UCB, Air BP, Mobistar. What do these companies have in common? They have all decided to compensate for their CO2 emissions through investments in sustainable projects. In other words, these companies have all taken part in the offsetting trend, with the objective of becoming CO2 neutral.
In 2006, only 0.03% of the worldwide CO2 emissions were compensated for. But since then, the number of companies adopting offsetting practices has been growing. Accordingly, offsetting has also been criticized quite a bit, being called an excuse for avoiding changing a company’s polluting processes and practices that would be compensated through an investment elsewhere. This Whitepaper sheds light on the ways in which companies offset today and how they can take advantages of this practice. It ultimately gives food for thought to companies about taking part in a recent type of offsetting called insetting, which could be an answer to the potential abuses of offsetting.
When Europeans decide to offset emissions…
European companies are moving towards carbon-neutrality: European utilities’ claim is to become carbon-neutral by 2050, the pharmaceutical company UCB’s objective is to be carbon-neutral by 2030, etc. What exactly lies behind this concept? In short, it means that the sum of all the emissions of a business, service, product, event, project or use of service is equal to zero. To get there, a company can reduce its emissions, and/or compensate for them by investing in CO2-reducing or CO2-absorbing projects. At UCB, 35% of the CO2 will be reduced on the company’s sites by 2030. The remaining 65% will be compensated for, as it is shown in the graph below.
Figure 1 – CO2 agenda of UCB to reach carbon neutrality by 2030
To offset, various environmental projects can be selected. From planting trees to the building of energy-efficient stoves in developing countries or investing in renewable energy infrastructure, companies have been creative. Many of them invest in projects in developing countries, as they bear the largest costs of climate change. The figure below shows what type of projects have been deployed the most around the world in 2016.
Figure 2 – Transacted volume by project type, 2016
Why is this compensation necessary? In human activities, a part of the CO2 emissions is incompressible, such as CO2 emissions generated daily by vital necessities (basic needs of feeding, clothes, shelter…),. For a company, trying to reduce these incompressible emissions might challenge the company’s survival. The determination of this incompressible part of emissions is tricky. Besides, some are not generated directly by the company (the so-called scope 3 emissions). Therefore, influencing them is also a hard challenge. For these reasons, most companies that extol emissions’ offsetting defend the fact that this practice unquestionable goes hand-in-hand with a CO2 reduction process,,.
Many benefits are expected to arise from offsetting. For instance, it can be beneficial in fostering biodiversity, conserving natural resources and ecosystems, improving access to clean water and sanitation, lowering poverty and increasing health and well-being. In other words, it can clearly contribute to the Sustainable Development Goals of the United Nations. Besides, researchers confirmed that offsetting projects bring an average value of $664 to the local populations where they are implemented (job creation, infrastructure and innovation…). For instance, an efficient cooking stove deployment project in developing countries, besides bringing economic value, is safer for the users’ health and emits fewer emissions.
Undoubtedly, offsetting is important. For companies, the same researchers showed that offsetting activities increase brand reputation, comparative advantage and employee loyalty. That said, can’t offsetting be seen as a way to greenwash? Does offsetting not serve as an excuse to emit more CO2? The answers to those questions really depend on how you offset…
Offsetting? Great, but not just in any way…
Offsetting has also often been considered as an easy solution for companies to enhance their environmental branding by investing in environmental projects. Players with this point of view offset emissions by only investing and thus are subject to a lower inclination to change their own behaviours and practices, while it is crucial to reduce emissions worldwide. Indeed, compensating intrinsically means that there has already been an emissions production using fossil fuels. These are not brought back through offsetting.
Besides, investors that invest in third-world countries are not physically close to the outcomes of their investments. They often ignore if the type of tree planted is the right one for decreasing the emissions at a maximum, or whether the local population will use the new energy-efficient stove (correctly), etc. Investors are usually also unaware of whether the project was intended to be led before their investment already, which biases the offsetting.
Furthermore, offsetting has been criticized because of its inconsistency: emissions are generated in A but are compensated for in B, which lies 1000 km away. The map below identifies the countries where there have been the highest investments in carbon offset projects in 2016. Most of the offsetting projects absorb CO2 in developing countries whereas these countries account for only 40% of the worldwide emissions. Therefore, only a small part of the world’s emissions is being compensated for with such projects.
The numerous criticisms around offsetting have made others think. What if we found another way of practicing compensation? What if this other compensation mode countered the offsetting downfalls? Let us call this “insetting”.
Figure 3 – Market size by project region and country, 2016
To offset is old-fashioned, so let us inset…
Insetting is the alternative to offsetting that parries the related critiques. Local investments, renewable energy promotion, investment in the energy-efficiency of one’s product, helping employees or customers to reduce their impact… Insetting wants to allow CO2 compensation through projects that are integrated into the company’s value chain. This way, a really consistent investment will be made,,.
Investing in projects in one’s own supply chain is supposed to bring additional revenue streams to local populations and improve social indicators that are often difficult to control. Insetting secures supply chain and sourcing, allows control over one’s environmental footprint, preserves resources, reinforces values and employee empowerment, adds value to the final product, and engages consumers and partners. In sum, insetting not only brings environmental benefits, it also provides social and economic benefits to local populations that supply raw materials.
When speaking about insetting, Pure Project is cited repeatedly, as they launched the initiative to support companies in the agroforestry insetting process. Nespresso is another company leading the way towards insetting. The company has decided to plant trees around the coffee fields it used in overseas countries. This way, it offsets in its own supply chain: single-crop farming is avoided, biodiversity is fostered, CO2 is captured, and soils are restored. Social conditions of farmers are also improved as they have a new source of revenue: the fruits that grow on the trees surrounding their fields. And these are only a few of the benefits that arise. The difference between classic tree planting and offsetting is that Nespresso cares about the farmers’ productivity, so the project will provide benefits. L’Oréal, Chanel and Ben & Jerry’s are other examples of companies that invest in the same type of project in their own supply chain.
Whatever the type of offsetting project, the insetting approach shows that it is crucial to be able to track and monitor emissions reduction. To do so, Pure Project also makes use of the blockchain technology, increasing credibility and transparency.
In a nutshell, carbon emission offsetting is necessary in order to reach carbon neutrality, but its practice needs constant involvement and tracking to counter its pitfalls. In this vein, insetting seems to provide socially, economically, and environmentally-friendly outcomes, despite its more difficult implementation (limited opportunities per company). However, one should not forget that carbon compensation projects should always be an add-on to efforts lowering one’s dependency on resources. Greenfish strongly believes that a move towards the circular economy will result in the lowest emissions possible, leaving only the incompressible ones to be compensated for.
Delphine Struyf – Project Assistant, Green Solutions at Greenfish
Nassim Daoudi – Chief Executive Officer at Greenfish