cut 80% of the intermediary costs traditionally associated with carbon credits. This allows the majority of funds to reach grassroots projects. In fact, Handprint’s dollar-to-impact ratio is so high, you can be confident that a minimum 90% of your pledge goes directly to communities in the field. Is that a lot? Well, previous research conducted by our founders for the UN found that up to 80% of money in the carbon credit market doesn’t reach local communities. It goes to auditors, verifiers, certification agencies, resellers, and other middlemen. 

Handprint’s approach is to enable a scaffolding of trust through verification. Some companies trust the NGOs to which they donate and require very little third party verification and hence should be able to fund these NGOs without incurring many other costs. Some clients (like banks) have much higher credibility thresholds and see great value in additional audits and third party verification. Handprint can meet the requirements of all types of clients by embedding verification, quantification and transparency into impact. 

Become a regenerative company with Handprint

If you’re a business looking to start regenerating the planet with Handprint, schedule a call with our team here. Alternatively, check out our Carbon Calculator to find out how much you should contribute to the regeneration of natural ecosystems.