‘There is too much impunity’: carbon offsets present an emerging risk to advertisers

It was recently revealed that brands such as Disney, Shell and Gucci have used an offsetting program that largely failed to make “genuine” carbon reductions, shedding light on a sector that some have described as dubious.

Here, we catch up with experts to hear how advertisers hinging their sustainability strategies on such practices not only risk misleading citizens but could face legislation and penalization in the near future.

What is a carbon credit?

Plenty of companies say they offset their emissions as a way to neutralize or compensate for those they create. This means they buy ‘carbon credits’ from third-party providers, paying a fee in trust that the supplier will put the money towards a project such as tree planting.

Each credit represents one metric ton of CO2. Once a credit has been purchased, companies are able to claim they have ‘offset’ or compensated for the equivalent amount of greenhouse gas emissions they created. This is known as the voluntary carbon market, meaning the credits are purchased on a voluntary basis rather than to comply with legally binding carbon emissions targets.

The strategy becomes problematic when offsets are used as a substitute for reducing emissions across a company’s entire supply chain, as part of their business plan to reach net zero – a marketing tactic that has become common in high-carbon industries including aviation, automotive and fossil fuels.

“Instead of advertising talking accurately about finance for climate initiatives, carbon credits are often used to market a high-carbon company or product as ‘carbon neutral’ or ‘carbon compensated,” explains Jonathan White, a climate accountability lawyer at environmental law firm ClientEarth.

Not all offsets are created equal

Businesses are increasingly turning to the voluntary carbon market in a bid to meet their net zero targets and in 2021 the market value hit $2bn, four times what it was in 2020. The quality of projects varies greatly in a space that is privately owned and unregulated, however.

A recent investigation by The Guardian revealed how more than 90% of credits issued by the world’s most widely used certifier Verra (its clients include the likes of Disney, Shell and Gucci) were likely phantom credits and “did not represent genuine carbon reductions”.

This is just the tip of the iceberg, however. A whitepaper compiled by carbon credit organization Compensate found that over 90% of projects fail sustainability checks and are murky territory for a variety of reasons. It states: “The reasons why projects fail vary, but are all equally alarming. Some projects cannot be considered additional, others have serious permanence risks. Some have unreliable baselines because assumed deforestation is largely inflated. Worryingly, many projects also cause serious human rights violations.”

Moreover, the ‘ton-for-ton’ logic of one credit for each metric ton of emissions is not backed by science according to Derik Broekhoff, a senior scientist at the Stockholm Environment Institute. He says: “It is best to treat carbon credits as a means of channeling investment into climate change mitigation activities, above and beyond efforts to avoid emissions from discretionary activities such as flying. They should not be viewed as a failsafe way to counterbalance or compensate for emissions.”

Anne Coghlan, co-founder and chief operating officer of supply chain emissions measurement company Scope3, echoes these sentiments, adding: “The guidance is pretty clear around reductions – you should be reducing your emissions as much as possible and offsetting where you can’t.”

Contributions versus compensations

There is a social value in offsetting, believes Coghlan, as its benefits will be felt in the future. It cannot, however, replace meaningfully decarbonizing across the supply chain as much as possible, she says.

“Reduction comes first. At Scope3, where we offer green media products we ask customers to compensate at a really high price point – around $100 per metric ton. You can normally buy carbon credits for around $5, but the point is that the high price point incentivizes the reduction elsewhere.”

A lack of clarity over how advertisers communicate to the general public the role of offsetting within their net zero and carbon neutral strategies is putting them at high risk of greenwashing. White explains: “Misleading claims breach existing legal and regulatory requirements, but the problem is that there is too much impunity in practice.

“Legislation and regulation would solve this if it specified that offsetting claims were misleading, clarifying the law for all concerned. ClientEarth supports calls for clear regulation, to support the public and businesses alike to avoid misleading claims.”

To mitigate the risk of greenwashing, first-movers in the space are shifting from communicating around ‘offsetting’ to “more accurate and credible publicity about carbon credits,” says White.

“Companies simply describe this as a ‘donation’ or ‘contribution’ to help mitigate global climate change, but they don’t assert that it makes them or their products ‘carbon-neutral’ or that they are ‘compensating’ for emissions.”

Carbon crackdown

White says that evolving the language around offsetting presents an opportunity for companies to communicate credibly around the real decarbonization steps a brand is taking to reduce its impact. He predicts that, as legal scrutiny and regulation of offsetting claims increases, “we may see more carbon credit platforms and businesses adopt this approach.”

And legal scrutiny and regulation are certainly coming. RCC, the Dutch ad regulator, recently lambasted Shell for claiming in an ad that it would fully compensate for the climate impact of the CO2 emissions from petrol.

Meanwhile, environmental organizations including Client Earth recently filed a lawsuit against KLM in the Netherlands after the airline refused to stop advertising a claim that it is making flying sustainable.

• KLM hit with greenwashing lawsuit over ‘Fly Responsibly’ ads

White says: “Relying on offsetting in place of emissions reductions risks breaching protections against misleading the public, buyers or shareholders. As regulation governing climate reporting and transition plans develops, it may also breach specific requirements on companies to reduce emissions by actually reducing emissions.”

As the Advertising Standards Authority's (ASA) recent announcement reveals, increased scrutiny is here in the UK too. Whether it will enshrine the use of the terms in law as the French government has done remains to be seen.

But experts are clamoring for regulation. The Climate Change Committee that advises the UK government on climate policy has commented: “Government action is needed. If no further Government action is taken, there is a risk that the voluntary carbon markets continue to grow without appropriate quality controls or guidance in place, resulting in businesses relying on carbon credits in place of direct emissions reduction and a missed opportunity to ensure only high-integrity carbon credit projects are bought and sold.”

Most importantly, it says, this could slow progress in achieving true net zero in the UK and beyond, “as well as negatively impacting on the credibility of even the most responsible net zero targets and claims by businesses and governments.”

Coghlan says that policy, governance and standardized reporting are the only ways forward. “We can then use those reports to feed into our model and get more accurate measurements for the carbon emissions in the supply chain. It’s beneficial for us, the industry, and the curious consumer too.”

The reality is this: earlier this month the UN general secretary Antonio Guterres spoke of how the war on nature is “putting our world at immediate risk of hurtling past the 1.5 degrees temperature increase limit and now still moving towards a deadly 2.8 degrees.” Viable, science-backed net zero strategies have never been more imperative. Companies basing theirs on cowboy carbon credits might want to think again.

• How the regulatory tide is turning against greenwashing brands in 2023

• A marketer’s guide to global emissions: what GHG and Scope 1, 2 and 3 mean