The Federal Government’s mandatory National Greenhouse and Energy Reporting Scheme came into effect on January 1, with companies who meet the reporting criteria now required to annually report on emissions, energy production and energy consumption.

As part of that, there is a renewed and growing focus on how companies are offsetting their emissions.

The Federal Government provides incentives in the form of carbon credit units (ACCU’s) and biodiversity offset credits, which can be bought and sold as companies look to offset their carbon emissions – whether that be voluntarily or to meet emissions reduction targets and obligations.

These credits are a tradeable financial product, and I’m expecting to see demand for these to grow significantly within the next 24 months, not only from larger companies meeting reporting obligations, but also from smaller SMEs as a flow on-effect.

Investment drives company growth. And with investors very focused on corporate ESG at the moment, larger companies are looking at emissions use across their entire operation and are likely to start asking questions of their smaller suppliers – what do their emissions look like and how are they offsetting their use? Are they ‘nature-positive’?

SMEs will find themselves not only having to provide data around their own carbon footprint but potentially forced to find their own offset solutions. This is where I expect to start to see an increase in demand for both carbon credit and biodiversity credits.

Carbon credits can be purchased to offset a company or individuals carbon footprint.

Companies can also purchase biodiversity credits to offset the potential negative environmental impact of their projects, such as land development or land clearing, for example.

We’re already starting to see an increase in queries from SME clients who want to know what biodiversity credits are and what they need to start thinking about.

There are some key considerations for SMEs.

  • Purchasing Credits: As formal emissions reduction targets draw closer, businesses will have to consider how they’re going to offset their own emissions, whether they’ll be required to purchase biodiversity credits, and the financial and budgetary implications of that.
  • Biodiversity Investment: With demand for credits expected to rise, it’s worth businesses considering where they’re going to source offset credits. Will you find yourself constantly competing with others to purchase credits, or does your business need to consider a longer-term investment strategy to ensure a secure and reliable supply?
  • Income Opportunity: Both ACCUs and Biodiversity credit can be bought and sold, and there is an opportunity for SMEs to consider what assets they currently have that may generate credits that can act as a potential income stream. Companies who own uncleared land for example might find it makes better business sense to maintain its current state to generate offset credits – whether for company use down the track or for a potential revenue stream – than to clear it.

Businesses also need to consider consumer-driven demand.

Consumers are increasingly demanding to know the sustainability credentials of companies, regardless of size. What is their environmental footprint, and how are they working to reduce emissions and be more sustainable?

Within a few years it might not be enough for businesses to simply offset their emissions, consumers may be demanding carbon neutrality. What does that then look like for your business?

If you consider also that the Australian Government has an emissions reduction target for 2030 – which isn’t far away – you can see why there’s about to be a significant increase in demand for what is a growing asset class that not enough people currently know about.