Environmental outcomes for ESG reporting without carbon credits

Corporate sustainability reporting is starting to follow a familiar recipe: report emissions, report reductions, then buy carbon credits to offset the rest. However, unless you’re one of the approximately 200 largest emitters captured by Australia’s Safeguard Mechanism, the requirement is not to purchase credits. The requirement is to demonstrate a credible environmental outcome.

This distinction matters because the motivation for most organisations is not about participating in environmental markets as traders. They are not assembling portfolios in anticipation of future price movements, nor are they seeking liquidity or speculative opportunities. Their objective is usually much more practical. They want to invest in environmental improvement, understand the outcomes that investment generates, and disclose those outcomes through their ESG reporting. For those organisations, the project itself is often far more important than the credit attached to it.

Credit markets provide credibility. A registered credit relies upon government-approved methodologies, defined accounting approaches and verification processes that give buyers confidence in the environmental claim being made. These are valuable features of a credit market, but they are not exclusive to a credit market. The same scientific methods, accounting frameworks and verification principles can be applied directly to a project without creating a tradeable credit. The rigour sits within the methodology. The credit is simply one way of packaging the result.

If your intention is to purchase a credit and immediately retire it, you’ve paid for a set of market features designed to support transferability and trading, but you never actually use them. The ability to buy, sell and hold environmental assets creates value for market participants. Once a credit is retired, those features cease to matter. How much value is the tradeable component actually providing? If environmental assets are being acquired because they may be traded in the future, credits provide clear advantages. The transferability of a standardised unit is precisely what these markets were designed to deliver.

If your motivation is creating and reporting real environmental outcomes, the value is in the project not the credit. The credit primarily serves as a mechanism for transferring ownership of a standardised unit derived from those outcomes. The evidence supporting the claim comes from the project’s accounting methodology. Those same government-approved accounting methods can be used to demonstrate credible environmental outcomes without needing to participate in the market itself.

Direct investment in projects, and application of government approved accounting methods provides the credibility of a government credit scheme without the overhead of the market features you’re not using. Avoiding unnecessary market costs is only part of the story. Direct project investment can provide additional value because investors remain connected to the project creating the outcome. They can understand where the project is located, who is delivering it, how outcomes are being measured and what broader benefits are being generated alongside the primary objective. Through direct investment there is an opportunity to influence and report on the co-benefits like biodiversity, water quality, and social outcomes which align to your broader ESG reporting requirements or company values.

Nature-based solution projects rarely produce a single outcome. A revegetation project designed around carbon sequestration may also support biodiversity, improve water quality, strengthen landscape connectivity, reduce erosion or deliver benefits to local communities. These outcomes can be part of the broader ESG reporting requirements, where carbon is only one part of the overall environmental story. Project co-benefits can get lost once the project is reduced to single tradeable credits moving through a market.

Credit market Vs direct project investment: