Motif Markets | What are Sustainability Credits

Sustainability Credits form an excellent economic mechanism which addresses unsustainable practices in industries. Some types of economic activity are prevalent or currently needed, but harmful to the community in the long term. Sustainability credits schemes provide market forces which both tackle the immediate sustainability problem and also transition companies and industries to more sustainable practices.

Carbon Credits are an example of sustainability credits. It is widely accepted that our current rate of carbon emissions into the atmosphere will have adverse effects on our planet in the future. Many countries have legislated that emitters of carbon need to purchase Carbon Credits to cover their emissions. These credits can be purchased from organisations which extract carbon from the atmosphere (or reduce the emissions). The net effect is that extra costs are imposed on the companies with harmful sustainability practices (the carbon emitters) encouraging them to transition to alterative practices. Also funding is immediately made available to organisations which ameliorate the sustainability problem (reduce carbon in atmosphere) addressing the problem immediately.

Accordingly, a Sustainability Credits scheme has the following attributes:

  • Addresses a sustainability issue which affects the general community and in the community’s interest to resolve.
  • Motivates industries and companies to transition to sustainable alternatives.
  • Funds organisations addressing immediate sustainability problems.
  • Protocols can be defined for the generation of credits which both are trustable and auditable.
  • Is temporary

Note that sustainability credits are not really a tax (though it may seem like one to organisations having to buy credits). They are a transfer mechanism where money used to buy credits is passed to firms addressing the immediate sustainability problem.

A Sustainability Credits scheme can either be regulated or voluntary:

  • A regulated scheme is enforced by government regulations. Compliance is required by all companies affected by the scheme.
  • Participation in a voluntary scheme is optional. Companies (and individuals) may participate for reasons such as branding, reputation and internal values.

Irrespective of whether a scheme is regulated or voluntary, it is important that all participants trust the credits are legitimate. Schemes need to ensure that protocols and audit processes are in place to confirm credits reflect actual improvement to the sustainability issue.

Some examples of sustainability issues which could be addressed by Sustainability Credits are discussed here.