VIDIA’s approach to carbon management

Beyond carbon offsetting: Setting an internal carbon fee

Private companies traditionally rely on voluntary offsetting to reach their net-zero commitments. However, this concept is increasingly coming under scrutiny for being “unscalable, unjust”, and even “holding back emission reduction”. Instead, internal carbon fees have emerged as a compelling alternative to conventional carbon offsetting in recent years. The general idea is simple: A company charges itself a voluntary carbon fee for its greenhouse gas (GHG) emissions, and uses these internal financial resources to support climate-positive activities. When setting an internal carbon fee, two key questions need to be answered:

1. Which carbon fee levels should be applied to different types of GHG emissions? 

2. How should the climate action budget be allocated?

Carbon fee levels

At VIDIA, we have taken the concept of internal carbon pricing one step further than current practice. The first aspect that differentiates our approach is the scope of our internal carbon fee to include the carbon footprints of team members’ private households. Accounting for the above-average disposable income levels common in the PE industry, we calculate our footprint using an annual average that is 50% higher than the average German GHG footprint. Nevertheless, we encourage all team members to decarbonize their households to increase climate awareness and advocacy, and to take responsibility for carbon-intensive activities such as long-distance holiday trips.

The second aspect that differentiates VIDIA’s approach is the way in which we determine carbon price levels. Compared to common carbon fees ranging from 10-100 USD/ton CO2e, we have chosen relatively high price levels to better reflect what is needed to either fund low carbon substitutes (in case of aviation) or account for the social cost of carbon emissions. If higher price levels were widely applied, the pace of the current transition would be greatly accelerated and much more in line with the goals of the Paris climate agreement. 

Based on an analysis of our GHG footprint in 2023, we have identified three different types of GHG emissions[1] and defined a corresponding pricing tier for each type:

TierRationaleCarbon price level
Private team and spend-based GHG emissions These GHG emissions either go beyond scope 3 emissions or are based on less accurate spend-based estimates that are difficult to influence and too far from VIDIA’s investment activities. 25 EUR/ton CO2e based on the funding needs of reliable and cost-efficient climate mitigation projects 
Aviation GHG emissionsThese GHG emissions represent hard-to-abate emissions that can be more accurately priced based on the true costs of carbon abatement for the sector. The internal carbon fee helps incentivizing low carbon transportation and travel where feasible. 550 EUR/ton CO2e based on a rough estimate of the average cost of producing sustainable aviation fuel
Other office-/work-related GHG emissionsThese GHG emissions include scopes 1+2, for which VIDIA bears primary responsibility, as well as other (mostly business travel-related) emissions attributed to VIDIA’s investment activities.240 EUR/ton CO2e based on a (relatively high) estimate of the social cost of carbon by the German environmental protection authority (UBA) 

Allocation of our climate action budget

In general, climate action budgets can be deployed with three different use types and strategic goals in mind:

  1. Investment in operations-related decarbonization: This type of use has the highest near-term priority. However, when operations are already setup for a relatively low carbon intensity, further decarbonization options can be limited or deliver comparatively marginal effects in relation to carbon abatement costs. 
  2. Philanthropically support climate mitigation (adaptation) projects: There is a wide range of climate-positive projects that sustainably reduce or remove GHG emissions (or help societies adapt). Many of these projects rely on selling carbon credits for offsetting purposes. Whenever the purchase and retiring of carbon credits is involved, it is imperative to ensure that this activity in no way delays necessary investments into the near-term decarbonization of own operations. It needs to be clearly positioned as a philanthropic activity intended to reward positive climate outcomes without expecting anything in return. The reputational risks of carbon offsetting can be mitigated by selecting high quality projects while refraining from claims of “climate neutrality”.
  3. Philanthropically support organisations that promote systemic solutions e.g. through education, awareness building, agenda setting and climate policy advocacy. Well-designed regulatory adjustments of the current economic system are necessary to accelerate the pace of decarbonization in line with the Paris Agreement. If successfully implemented, climate policies can offer an outsized and system-wide impact. But to achieve climate-positive system change, they require a collective effort of civil society at large.

Vidia carbon management approach 2023

First, we determined a climate action budget for 2023 by applying the internal carbon pricing scheme. Vidia already has a fairly small and well-managed footprint of scope 1+2 emissions, which limits the opportunities to directly invest in further operational decarbonization. Instead, we allocated a major share to two climate mitigation projects to reward their impact:

  • The standard climate mitigation project mix by the German non-profit Atmosfair (which received a high-quality rating by “Stiftung Warentest”) corresponding to team household and spend-based GHG emissions
  • A quality carbon removal and artisanal biochar project from Dutchcarboneers (purchased from and retired by corresponding to our other office-/work- and business travel-related emissions.

Moreover, in line with our engagement to reduce our scope 3 emissions, we decided to allocate the remaining share of the budget to support two NGOs that aim to reduce hard-to-abate GHG emissions from aviation:

  • Transport & Environment“: A leading civil society organization that is active in the EU and whose advocacy work includes demands for an increased use of sustainable aviation fuels, as well as more effective mandatory carbon pricing for the aviation sector. 
  • Allianz pro Schiene e.V.”: A non-profit focused on improving the competitiveness of high speed rail in Germany, where most of VIDIA’s rail travel is taking place. 

We are aware that purely voluntary approaches to climate action are only incremental steps and not enough to reach the goals of the Paris Accord. Competitive market pressures and requirements of economic feasibility prevent most companies from voluntarily going beyond the mandatory minimum standard. Until economic incentives, mandatory standards, and climate policies build enough momentum, we believe it is best to lead by example, whilst philanthropically supporting climate mitigation projects and advocating for systemic solutions.

[1] Note that scope 3 category 15 GHG emissions from investments are excluded from the internal carbon fee. Portfolio companies set and validate their own targets in line with science-based target initiative’s “portfolio coverage” approach for PE investors.