The concept of climate neutrality is not precisely defined in regulations today. Companies that use it usually try to convey that, although they emit greenhouse gases, they also contribute to reducing emissions outside their own operations and even outside their value chain. They use so-called carbon offsets . The offset mechanism works by a company indirectly (by purchasing appropriate certificates) financing projects that lead to a reduction in emissions somewhere in the world (e.g., through the construction of renewable energy installations) or to their prevention (e.g., by protecting tropical forests from logging).
In theory, it sounds great, but in practice, the reality is much worse. The British newspaper The Guardian, the German newspaper Die Zeit, and the organization SourceMaterial have published results of a multi-month investigation, which examined the actual impact on emission reductions in projects carried out by Verra, a leader in the carbon credit market, currently worth approximately $2 billion. Detailed analyses showed that as many as 90% projects do not contribute to any emission reductions or are significantly lower than the expected effects. At least one project aimed at combating climate change was also found to violate the rights of indigenous peoples, who were forcibly displaced from the area where the project was implemented.
Regulators around the world are making efforts to combat greenwashing, i.e., misleading claims that a company, its products, or services are environmentally friendly or beneficial to the climate. One of the most extensive initiatives of this kind is report a special group of UN experts published in November 2022. At the end of November, the European Commission reported draft regulation establishing a framework for a system of certification for carbon dioxide removal from the atmosphere
Perhaps one day carbon offsets will be civilized and become a reliable way to cover small, unavoidable residual emissions. Today, however, we recommend extreme caution when engaging in carbon credit-based projects, especially those that we cannot verify ourselves. It is also worth remembering that, in accordance with the European Sustainability Reporting Standards, it will not be possible to use offsets to reduce your own emissions for accounting purposes. ESRS E1 Standard On climate change, we'll report all gross emissions in DR E1-6, and any carbon removal and use of offset projects in a separate DR E1-7.
In the coming weeks, we will write more about greenwashing, including greenwashing of products and services, as well as the difficulties in defining what this phenomenon is in financial markets.
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