Carbon offsetting is facing increasing criticism, with calls for corporate offsetting to be scrapped. How should companies respond?
Corporates are using carbon offsets to address their environmental impact against mounting pressure from investors and consumers to do so. Carbon offsetting is the idea of reducing emissions by buying into a programme that traps and stores carbon from the atmosphere. Of the 350 FTSE-listed companies, 96% increased their spending on carbon offset projects and/or carbon credits in the past two years. Research from Morgan Stanley predicts that the voluntary carbon-offset market will grow from $2 billion in 2020 to $250 billion in 2030.
But carbon offsetting is controversial and has risks — especially when companies claim to be ‘carbon neutral’ by paying to balance out their emissions through offsets, rather than actively reducing the emissions they create. By purchasing offsets, ‘carbon neutral’ companies can continue with high emissions activities as they believe they’ve cancelled them out (they haven’t). The Voluntary Carbon Markets Integrity Initiative (VCMI) — a non-profit funded by Bezos and Google, amongst others — discourages these catchy yet misleading claims, urging companies to only use carbon offsets to reduce emissions outside of their set targets.
Carbon neutral claims put companies at risk of greenwashing, which is increasingly legislated against. The UK’s Competition and Markets Authority has new legislative powers to handle misleading claims and a proposal for the EU’s Green Claims Directive has been put in place, whilst the USA’s Federal Trade Commission is undergoing a review of the Green Guides. Delta Airlines was caught out in July 2023, when a US citizen alleged their claim of being “the world’s first carbon neutral airline on a global basis” was misleading. The ongoing lawsuit claims that Delta cannot state it is carbon neutral just because they are investing millions in offset projects. The logic doesn’t work when a company’s main product involves thousands of oil-fuelled flights a day.
When companies greenwash, they deceive consumers about the environmental impact of their products or services, which harms corporate reputation through perceived negative environmental performance and green risk. 40% of global companies cite reputational damage as a reason for not buying carbon offsets.
So, what’s the solution for companies? Guidance from SBTi, the gold standard for corporate emissions reduction, wants companies to prioritise directly reducing their emissions and use offsetting as a side project, not included in their science-based targets. EasyJet stopped investing in offsets in January 2023 following the revelation that it was using unreliable ‘phantom’ carbon credits to claim carbon neutrality. The company now focuses on fuel-efficient and hydrogen-powered planes to reach net zero by 2050, in addition to developing carbon capture technology. EasyJet customers can still voluntarily offset their flight emissions when they buy tickets.
Looking to alternatives and moving away from carbon offsetting as a primary mitigation strategy actively avoids greenwashing. Alongside accelerating positive climate impact, this approach can present companies as innovative and environmentally conscious leaders, ultimately improving corporate reputation.