In July 2021, lightning started a fire in the Fremont-Winema National Forest in southern Oregon. By the time the Bootleg Fire was contained, more than five weeks later, it had burned about 400,000 acres, including a large part of an established forest-carbon project whose credits had been bought by companies including Microsoft and BP. Carbon that those companies had paid to keep in the trees was put at risk in a single summer. View the analysis.
The programme’s buffer pool, a reserve of credits held back for losses of this kind, was designed to absorb the damage. But the fire made a point every carbon buyer should understand. Every tonne your company buys carries the risks of the place that produced it, and of the methodology, the developer and the timetable behind it. Credits that look interchangeable in a column of figures are exposures to quite different things.
A carbon credit portfolio exists to manage those exposures. As with conventional investments, spreading money across projects reduces risk. But this is true only if the buyer knows which risks it is spreading, and it amounts to a strategy only if each purchase has a stated purpose: tonnes to retire this year, future removals secured before supply tightens, early finance for a project that could not otherwise begin. This guide starts with those purposes and comes to project types afterwards.
What is a carbon credit portfolio?
A carbon credit portfolio is a planned collection of carbon credits, projects or future carbon purchases, chosen to meet a company’s climate objectives over a number of years.
Buying credits from three projects doesn’t, by itself, amount to a portfolio. A real one begins further upstream, with the company’s climate action plan: how much it can spend, and which kinds of risk it’s prepared to carry.
At C Level, we work through it in a set order: climate strategy, then the carbon-credit requirement, portfolio criteria, project selection, procurement, retirement, disclosure and, finally, monitoring. Projects don’t come in until the fourth step.
One fairly obvious thing to add is that any portfolio also sits alongside a company’s efforts to cut its own emissions, not in place of them. The UK Government’s principles for voluntary carbon and nature markets say that credits should be used in addition to ambitious action within a company’s own value chain. The Science Based Targets initiative’s draft Corporate Net-Zero Standard, Version 2.0, takes a similar line (our guide to SBTi and carbon credits covers where it stands), treating high-integrity credits and other climate contributions as a complement to reducing a company’s footprint rather than a substitute for it. View the UK Government principles.
How should a business decide what its carbon credit portfolio is for?
Before any project is chosen, someone should be able to write a single sentence explaining why the company is spending the money. This is more complex than it sounds, because companies often have several reasons at once and, in my experience, rarely separate them internally.
A business may want to finance climate action outside its own operations and supply chain, what is usually called beyond value chain mitigation (BVCM), or to respond to what the SBTi draft calls “ongoing emissions responsibility”. It may be preparing for a future obligation to neutralise residual emissions. It may want to support a particular landscape, fund community-led restoration, gain early experience of engineered removals, or lock in supply several years ahead. Each is a legitimate reason to put money into carbon, and each points towards a different portfolio.
At C Level, we recommend that every portfolio puts part of its budget into early-stage projects. Early capital matters because nature projects spend most of their money before they produce a credit. Land agreements, surveys, planting, drain-blocking and validation all come first, and under the Woodland Carbon Code the first verification is five years after planting. Banks rarely lend against credits that don’t yet exist, so money is hardest to find at the start.
Community-led projects feel this most. A large landowner can carry years of costs; a farming co-operative usually can’t. Without early payment, the project either doesn’t start or passes to someone who can afford to wait. Early finance carries delivery risk, but it is where a buyer’s money makes the most difference for the future.
What decisions sit inside a carbon credit portfolio?
Most discussions of carbon portfolios fold several separate decisions into a single pie chart. C Level plans it out as follows:
| Decision | Question to answer | Why it changes the portfolio |
|---|---|---|
| Purpose | What is the company trying to achieve with the money? | Determines which carbon outcomes and buying routes are relevant |
| Carbon outcome | Removal, reduction or avoided emissions? | These do different things and are not interchangeable |
| Delivery status | Issued now, or expected later? | Changes delivery risk and when the credit can be retired |
| Durability | How long should the carbon stay stored? | Changes the exposure to reversal and the nature of the outcome |
| Project and methodology | How strong is the evidence? | Diversification cannot rescue poor credits |
| Geography and community | Do place and community model matter? | Affects project choice, social outcomes and concentration |
| Vintage and timing | When was, or will, the outcome be delivered? | Must fit the company’s purchasing and reporting timetable |
| Procurement route | Spot, forward, offtake or early-stage finance? | Changes price, counterparty exposure and delivery risk |
| Price and volume | Is the constraint tonnes, money or both? | Credit types vary enormously in price |
| Claims and reporting | What will the company say about it? | Determines the evidence, retirement and disclosure required |
Not every row will need the same attention. For one company, durability may settle almost everything; for another, the claim it intends to make will. The table’s use is in making those decisions visible before a neat allocation buries them.
How should carbon removals and avoided emissions fit into a carbon credit portfolio?
Removals and avoided emissions can both belong in a portfolio, as long as each is there for a stated reason. A removal takes carbon dioxide out of the atmosphere, whether through a growing forest, rewetted peat, carbon locked into biochar or a machine that pulls the gas from the air.
An avoided-emissions credit represents carbon that, measured against an accepted baseline, was never released: a forest left standing, a stove that burns less wood.
The climate logic of the two is different (we explain the physical distinction in carbon removal vs avoided emissions), even though both arrive on the buyer’s spreadsheet as tonnes of CO₂e. Our guide to carbon removal credits explains what a buyer is actually getting.
Of course, over longer time horizons, these differences grow more important. One company may decide that preventing emissions from deforestation is worth paying for now, while steadily increasing its share of removals over the decade. Another may put removals at the centre of its strategy from the outset.
Which approach is right depends on the company’s purpose, the environmental claim it wants to make, and the price, supply and quality of what is actually for sale. Whatever the mix, the two should not be pooled. A company that reports its purchases as “five hundred tonnes of carbon action” has hidden the difference. The portfolio, and anything said about it, should keep removals and avoided emissions clearly separate.
There’s also a point to be mad about durability, and it applies to both kinds of credit. Durability means how long the carbon is expected to stay out of the atmosphere. Carbon turned into rock, or injected deep underground, should stay there for thousands of years. Carbon held in soil or a forest may last decades or centuries, depending on how the land is managed and whether it burns.
The longer the carbon stays stored, the lower the risk of it being released. That matters most to a company planning to set credits against emissions it cannot eliminate. It will usually want more durable carbon than a company that is simply funding climate action.
How should issued and future carbon credits fit into a portfolio?
An issued credit and a future credit can come from the same project and still be very different propositions. The issued unit has already been monitored, verified and recorded on a registry; assuming its status is correct, it can be transferred or retired.
Its vintage, the year in which the carbon was removed or the emissions avoided, determines whether it can be used against a given reporting year and how buyers are likely to judge it, since older vintages often trade at a discount.
A future credit, by contrast, is an expectation. It may be a well-founded one, backed by an established methodology, a project with a good delivery record and credible monitoring, but it remains exposed to everything that can happen before delivery: the project’s performance, the verifier’s findings, changes in methodology, delays in issuance and, depending on how the deal is structured, the solvency of the seller.
A sound portfolio will often contain both kinds: issued credits for certainty, and future delivery where the company has knowingly accepted more risk in exchange for earlier funding, access to supply later on, or both.
Which risks should a carbon credit portfolio diversify?
Risk management is a critical part of any carbon portfolio. Buying four forestry projects instead of one reduces dependence on a single project, but may leave the company exposed to the same methodology, the same region, the same risk of fire and the same assumptions about future issuance. Buying five different project types does nothing for a portfolio if all five are weak. And in a world of increase climactic breakdown, risk will get ever harder to predict and manage.
The Bootleg Fire showed what concentration looks like in practice. A buyer whose forest credits all came from one dry region could have seen a large share of its holdings affected in a single season.
| Risk | What diversification might mean |
|---|---|
| Project | Not relying on one project for the whole requirement |
| Delivery | Combining issued supply with carefully chosen future delivery |
| Methodology | Not concentrating all future supply under one methodology, where that matters |
| Operator | Not depending too heavily on one developer or project organisation |
| Geography | Checking whether physical, political or regulatory exposure is concentrated |
| Reversal | Understanding which outcomes can be reversed, and how that risk is managed |
| Price | Not leaving every future purchase exposed to one moment in the market |
| Supply | Securing important future supply where it may become scarce |
| Counterparty | Knowing who owes what to whom if future delivery fails |
| Reputation | Not letting one controversial project or claim define the whole programme |
I always emphasise that the aim is not to remove risk, which is impossible for projects that exist in forests, bogs and farmland. It is to avoid carrying a concentrated risk by accident.
There is a trade-off here that is rarely discussed. A company may want a close relationship with one named project, where employees know the place, the project team knows the company, visits are possible and the money can be followed from year to year. That kind of depth is valuable, but it also concentrates exposure. A broader portfolio spreads delivery risk but loses some of the connection. No formula settles the matter. A company can only decide which it values more, and make the decision deliberately. Here at C Level we’re here to help you with just this type of decision.
Why carbon credit quality still has to be assessed project by project
Clearly, a portfolio cannot average its way out of bad carbon.
Before a project earns a place (our guide to how to choose high-integrity carbon credits sets out the checks), it has to clear whatever integrity threshold the company has set, and the familiar questions still apply: additionality, the baseline, quantification, verification, permanence and how reversals are handled, leakage, double counting, social safeguards and the transparency of the registry.
The Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles offer one widely used framework, covering governance and tracking as well as independent validation and verification, additionality, permanence, robust quantification, the avoidance of double counting, and safeguards for sustainable development. View the Core Carbon Principles.
For UK businesses, the Government’s integrity principles add a social dimension: high-integrity credits should address potential harms, respect the rights of local and Indigenous communities, including free, prior and informed consent where it applies, and report on wider environmental and social objectives.
Much of the confusion about quality comes from treating “the carbon credit” as a single thing, when several separate organisations and documents stand behind it.
| Element | Question it answers |
|---|---|
| Programme or standard | Under what rules was the credit created? |
| Methodology | How is the climate outcome calculated and monitored? |
| Project | Where does the outcome actually happen? |
| Developer or operator | Who carries out and manages the work? |
| Independent verifier | Who checks the evidence? |
| Registry | Where are issuance, ownership and retirement recorded? |
In my observation, a weakness at any one of these levels undermines a credit that looks sound at the others. Independent ratings agencies such as BeZero, Sylvera and Calyx Global now score individual projects, and their ratings are a useful second opinion. But you should still conduct your own due diligence.
How should a carbon credit budget shape the portfolio?
A carbon budget can be set in tonnes or in pounds, which is chosen has implications. For example, if a board has committed to finance a fixed number of tonnes, procurement is partly a matter of finding suitable supply at an acceptable price. If it has committed five hundred thousand pounds, a portfolio weighted towards expensive removals will buy far fewer tonnes than one built mainly from cheaper avoidance credits. Neither is automatically better. The company is choosing between different climate outcomes, different delivery profiles and different quantities, and an average price per tonne conceals that choice.
The clearer approach is to divide the budget by job. How much is needed to secure issued supply now? How much should be set aside for future deliveries? Is some of it meant to provide earlier, more catalytic finance? Is the company prepared to pay more for durability, for a particular region, for community outcomes or for a relationship with a project? Price comparisons (see carbon credit prices for what different credit types cost) become informative only once those allocations are made, and they should take account of the buying route as well, since spot purchases, forward contracts, offtakes and early-stage finance carry different risks as well as different prices.
How should a carbon credit portfolio be procured?
The buying route should follow from the job. For credits to be retired this year, buying issued units is usually simplest. A company that knows it will need supply over several years may use forward contracts to secure access and reduce its exposure to whatever the market looks like later. An offtake agreement goes further, committing the buyer to take a share of a project’s future output on agreed terms. Earlier-stage finance can be more catalytic still, and carries correspondingly different risks.
These are not merely purchasing techniques. They decide when money reaches a project and who bears the risk before the carbon exists. A portfolio is easier to manage, and easier to explain, when it separates claim-ready delivered supply, forward contingency, catalytic finance and purchases made partly to learn. A finance director will find that breakdown far more useful than “thirty per cent nature, thirty per cent technology, forty per cent mixed”.
What should a carbon credit portfolio say about communities and nature?
Companies do not all want the same thing from the land behind a tonne. For some, carbon is the main requirement and benefits to wildlife or local people are welcome extras. For others, those benefits are much of the reason for spending the money. The portfolio’s criteria should say which kind of buyer the company is.
Community-led projects can offer deep local participation, a fair share of the revenue and a close tie to a place. Nature-based projects can restore habitat, water, soil and wider ecosystems alongside the carbon. Those claims, though, need evidence like any other, and should not be treated as the soft half of the sales brochure. The UK Government’s integrity principles call specifically for attention to vulnerable groups, to local and Indigenous rights, to free, prior and informed consent, and to wider environmental and social objectives. A portfolio that says it values community outcomes should set out what evidence it expects to see. Otherwise, “community” becomes one more label in a spreadsheet column.
How should carbon credit retirement and claims be designed into the portfolio?
The claim comes at the end of the process, but it should shape the design from the start. A company needs to know whether its credits will be retired, when, what the registry will record, and how the activity will be described in its reports.
The UK Government encourages organisations to disclose how they use credits, including the project type, the certifying standard and how the credits relate to wider environmental objectives, and says that claims should use accurate terms and not misrepresent an organisation’s overall environmental impact. The Voluntary Carbon Markets Integrity Initiative’s Claims Code approaches the same problem from the corporate side: credits can be part of credible climate action, but only alongside emissions cuts in line with science, and only when backed by reporting and assurance. View the Claims Code.
Procurement should therefore keep the records the claim will later depend on: the project name and ID, the programme, the methodology, the vintage, the issuance and serial numbers, the retirement date, the beneficiary or purpose where the registry records one, and the reason the company chose the credit in the first place. A portfolio is far easier to defend when that evidence was gathered at the time than when it has to be pieced together years later.
Why a carbon credit portfolio should change over time
A portfolio is not a document to be approved once and filed. Projects move on. Future credits are issued, or arrive late. New verification reports appear. Methodologies are revised. Supply opens up or sells out. The assessment of a project may improve or worsen, and the company’s own climate strategy may change.
Monitoring and an annual review belong at the end of the chain, not after it. At a minimum, the review should ask whether each part of the portfolio is still doing the job it was given, whether future deliveries remain credible, whether new evidence has changed the view of any project, whether the company’s position on claims and reporting has shifted, and whether concentration has crept in somewhere that was not obvious when the portfolio was first assembled. The percentages may hardly change from one year to the next. The reasoning behind them sometimes should.
What might a carbon credit portfolio actually look like?
There is no allocation that suits every business, and recipes such as “forty per cent forestry, thirty per cent biochar, thirty per cent direct air capture” do more to obscure the decisions than to settle them. Three hypothetical companies show how purpose, rather than category, shapes the result.
A portfolio that prioritises certainty now. A mid-sized professional-services firm has a defined requirement for the current year and wants credits it can retire against it. Its portfolio leans towards issued, independently verified credits with clear registry records and enough volume available. Its main job is certainty of delivery. The firm may look at future supply, but that supply should never quietly stand in for units it needs now.
A portfolio that finances nature and future removals. A food manufacturer wants some issued carbon for current use, but is just as interested in paying for restoration and future removals, perhaps in the landscapes that supply its ingredients. It combines issued credits with carefully selected future delivery or early-stage funding. The portfolio has two declared jobs, to provide usable carbon now and to move money earlier into projects the company wants to see happen, and its reports should never suggest that the future allocation has the same status as the issued one.
A multi-year corporate portfolio. A larger company has a climate programme running for five or ten years. Its chief risk is relying on today’s market for tomorrow’s supply. Its portfolio might hold issued credits for the present, contracted future delivery, more than one methodology and project operator, and deliberate exposure to different kinds of carbon outcome, with purchases staggered across years rather than completed in a single annual transaction. Its purpose is to keep the company’s options open while steadily building access to the carbon it expects to need.
All three companies might buy from some of the same projects. What distinguishes their portfolios is the reasoning behind them.
How C Level approaches carbon credit portfolio strategy
We do not begin a portfolio by asking a company whether it wants forestry, biochar or direct air capture. We begin by asking what the carbon has to do: which tonnes must exist now and which can arrive later; whether the company is buying mainly against a defined requirement or partly to finance future climate action; how much concentration in one project it can accept; whether it wants a close relationship with particular projects and communities or wider diversification; and what evidence its sustainability team will need when the board, the auditor or the communications team asks what was bought and why.
The projects become useful only after those questions are answered, because a carbon portfolio is, in the end, a set of decisions about purpose, timing and risk, expressed through projects. It should, of course, contain good carbon. But the better test of a portfolio comes years after it is approved, when someone who was not in the room can read the record and understand what each part was meant to do, which risks the company knowingly accepted, and whether its assumptions held. That is a more demanding standard than a column of percentages that adds up to a hundred.
Sources and methodology
The facts, frameworks and documents named in this article, with where to read each one.
- Inside Climate News, US Forest Fires Threaten Carbon Offsets as Company-Linked Trees Burn. Source for the Bootleg Fire burning part of the Klamath East forest-carbon project and for the companies that had bought its credits. View the report.
- CarbonPlan, Bootleg Fire update. Source for the losses the fire caused to the programme’s buffer pool. View the analysis.
- UK Government, Voluntary carbon and nature market integrity: UK Government principles. Source for the principles on using credits in addition to action in the value chain, high-integrity credits, disclosure and accurate claims. View the principles.
- Science Based Targets initiative, Corporate Net-Zero Standard. Source for the draft Version 2.0 and its idea of ongoing emissions responsibility. View the standard.
- Integrity Council for the Voluntary Carbon Market, Core Carbon Principles. Source for the framework of integrity criteria. View the principles.
- Voluntary Carbon Markets Integrity Initiative, Claims Code of Practice. Source for how companies can describe their use of credits. View the code.