Squaring up to the Crisis in Confidence with Carbon Offsets
Over the past several weeks I’ve seen the phrase ‘crisis of confidence’ come up repeatedly with respect to carbon markets and carbon offsets in particular. Many of us working in corporate sustainability have a pretty tortured relationship with this topic because:
We love seeing sustainability projects get funded and get off the ground. Genuinely, this is amazing and wasn’t happening at this scale even just 5 years ago.
We are in this space to help companies deliver products and services that are better for the world. Helping companies pay someone else to do this is a different gig.
How do we square this?
If we look at historic business patterns, there are three parallels for how corporate involvement in carbon markets can develop:
1.Corporate Social Responsibility (CSR). Traditional CSR has gone out of fashion (in favour of sustainability). But, in its best incarnation, this was a way for companies to back third-party projects (e.g., by NGOs) that were brand synergistic, good for employee morale, and great marketing. Guard rails (e.g., by SBTi) are increasingly ensuring that offsets are a minority part of most climate strategies.
Best approach: Investing in offset funding wisely, building relationships with project developers, carefully scrutinising project impacts, and showcasing the hard-earned outcomes seem like sensible parts of a program.
2. Taxation. Much like the cap & trade style schemes that have come up since the 90s, many organisations will see offsets as a tax. When the price of available offsets (of appropriate quality) is lower than the internal carbon price, paying this ‘tax’ will (and even should) look attractive. As the dust settles on overnight ‘climate positive’ claims, offsets are taking on a less personal, more fungible feeling - especially for those buying at scale.
Best approach: It is in the interest of buyers to insist on working with trusted intermediaries, understanding the offset provenance, and supporting the evolution of healthy carbon markets that deliver what they promise.
3. Supply Chain Finance. This is to me the most interesting, the most impactful, and the least developed. Financing suppliers to reduce emissions relies on many of the same enablers as supply chain finance. There are existing contractual relationships between buyer/seller, and third parties that are ready to lend against these contracts. There is a limited need for additional certification and verification beyond what would be necessary for the carbon accounts of participants in any case. We don’t need to develop an alternative system of trust to underpin transactions.
All three of the above can and will co-exist, and all three are complementary to a well-structured decarbonisation program. Like it or not, carbon markets are necessary for a 1.5-degree scenario. But equally, a 1.5-degree scenario relying primarily on offsets won't work.
Saif Hameed, CEO of Altruistiq
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How accurate does your emissions measurement need to be before you take action on it?
For the early emissions reductions, measurement doesn’t matter (there’s a caveat to this further down). For most companies that are relatively new to this topic (Sustainability Adopters), the low-hanging fruit is obvious. Switching your energy inputs to renewable energy, using EVs for delivery - these are always good moves. Likewise, many companies that have been focused on sustainability since Day 1 (Sustainability Natives) have never properly measured their emissions, but are already doing many of the right things.
Most companies setting emissions targets today will address the low-hanging fruit within 2 years. We see this playing out across companies, regardless of their sustainability maturity. This low-hanging fruit may be 50% of your Scope 1 & 2, and 10% of your Scope 3, collectively 12 - 15% of your full emissions baseline. Beyond this point, you start getting into the trade-offs. Is the additional 20% of recycled packaging content more or less impactful than investing $$ in regenerative agriculture upstream? These questions require better data systems to answer.
Here’s the caveat: if you’re in the process of making binding commitments, better measurement should come early. This is because:
You need a good sense of what your commitments will cost you. Almost no company does this well today.
Knowing what the hard trade-offs are can inform how you pace yourself on the low-hanging fruit. A great way to kill momentum is to spend 2 years picking up exclusively easy wins and then run into a brick wall of hard choices
Policy Pulse | The Green Claims Directive
A breakdown of the key policy updates that you and your company need to know about from the last fortnight.
The EU and UK have taken big steps to combat greenwashing. Greenwashing erodes consumer trust in sustainability claims and harms companies’ incentives to become more sustainable. So in both jurisdictions, the main aims are to:
Provide a level playing for firms in making robust sustainability claims
Empower customers to make better and more informed choices
This has seen the UK’s Competition and Markets Authority (CMA) release its Green Claims Code in 2021, and more recently the EU propose its Green Claims Directive in March 2023. Both require companies making sustainability claims to ensure they are complete, transparent and backed up with accurate evidence.
The Green Claims Directive has 3 important distinctions:
1.Substantiation: all claims must be backed up with scientific evidence.
What this looks like in practice: If you make a claim on your product’s impact you are required a product footprint which should include primary data. All this information must be available to the consumer, either on the label or easily accessible by a QR code.
2.Verification: no claim may be made without verification by a third party.
What this looks like in practice: All the substantiated evidence will be assessed by approved verifiers, who will need to provide a certificate before a claim can be made.
3.Enforcement: since all claims will have to be certified, any claim which infringes the directive is open to large penalties.
What this looks like in practice: These could include fines of as much as 4% of EU revenues, depending on the magnitude of the infraction and the benefit gained.
The UK does not have the same level of requirements for evidence and verification. Yet should see the same drive for more and better data to back up claims. The ASA has recently withdrawn adverts that have not been backed by sufficient LCA evidence, and the CMA is currently investigating the FMCG sector for greenwashing practices.
Sustainability Trailblazers: How to set your Sustainability Strategy up for Success with BT Group
Many of today’s most sustainable consumer companies were founded in the last 10-15 years as ‘Sustainability Natives’. Sustainability is in their founding DNA and shapes operations from Day 1. Getting to the same place as an incumbent can be tricky. Gabrielle Ginér, Head of Sustainability of BT Group shares her lessons:
Champion emissions-avoiding products. 25% of BT’s revenue (£5.5b) is from products and services that help customers avoid emissions (e.g. videoconferencing replacing in-person meetings). Doubling down on future technologies that drive down customers' emissions helps BT build its role as a climate champion (even if it’s not accounted for in BT’s own emissions baseline).
Align incentives across levels. Sustainability-linked performance incentives are becoming common practice for senior executives. BT has gone further and also linked 5% of the bonus for managers to the carbon reduction pathway. This catalyses peer-to-peer learning and engagement across the organisation.
Use your purchasing power. Unsurprisingly, 70% of BT’s emissions are upstream emissions from the supply chain. However, what is really interesting is that 15% of the selection criteria for suppliers are linked to human rights and sustainability. This is supplemented by contractual clauses requiring emissions reduction over the duration of the contract.
Prefer to listen? Gabrielle Ginér (Head of Sustainability at BT Group) and Saif Hameed (CEO at Altruistiq) discuss driving supply chain decarbonisation here.