Are companies’ carbon neutral claims just hot air?

Carbon offsets are under the cosh. Nestlé and Evian, Leon and Sodexo, have all backed away from their carbon neutral status in recent weeks as the voluntary carbon market – which companies can use to buy credits to ‘offset’ their product or business carbon emissions and claim ‘neutrality’ – goes into meltdown.

Confidence in the offsets has been damaged by a series of scandals, most notable the investigation by The Guardian claiming more than 90% of rainforest carbon offsets sold by Verra, the world’s biggest certifier, were “worthless”. Verra has rebutted the claims, but the article rocked the voluntary carbon market, reinforced greenwashing concerns and has left food and drink brands reeling.

And this week The Grocer revealed that leading certifier The Carbon Trust is dropping the carbon-neutral label that appears on 886 food and drink products supplied by the likes of Lidl, Evian and Wyke Farms. The trust is replacing the label with four new ones that focus on emissions reductions and carbon footprint comparisons. Other schemes have made similar moves as they try to restore confidence in the market.

So what does this mean for carbon neutral claims?

Use of carbon neutral claims has soared in recent years. Globally, the number of staple food SKUs with carbon neutral or reduced carbon claims rose 87.8% from 2021 to 2023, and 79.4% across dairy and dairy alternatives [Euromonitor].

Wyke Farms is one of those to have embraced the concept, turning to The Carbon Trust for certification when it launched the world’s first carbon-neutral cheddar in 2022 and the UK’s first carbon-neutral butter earlier this year under its Ivy’s Vintage brand. MD Rich Clothier says investments in carbon credits are making a difference, such as protecting peatland in Sumatra. He is sad to see the carbon neutral label go and believes the current situation is “a failure of transparency and process rather than a failure of policy”.

Carbon offsets came into being when the voluntary carbon market (VCM) was set up about 20 years ago. Offsets were divided into three Scopes: Scopes 1 and 2 cover a company’s own operations, ie the energy used to power factories or emissions related to refrigeration of products, while Scope 3 are the emissions in the value chain, such as those from production of food or customers using what they buy. Scope 3 is where more than 90% of a grocery brand’s emissions tend to lie.

The aim of the VCM was to support programmes in the developing world that help mitigate climate change, such as protecting forest and planting trees or developing new carbon capture technologies. A business can offset some of its emissions by purchasing carbon offsets (also known as carbon credits) that each represent an emission reduction of one tonne of CO2. Prices can vary though, from a few dollars to hundreds, and sorting the wheat from the chaff isn’t easy. As Rubies in the Rubble founder Jenny Costa wrote of carbon offsetting in The Grocer recently: “In practice this unregulated market is hard to govern and there are many methodologies for how the offsets are calculated.”

Carbon offsets enable businesses to claim a product is carbon-neutral without having to shake up production or operations, explains Maria Coronado Robles, Euromonitor global head of sustainability insights. But she adds: “Companies are throwing money at different projects with all sorts of certifications, so it’s hard to know which ones make a real impact.”

Campaigners have long raised concerns over offsetting, with Greenpeace describing it as “the most popular and sophisticated form of greenwash around”. The provenance of offsets is one issue with carbon-neutral claims, but there is also frustration over the failure of some businesses to disclose and contextualise claims.

Feedback, one of many NGOs now chasing businesses down about their green claims, has been targeting Aldi. Its website described how it has been carbon neutral since January 2019 but again does not mention this only related to its Scope 1 and 2 emissions, which account for under 1% of its total emissions of 23.4Mt CO2e. The text has recently been updated to include reference to Scope 1 and 2 emissions, according to Feedback campaigner Liam Lysaght, but still lacks the context of those considerable Scope 3 emissions. Aldi maintains it is “committed to minimising our carbon emissions and climate impact”.

Not to be outdone, in 2021, Lidl announced it was to be carbon neutral by 2022, but it has declined to confirm whether this target has been met; nor why it only covered its Scope 1 and 2 emissions – just 1.1% of its total emissions.

Even Austin Whitman, CEO at Climate Neutral, which certifies thousands of products, admits that carbon neutral is “imperfect” but stresses that it doesn’t allow companies to hide behind vague net zero targets that are far into the future.

This is, however, a moment of reckoning for both the claim and carbon markets, he adds.

After The Guardian’s investigation, the price of carbon credits initially has plunged. Prices have since recovered but the damage has spread like wildfire through the $2bn VCM market.

And the pressure shows little sign of easing, with research used in The Guardian’s investigation published in the journal Science last week that claims offset projects are not significantly reducing deforestation and are placing the integrity of carbon accounting at risk.

“We have pretty good evidence that certification is not enough,” explains lead researcher Thales West, assistant professor at Vrije Universiteit Amsterdam.

The voluntary carbon market is furiously scrabbling to assuage concerns. Verra, whose CEO quit, has published an update to its verified carbon standard that it says will strengthen integrity. This will bring it into line with the Integrity Council for the Voluntary Carbon Market, the independent governance body for the VCM, which is currently tightening its own rules through a new global benchmark for “high-integrity” carbon credits. Offsetting schemes will, for example, have to monitor and report on emissions reductions and removals for at least 40 years where there is a risk they may be “reversed” – for instance through wildfires.

Today about 83% of offset credits are generated from avoided or reducing emissions – increasing energy efficiency, deploying renewables or halting deforestation – rather than from carbon removals. This is fine, to a point, but doesn’t deal with ongoing emissions, leaving the level of carbon in the atmosphere to rise.

And the Voluntary Carbon Markets Integrity Initiative (VCMI) has published a new code of practice detailing how companies should use carbon offsets. Businesses making claims will need to disclose their greenhouse gas emissions and set science-based near-term carbon reduction targets and demonstrate they are on track to meet them. VCMI has proposed three tiers – silver, gold and platinum – but only 4% of companies using credits would reach even the bottom one, according to climate policy advisory firm Trove Research.

Witch hunt

Some see the attacks on VCM as a witch hunt. Why are fingers not pointing at the nearly 60% of Fortune Global 500 companies yet to make any substantial climate commitments, asks Rebecca Fay, CMO at VCM consultancy Climate Impact Partners. She says companies with a carbon neutral target are “twice as likely” to disclose their annual Scope 3 emissions than companies without one. And Trove research showed those making carbon-neutral claims reduce their emissions faster.

Meanwhile, shoppers are left perplexed. People like the idea of carbon neutrality until they are told that it relies on offsets and these might only cover a tiny part of emissions; then they get angry, as qualitative research by the Advertising Standards Authority shows.

“How are consumers supposed to understand products with these claims?” asks Coronado Robles at Euromonitor. “They see a label that says ‘carbon neutral’ but what does that mean? It doesn’t tell you how they offset emissions or what percentage were offset.”

New guidance from the ASA, as well as the Competition & Markets Authority, demand that brands now do just that (see box, left). Some lawyers suggest the guidelines are too vague though, so few businesses will attempt such a green claim at the moment.

Not all offsetting is bad, despite what some headlines might suggest, but the food industry is still spooked.

Danone quietly dropped its Carbon Trust-certified carbon-neutral label in May – though a US class action lawsuit focused on the label apparently had nothing to do with the decision. “We will be focusing our investments on transformations within our value chain,” says a Danone spokesperson.

Gilles Dufrasne from watchdog Carbon Market Watch adds: “Companies are picking up the signal that the use of carbon credits is a liability rather than an asset.”

Carbon Market Watch recently examined 15 carbon-neutral claims made on products sold in Belgian supermarkets by brands including Actimel, Nottage Hill and Chiquita. The clarity of the claims varied considerably, but there was heavy reliance on offsets.

Food companies will require offsets of around 20% at the end of their net zero journey, according to the Science-Based Targets initiative, but will they leave reductions too late if they are distracted by offsets?

Brands would obviously be better off spending on emissions reductions rather than offsets that aren’t delivering, and there are signs the market is evolving to help companies and consumers make better choices.

The new labels the Carbon Trust launched this week will focus on emissions reductions and footprint comparisons (such as the emissions of a vegan Kit Kat versus a standard one). One label is for products that are reducing emissions in line with the company’s net zero target (which must be science-based), while another assures that product emissions have been reduced from a specific year.

Gill Wilson, a sustainability marketing professor and consultant who has advised companies including Coca-Cola, Heineken and Unilever, suggested the bar may be too low with a required reduction of just 5%, when cuts of 45% are needed by 2030, according to the Intergovernmental Panel on Climate Change.

“It may bring more brands on board but it seems a bit of a business-as-usual scenario,” she says.

Carbon Trust director John Newton says consumers and businesses are demanding more rigorous requirements and detail about carbon claims. Emissions reductions should always come first, he says. Understanding of the term ‘carbon neutral’ varies so focusing on carbon reductions is also a “simpler” message, but the trust will continue to encourage brands to invest in carbon credits as “additional climate funding”.

A recent BloombergNEF analysis showed the supply of ‘avoided deforestation’ credits shrank by a third from 2021 to 2022. “Plagued by media and investor criticism, the offset market failed to grow in 2022,” the analysts wrote.

However, McKinsey has said long-term demand could still drive massive growth, and estimates carbon credits could be worth more than $50bn by 2030.

The voluntary carbon market will have its work cut out – it needs to reassure businesses their millions are being well spent. The challenge is to ensure this reset brings credible carbon finance into the system.

“The carbon neutrality claim is probably irredeemable at the moment,” says Mark Kenber, executive director at the VCMI, but we still “need to channel finance or we risk the opportunities being lost”.

Making claims

New rules are shaking up how food and drink companies tell their sustainability stories.

The Competition & Markets Authority and Advertising Standards Authority are trying to show where the red lines on green claims lie.

In January, the CMA said it would review the accuracy of ‘green’ claims made about household essentials, to make sure shoppers are not being misled. And in May, the ASA announced it was cracking down on environmental claims amid concerns about greenwashing. Terms such as ‘carbon neutral’ and ‘net zero’ will face increased scrutiny, said the watchdog.

There may be easier sustainability subjects to talk about than carbon neutral, suggests Ciara Cullen at law firm RPC. Brands need to think carefully about whether they can back their claims up, but it’s a “massive opportunity” in terms of building trust, she adds.

Whether there is confidence in the regulators to offer up the necessary guardrails is another matter.

“The ASA thinks it’s clamping down on misleading ads [but] is also making it difficult to actually make ads in this space,” says Dominic Watkins, partner at legal services firm DWF. More guidance would help and the ASA is developing some – but carbon neutral claims could have died out by then.