FAQ

What exactly are Climate Dividends?

Difference with financial dividends?

Climate Dividends are largely inspired by financial dividends but with a climate-related angle:

➡️ They are distributed to the company's shareholders.

➡️ They are distributed every year, in reporting year N+1 for results achieved in reporting year N.

➡️ They materialise the link between the shareholders and the value created by the company. In the case of financial dividends, it is the creation of financial value (the profit) that is partly distributed to shareholders; in the case of Climate Dividends, it is the creation of climate value (the company’s contribution to global net zero emissions, measured in avoided or removed emissions) of which the evidence is distributed to shareholders.

➡️ Even if projections of Climate Dividends can be made, Climate Dividends are only accounted for when they are issued and actually distributed to shareholders.

➡️ Unlike financial dividends, Climate Dividends are not money. They are not a financial flow, nor a financial asset, nor can they be monetised. They are just additional extra-financial information.

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What exactly are Climate Dividends?

What's the difference between carbon credits and Climate Dividends?

Here are the key differences with carbon credits:

➡️ Climate Dividends are a shareholder right, linked to share ownership.

➡️ A Climate Dividend has no direct financial value, it is not an asset, but is extra financial information about the positive climate impact of the activities that issued it. The financial value of the share can take into account the fact that this share will enable its owner to receive Climate Dividends.

➡️ Unless otherwise stated, Climate Dividends are awarded to investors/shareholders.

➡️ Climate Dividends cannot be used to compensate/offset a carbon footprint in any case (not by the company generating them nor by the shareholder receiving them).

➡️ Climate Dividends owners may communicate on how their investments “contributed to activities that are collectively leading the world towards global net zero”.

➡️ Climate Dividends cannot be sold nor transferred (though the shares they are associated to can)

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What exactly are Climate Dividends?

Do emission reductions (reduction of scope 1, 2 and/or 3) enable a company to issue Climate Dividends?

Climate Dividends can only be issued to companies that help avoid emissions or remove them, not to those that have made emission reductions. Removing emissions is quite straight forward — taking GHGs out from the air. However, avoided emissions and the notion of carbon footprint reduction (especially scope 3) is more nuanced.

Here’s how they differ:

🦶 For carbon footprint reduction, the perspective is that of the company and, more specifically, GHG inventory accounting, where the emissions from each category of the GHG inventory are compared year-on-year.

➡️ For avoided emissions, the perspective is that of the customer, where the emissions in two situations are compared, one with the company’s solution and the other, the most likely situation without the solution (i.e., with another company's solution or with a completely different solution that meets the same customer's functional needs).

As a result, even if the low-carbon solutions can reduce the company's GHG inventory(e.g., if the company replaces its carbon-intensive solutions with these low-carbon solutions), the quantification of the decarbonization impact is different. Both metrics are complementary but lead to different accounting and a different lens on climatei mpact.

For more information on avoided emissions, you can have a look at the ICE report or the WBCSD Guidance on Avoided Emissions and for more specific information on what qualifies for climate dividends, please read our Protocol.

What exactly are Climate Dividends?

Won’t Climate Dividends count as double accounting?

Double counting already exists everywhere in the carbon accounting. The Scope 3 of some companies is the scope 1 of others. When a company reduces its scope 1 (for e.g., the provider), it enables another company (the customer) to reduce its scope 3; hence, both companies count the same ton of CO₂e reduced in their carbon footprint (it is counted twice). Another example is the carbon footprint of companies that is counted twice in their own carbon footprint AND in the carbon footprint of their investors.

The important thing is not to avoid double counting, but to avoid it from enabling companies to claim more efforts than what they really do or to artificially reduce their carbon footprint. But it is not the case here. Climate Dividends are ultimately a new indicator, separate from the others.‍

Climate Dividends cannot be used to compensate a carbon footprint, they cannot be added to carbon credits. Therefore, even if for one ton of CO₂e, a carbon credit is sold AND a Climate Dividend is distributed, it will NOT enable twice a reduction of carbon footprint(s) > it will only enable to compensate 1 ton of CO₂e for the buyer of the carbon credit (even in the unusual case where the investor of the company is the buyer of its carbon credit). Thus, there is a sort of double counting, but that does not represent a problem / threat or greenwashing and is not jeopardizing the efforts towards decarbonization.‍

For more information on climate dividends, please read our protocol.

What exactly are Climate Dividends?

Are avoided and removed emissions accounted for separately in Climate Dividends claim ?

Yes, they are accounted for separately, but both can generate Climate Dividends which in essence have the same value (1 CD = 1 t of CO₂eq).

Each claim for Climate Dividends specifies what type of emissions is concerned.

Who can use them?

How can Climate Dividends be used by companies issuing them ?

Companies can use Climate Dividends to:

➡️ measure the carbon impact of their existing activity, which is useful to attract investment.

➡️ show their contribution to global carbon neutrality, which is valuable for their brand image. By moving away from a compensation approach towards contribution, they also avoid reputational risks.

➡️ increase the value of their shares by quantifying the climate value they create and thus enabling to give a financial value to their “climate goodwill”. Indeed, the value of shares can be based on financial KPIs (multiple of EBITDA, discounted cash flow of financial dividends) AND on climate KPIS (discounted climate dividends flow to which at this point, you can give a financial value, such as, for example, the price of the ton of carbon).

Who can use them?

How can investors use and value Climate Dividends?

Investors can use Climate Dividends to:

➡️ measure the carbon impact of their existing or future portfolio which is useful for investment teams, to attract LPs (Limited Partners) and stand out from other investors.

➡️ show their contribution to global carbon neutrality, which is valuable for their brand image and mitigate the reputational risks. It also allows them to anticipate regulation.

➡️ increase the value of the shares they possess by quantifying the “climate goodwill” of these activities. Thus, Climate Dividends allow the integration of climate impact in the financial valuation of companies.

Who can use them?

Is there a risk that Climate Dividends will be used for greenwashing?

Climate Dividends cannot be used to offset a carbon footprint or to claim carbon neutrality. They are there to highlight a positive impact, alongside a negative one (in order to claim and distribute Climate Dividends, a company and shareholder must first calculate their carbon footprint). In this way, they encourage the transition to more carbon-neutral business models, while not concealing the existing carbon footprint that needs to be reduced as much as possible.

Note that they do not help to identify companies practicing greenwashing, but rather promote companies and investors who contribute to carbon neutrality without resorting to greenwashing.

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Who can use them?

Can Climate Dividends be considered a form of greenlighting?

Greenlighting is defined by Gold Standard as a good action or product to deflect from wider organisational deficiencies. The current version of the Protocol allows organizations to generate Climate Dividends for a specific Solution, no matter their overall impact on climate.

However, the mandatory disclosure of their carbon footprint for Contributing Entities allows all relevant stakeholders to access and compare information.

The Climate Dividends are first and foremost an indicator among others, that is meant to be used to fix rules and/or incentives (for example, a % of CD issued per € of turnover or a ratio of Climate Dividends compared to € invested for shareholders). The association recommands all stakeholders to include at least the carbon footprint of the Contributing Entities and the volume of Climate Dividends in their analysis.

What methods/type of projects do you recognise?

What sector-specific methodologies are accepted?

Currently, the Climate Dividends association recognizes the sector-specific methodologies proposed by the Net Zero Initiative, Riverse and Puro Earth are validated.

What methods/type of projects do you recognise?

Can a Solution Provider / Contributing Entity propose an impact measurement methodology?

A Contributing Entity can propose a new methodology if no methodology applicable to its Solution is already validated by the Climate Dividends Association. The methodology must abide by the general principles of the Climate Dividends Protocol and the Contributing Entity must justify it.

The methodology will be reviewed and challenged by the Climate Dividends Association (in collaboration with the Contributing Entity).

If and once validated by the Climate Dividends Association, it will be made publicly available for other entities wishing to evaluate the impact of similar solutions.

What methods/type of projects do you recognise?

Are there methodologies that the Climate Dividends Association developed by itself?

To speed up adoption, facilitate use and enable comparison of this indicator, external sectoral methodologies are regularly verified and recognized by the association. Nevertheless, the subject of avoided and sequestered emissions remains complex, and consensus has not been reached in many areas. The Climate Dividend Association is therefore working on simple guidelines, based on the needs of the contributing entities joining the initiative.

These guidelines are therefore simple but not widely validated externally: they are intended to be replaced as soon as a convincing external methodology can take their place. They are not meant to be used outside the Climate Dividends framework.

Currently 4 cookbooks have been published:

Sectoral cookbook #1 - Cool roofing
Sectoral cookbook #2 - Agriculture robots
Sectoral cookbook #3 - Evapo-concentrator used for wastewater treatment
Sectoral cookbook #4 - Industrial fatal heat recovery and storage

What methods/type of projects do you recognise?

When will the Climate Dividends initiative include Nature Based Solutions?

Nature-based solutions are currently not eligible.

Although we recognise the interest and relevance of nature-based solutions to reach the global Net Zero, we have decided to temporarily (for the beginning) exclude them for several reasons: Most nature-based activities are not able to demonstrate a storage of CO2 emissions for more than 100 years (as recalled in the Be Zero Carbon article).

The Climate Dividends Association has limited capacity for the time being to deal with this complex area. The exclusion criterion in particular will be re-evaluated and might be removed at a later stage.

Who checks all of this?

Can an auditor in charge of extra-financial assessment intervene on the subject of Climate Dividends for me?

This is often the simplest option, but is not mandatory: an auditor already familiar with the organization and validating the eligibility criteria for this role can be in charge of validation and verification of Climate Dividends.

If this third party is not yet on the list validated by the association, please contact us.

Who checks all of this?

Which third-party can be in charge of the validation and verification phase?

The Climate Dividends Association identified relevant third parties able to intervene during the Validation & Verification phase. Other entities can be included if they respect the conditions laid out in the Protocol.

To this day, the following companies have been endorsed by the Climate Dividends Association, by alphabetical order:

Goodwill Management, subsidiary of Baker Tilly
Mazars
Socotec
Verifavia

Don't hesitate to contact us to be included in the list or get the contact information.

How can I get involved?

What is the process for generating climate dividends?

If the Solution is eligible, the Contributing Entity can submit a Solution Detailed Declaration (SDD) along with its actual Claim for a given year.‍

The SDD comprises descriptive information about the Solution under consideration and its climate impact. This includes an explanation of the methodology used to quantify the positive climate impact, ensuring its compliance with the Climate Dividends Protocol. Additionally, details such as the Solution's product carbon footprint, life cycle assessment (LCA), and a description of emissions from the reference scenario are included in the SDD.

The Claim specifies the number of tCO2e (metric tons of carbon dioxide equivalent) avoided and/or removed through the Solution, calculated in accordance with the Climate Dividends Protocol. This calculation is based on the activity associated with the Solution in the reporting year N-1 for a Claim made in reporting year N.

Afterwards, both the SDD and the Claim undergo a thorough validation and verification by a third-independent party referenced by the Climate Dividends Association. If found to be accurate, the verifier/validator validates the methodology and assigns a validity period (typically 5 years) to it. Furthermore, the verifier/validator examines the Claim for the first year of the validity period.

More information on How it Works and the Protocol.

How can I get involved?

How can I check the eligibility of my company to issue Climate Dividends ?

All eligibility criteria are detailed in the Protocol: we recommend reading it to have a better understanding of whether your company’s solution to avoid/remove emissions fits with our criteria.

If you deem your activity eligible, the Climate Dividends association will review your solution and give you an answer within 2 weeks.

How can I get involved?

How are the avoided or removed emissions assessed to generate Climate Dividends?

To generate Climate Dividends, a Contributing Entity must evaluate the impact of its Solution in terms of avoided or removed emissions. To do this evaluation, it must rely on a methodology validated by the Climate Dividends Association: either it chooses a pre validated method, listed in the Climate Dividends Protocol, or it can suggest a new methodology that respects the generic rules of the Climate Dividends protocol and that will be assessed and if relevant validated by the Climate Dividends Association.

The generic rules of impact assessment are outlined in the Climate Dividends protocol. They rely on a life cycle analysis of GHG emissions of a Solution compared to a reference scenario chosen according to a clear decision tree.

How can I get involved?

What are the costs associated with this initiative?

We don't charge anything for the use of Climate Dividends. However, you will have to be verified by an independent third party we recognise (if you have not done so already), which will usually entail a cost. ‍

Please find more information on our protocol.

How can I get involved?

How can a Contributing Entity actually distribute its climate dividends?

Today, the generation and distribution of Climate Dividends is centralized and managed by the Association, at least for the pilot phase. The registry is public and accessible in its current state.

We aim for a new, more complete version by 2025.

How can I get involved?

How can I support the initiative ?

You can support us by becoming a member, by donating or by introducing us to relevant contacts (companies avoiding or removing emissions, investors, or standardisation bodies).

We're always open to a helping hand, so please feel free to contact us if you'd like to support us in any way. Thank you!

Find more information on the Protocol