21 August 2025
As sustainability becomes a core part of doing business, organisations across the UK are looking for credible, cost-effective ways to reduce their environmental impact. One method to consider is carbon offsetting - but how exactly does this work, and how can it support your ESG (Environmental, Social and Governance) strategy?
A carbon credit represents one tonne of carbon dioxide or equivalent greenhouse gas (CO₂e) that has been either removed from the atmosphere (a removal credit) or prevented from being emitted in the first place (an avoidance credit). These credits are generated by certified projects, such as reforestation, renewable energy, or improved land management, that deliver measurable climate benefits.
When your business purchases carbon credits, you’re effectively funding these projects to compensate for your own unavoidable emissions, reducing your own net carbon footprint. This is known as carbon offsetting (or carbon compensation). Many businesses also purchase carbon credits outside of direct value chain mitigation, recognising the broad positive impact that can be achieved through investing in high integrity environmental projects.
There’s a clear sequence of steps that must be followed to generate and leverage carbon credits; each of these helps drive confidence that carbon credits available through the voluntary carbon market are trustworthy and do what they claim to do.
1. Project Design
A project developer identifies an opportunity to reduce or remove carbon emissions such as planting trees (afforestation), capturing methane, or installing renewable energy. They design the project to meet the requirements of a recognised carbon standard (e.g. Verra or Gold Standard), choosing a standardised methodology to calculate emissions reductions and ensure comparability across projects.
2. Baseline and Additionality Assessment
The developer establishes a baseline scenario (what emissions would occur without the project) and proves additionality, meaning the project wouldn’t happen without carbon finance.
3. Validation by a Third Party
An independent auditor (known as a validation and verification body) reviews the project design to ensure it meets the chosen standard’s criteria. They make sure that the baseline and additionality assessments are accurate to reduce the chance of overestimating climate benefit.
4. Project Implementation
The project is launched; trees are planted, renewable systems installed, or land management practices improved.
5. Monitoring and Reporting
The project developer monitors the project over time and compiles a monitoring report detailing the actual emissions reduced or removed.
6. Verification
The monitoring report is reviewed by an independent verifier to confirm the accuracy of the emissions data and ensure the project is delivering real climate benefits.
7. Issuance of Carbon Credits
Once verified, the carbon standard issues carbon credits, each representing one tonne of CO₂e reduced or removed. These are recorded in a public registry.
8. Sale on the Carbon Market
The credits can now be sold on the voluntary carbon market to businesses or individuals looking to compensate for their emissions; ownership of the credit is passed from the developer to the buyer.
9. Retirement and Claiming
Once a credit is used to offset emissions, it is retired - meaning it can't be sold again and cannot be double counted. The buyer can now claim the associated emissions reduction in their ESG or sustainability reporting. Buyers do not need to physically take delivery of credits to retire them, as the process can be handled through contracts with credits being retired on behalf of the buyer.
It's not always straightforward to understand how carbon credits are generated in practice. Here are a couple of examples to illustrate how different types of projects can generated credits.
An 'Avoidance' example - Renewable Energy:
Renewable energy projects, such as wind farms, solar installations, or hydroelectric plants, play a key role in reducing global greenhouse gas emissions. But how do these projects translate into carbon credits?
Here's how it works:
Displacing Fossil Fuels
Renewable energy projects generate electricity without burning fossil fuels. When a solar farm replaces coal-fired power generation, for example, it prevents a significant amount of CO₂ from entering the atmosphere. The difference in emissions between the renewable source and the conventional alternative is what forms the basis for carbon credit calculation.
Measuring Emission Reductions
To issue carbon credits, the project must:
Each tonne of CO₂ avoided becomes a potential carbon credit.
A 'Removal' Example - Afforestation:
Afforestation - the process of planting trees on land that hasn’t been forested in recent history - is a powerful nature-based solution to climate change. These projects actively remove carbon dioxide (CO₂) from the atmosphere, making them a key source of removal-based carbon credits.
Here's how they work:
Capturing Carbon Through Tree Growth:
As trees grow, they absorb CO₂ from the atmosphere through photosynthesis and store it in their trunks, branches, leaves, and roots. This process is known as carbon sequestration. Over time, a well-managed forest can capture and store significant amounts of carbon.
Establishing a Baseline and Measuring Impact:
To generate carbon credits, the project must demonstrate that the carbon removal is:
A baseline scenario is established to show what would have happened without the project (e.g. the land remaining barren or used for low-carbon activities). The difference between this baseline and the actual carbon sequestered by the new forest forms the basis for issuing credits.
Not all carbon credits are created equal. That’s why verification by independent, reputable third parties is essential.
High-quality carbon credits are issued by internationally recognised standards such as Verra (VCS), Gold Standard, Puro, and others. These standards ensure that projects meet strict criteria for:
At SEFE, we go a step further by using independent project ratings from platforms like BeZero and Sylvera. These ratings provide an extra layer of transparency, helping you choose credits that align with your values and risk appetite.
Carbon compensation projects don't just have emissions benefits - they often deliver a wide range of co-benefits for communities and ecosystems. Depending on the project, these can include:
By choosing the right carbon credits, your business can support projects that align with your broader ESG goals; not just environmental, but social and ethical too.
At SEFE, we make it simple for organisations to access high-quality carbon credits through our Carbon Offsetting Programme. Here's what sets us apart:
Whether you're just starting your sustainability journey or looking to enhance your ESG credentials, SEFE is here to support you.
Take the First Step Toward Net Zero
Carbon credits are not a silver bullet, but they are a powerful tool for organisations looking to take meaningful climate action today. By supporting verified projects, you can reduce your environmental footprint, meet stakeholder expectations, and contribute to a more sustainable future.
If you would like to hear more on this topic, you can find a recording of our recent webinar on the Voluntary Carbon Market here, with insights from SEFE specialists.