Shareholder scrutiny of corporate offsetting strategies is growing as the voluntary carbon market (VCM) grows, with projections it may be worth $50 billion annually by 2030. Carbon offset advocates believe the VCM incentivizes critical investments in mitigation and adaptation, even as global efforts fail to deliver on emission reduction targets. Yet companies can face reputational and litigation risks for participating in the VCM given credibility questions. Companies can reduce the risks associated with purchasing voluntary credits by aligning their strategies with best practices and procuring third-party verified high-quality credits.

Leading experts, including the United Nations High-Level Expert Group and the Science Based Targets initiative, are clear that companies should not use voluntary credits to replace operational and value-chain emission reductions. To achieve net-zero emissions in a science-aligned method, companies should aim to reduce 90 percent of their total emissions and only plan to offset the remaining 10 percent or less with projects that achieve permanent carbon removals.

Companies that want to exceed their emission reduction responsibilities through participation in the VCM need clear disclosures and procurement policies for purchasing high-quality credits and avoiding greenwashing accusations. For example, major S&P 500 companies faced criticism in 2020 for buying voluntary credits that protected trees not in danger of being harvested, producing misleading claims of emissions reductions. Other large market-cap companies purchased offsets from renewable energy projects that had negligible effects to green the grid, harming the credibility of their carbon neutrality claims. Companies can avoid buying bad credits and help signal consistent demand for high-quality credits by publicly disclosing procurement criteria and aligning with the Core Carbon Principles.

High-quality credits should be additive, capturing or avoiding carbon above and beyond what would happen naturally. In addition, they should be permanent, meaning carbon remains sequestered from the atmosphere with low risk of being released within the next century or more. Improving measurement, reporting and verification is significant improves the legitimacy of the VCM. As a result, companies should look for credits verified by third parties, such as the Gold Standard, and publicly disclose project-level risk and benefit assessments.

Over the past two years, As You Sow has engaged companies on corporate offsetting best practices. As You Sow filed a first of its kind offset-related resolution last year at Williams-Sonoma and withdrew when the company agreed to clarify its offsetting strategy. This year, As You Sow filed a carbon offset-related resolution at CarMax and withdrew when it agreed to increase offset-related disclosures. As You Sow may file additional offset-related resolutions to improve corporate offsets disclosures and policies.

Diana Myers
Say On Climate Sr. Associate, As You Sow