As a consequence of making non-credible climate claims, entities face significant risks ranging from reputational damage and greenwashing allegations to legal proceedings, fines by domestic authorities and litigations
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Introduction
Enterprises and other private actors play a crucial role in the global effort to mitigate climate change. In the face of the upcoming EU taxonomy and the corresponding Corporate Sustainability Reporting Directive (CSRD), enterprises shall take full responsibility for all greenhouse gas (GHG) emissions along their value chain. Additionally, enterprises should inform the public about their commitments, targets, decarbonisation strategies and actual achievements.
According to the Science Based Targets initiative (SBTi), “purchasing high-quality carbon credits in addition to reducing emissions along a science-based trajectory can play a critical role in accelerating the transition to net-zero emissions at the global level” (4) (Read more in this Callirius article). However, in reality, many enterprises and entities rely too much on carbon offsets in their net-zero strategies, which in turn hinders, delays, or replaces the efforts to reduce their own value chain GHG emissions. What is more, enterprises often use these offsets to communicate misleading and unjustified “climate neutral” claims, which undermines the integrity of the voluntary carbon market (VCM).
As a consequence of making non-credible climate claims, entities face significant risks ranging from reputational damage and greenwashing allegations to legal proceedings, fines by domestic authorities and litigations (3). These relevant risks show how crucial it is to understand which claims to make, how to phrase them, and which alternatives exist to traditional carbon offsets.
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What are environmental claims?
Environmental claims are assertions that enterprises or organisations make about environmentally-beneficial attributes concerning their operations. Such claims may be made about an individual product, service, brand, or organisation and can be used in sustainability reports, press releases, labels, advertising, or other marketing material. Environmental claims can refer to varying time scopes and levels of environmental impact (i.e., past, present, or future activities), and their ultimate purpose is to enable stakeholders – such as consumers, investors, and civil society organisations – to assess the relative environmental impact of products, investments, or organisations. Unfortunately, the ongoing lack of transparency and independent oversight on these environmental claims has caused decreased public confidence (2).
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Considerations when making environmental claims
Regaining confidence in climate claims is critical to encourage further climate action. For these, any entity making climate claims shall consider that:
- Claims must be truthful, accurate, specific and substantiated with objective, transparent & up-to-date data to back them up
- Claims cannot be misleading (e.g., occurring when only a fraction of an enterprise’s operations is in line with the net-zero targets)
- Claims cannot be exaggerated (e.g., occurring when the beneficial impacts of an activity are overstated and not accurately quantified)
- Claims can only be stated if they are accompanied by clear, objective and verifiable commitments & targets, as well as the proven excellent environmental performance of the within- and the beyond-value-chain mitigation efforts
The consequences of stating wrong claims go well beyond just a negative reputation and greenwashing accusations. For instance, misleading carbon neutrality claims have led to legal proceedings against several enterprises in Germany (1, 5):
- The Wettbewerbszentrale (German Agency against Unfair Competition) has increasingly filed complaints against enterprises over allegations of greenwashing.
- In 2021, the Wettbewerbszentrale issued warnings against twelve enterprises for using misleading claims related to “climate neutrality” and sued four enterprises.
- The German NGO Deutsche Umwelthilfe (DUH) initiated legal proceedings against eight enterprises that use the claim of “climate neutral” in the labelling of their products.
- In the event of an unfavourable verdict, the misleadingly-labelled products might have to be recalled from the distribution channels.
Due to their misuse, carbon offsets and the associated climate neutrality claims are becoming more and more discredited in the VCM. Whilst carbon offsets carry an inherent disincentive for actual and steady emission reductions within corporate boundaries, neutrality claims obfuscate the real climate impact of an enterprise, its products and its services. Enterprises often use carbon offsets to build a climate-friendly public image whilst continuing to pollute the environment. From a legal point of view, using the statement “climate-neutral product” inaccurately and unrestrictedly is, if at all, only possible when the advertising entity has reduced its current CO2 footprint to an unavoidable level and has counterbalanced the unabated emissions with high-quality carbon credits.
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The surge of "mitigation contributions"
Recently, “mitigation contributions” have gained public interest as the VCM experiences a paradigm shift. Instead of offsetting one’s emissions and then claiming to be climate neutral, highly-upright, climate-educated and forward-looking enterprises start to make contribution claims towards the climate targets of the carbon project’s host country. The achieved emission reductions of this voluntary climate action can only be claimed by the host country (where the project takes place) and not by the corporate carbon credit buyer. This process addresses the pitfalls of double counting, and the approach is well-aligned with the collaborative spirit of the Paris Agreement (2).
So, how can an enterprise go about mitigation contributions?
The good news is that acquiring carbon credits and retiring them with a relevant standard and registry is just as with traditional offsets. The difference lies in the climate claims the enterprise can make out of them. As a replacement for the climate neutrality claims, the enterprise can specify the financial contribution to climate and nature projects and communicate the positive results and effects of supported projects, including SDG-related outcomes. This framing may initially sound less attractive to businesses and be mistakenly perceived as less impactful. However, it can promote stronger ties between enterprises and developing countries and give more credibility to enterprises’ commitments. Not only this, but it can prevent greenwashing accusations and reputational damages derived from inaccurate environmental claims.
Do you know what other relevant benefits of mitigation contributions are? Among others, mitigation contribution claims encourage
- Higher attractiveness of local climate solutions (also in the Global North)
- Avoiding double-claiming and double-counting of mitigation efforts
- Reduced exposure of consumers to false and misleading advertising
- Reduced exposure of enterprises to unintentional accusations and legal expenses
- Preservation of the existing VCM structure (ensuring quality and integrity)
- Avoiding wrongly netting out of emissions produced in one place by an equivalent reduction somewhere else and consequently increasing the importance of within-value-chain emission reductions
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Making environmental claims right: resources for support
Some initiatives provide guidelines on how to make the right claims. The VCMI (Voluntary Carbon Markets Integrity Initiative) provides their Provisional Claims Code of Practice guidance on how to use carbon credits and ensures that the claims made regarding their use are credible (3). The Nordic Dialogue on Voluntary Compensation differentiates claims according to the carbon credits’ relationship with the host country’s Nationally Determined Contribution (NDC). It addresses the key question about whether (and under which circumstances) carbon credits should be backed by corresponding adjustments. To help steer investors’ capital and consumer purchasing decisions towards enterprises that deliver leadership on climate mitigation, policymakers and climate experts shall continue to provide clear and transparent guidance on how carbon credits can be used, underpinning the credibility of the related claims.
At Callirius, we encourage enterprises to communicate their within- and beyond-value-chain climate mitigation efforts as transparently and accurately as possible. We emphasise the increased benefits of local, mitigation contribution projects. We also provide guidance on ESG reporting and environmental claims relating to contributions to carbon projects. Ultimately, we help Enterprises avoid greenwashing allegations and enable true climate impact.
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Key terms: carbon credit-related claims
You can find the terms below and more in our Glossary.
Commitment claims
Commitment claims communicate a corporate climate target – typically an intention to reduce emissions within an enterprise’s value chain and/or counterbalance unabated emissions by a specific year – in the medium to long term. These claims are aspirational and often convey an intention to pursue a defined mitigation trajectory to reach the announced target. These claims are communicated towards investors, shareholders, employees, consumers & civil society organisations and are made public through sustainability reports and media announcements.
Achievement claims
Achievement claims are assertions made by enterprises that their products already display certain climatic attributes or that their business (or specific brands) have already achieved a particular climate target or ambition. These claims generally convey a concrete statement of fact instead of a promise or aspiration to reach a certain end-state by a future date. They also often relate to climate action that has already been monitored and verified. These claims are meant for consumers and investors and are made public through labelling, advertising, or other promotional materials.
1.5 °C-aligned decarbonisation pathway
Going “net zero” for an entity entails quantifying its greenhouse gas footprint and reducing and removing its emissions in line with the SBTi. Entities can fall back on high-quality long-term carbon removal solutions for unabated emissions. To reach net-zero emissions, the entity counterbalances its emissions with the organisation’s removals over a specific period.
Net zero carbon dioxide emissions
“Net zero” describes a situation where no additional greenhouse gases are added to the atmosphere. Remaining emissions (e.g., of an enterprise) are counterbalanced with removals (e.g., retired carbon credits) over a specified period. The “net” in “net zero” refers to the fact that in addition to making immediate and significant reductions in emissions, carbon credits can be used to counterbalance unabated CO2 emissions. In most cases, entities use the term “net zero” referring to carbon dioxide emissions even though it includes all greenhouse gas emissions (often referred to as “CO2e”; e as in “equivalent”).
Climate neutrality & carbon neutrality
The term “climate neutrality” is very similar to net zero. Climate neutrality describes the situation where – on the decarbonisation journey – an organisation counterbalances its entire greenhouse gas footprint. For that, they purchase and retire carbon credits from activities that reduce, avoid or temporarily capture GHGs equivalent to the volume of all greenhouse gas emissions. As with net zero, climate neutrality is often wrongly used as a synonym for carbon neutrality even though climate neutrality should account for all greenhouse gas emissions and not just carbon dioxide emissions.
Within value chain mitigation:
An organisation’s Scope 1, 2, and 3 emissions as defined by the GHG Protocol accounting standard. Tackling climate change will first and foremost require within-value chain emission reductions.
Beyond value chain mitigation:
In addition to the absolute reduction of CO2 emissions, the Science Based Targets Initiative (SBTi) also ensures that enterprises contribute to high-quality climate protection projects (Beyond Value Chain Mitigation). Investing in effective decarbonisation and climate resilience efforts outside of their value chain.
CO2-compensation:
Stakeholders use CO2 compensation to claim that emitted carbon dioxide emissions have been counterbalanced through the purchase and retirement of carbon credits. This claim is often stated to emphasise that the entire organisation or some of its products individually are climate neutral.
Mitigation contribution:
Mitigation contributions provide a sensible alternative to the criticised traditional carbon offsets. Although carbon credits are bought in both cases and climate projects are financed with them, different claims are being made. With the mitigation contribution, an organisation doesn’t claim to be climate neutral but rather declares to voluntarily contribute to a host country’s climate efforts.
References
- Kreibich et al. (2022): Governing Corporate Claims: Increasing transparency of climate-related claims. Carbon Mechanism Research, Policy Paper No.03/ 2022.
- VCMI (2021): VCM Related Claims, Categorization, Utilization & Transparency Criteria. Working paper.
- VCMI (2022): Provisional Claims Code of Practice. For Public Consultation and Corporate Road Testing June 7, 2022.
- SBTi (2021): The SBTi Net-Zero Corporate Manual; SBTi (2020): How To Guide for the SBTi’s Net-Zero Standard.
- Wettbewerbszentrale (2021): „Wettbewerbszentrale beanstandet verschiedene Werbungen im Zusammenhang mit der Aussage „klimaneutral“ als irreführend und intransparent“; Verbraucherzentrale Baden-Württemberg (2021): „Werbung mit Klimaneutralität“.
