‘Transitioning to a net-zero world is one of the greatest challenges humankind has faced.’
At Trace our goal is to empower every business to make progress towards Net Zero and share this progress through transparent sustainability reporting. We think it’s important to recognise that a Net Zero emissions strategy is not a straight line, nor can it be achieved immediately. The keys to success are collective accountability and continuous improvement.
A growing coalition of countries, cities, businesses and other institutions are pledging their net-zero emissions strategy, covering about 88% of global emissions. The challenge is ensuring commitments are turned into action.
First, we'll define the Carbon Neutral terminology
Part of the issue with climate goals and communications is poorly defined and often misunderstood terminology. Every day we see companies using the terms ‘Net Zero’ and ‘Carbon Neutral’ interchangeably, which is wrong.
In simple terms, a Net Zero emissions strategy means cutting carbon emissions to a minimal residual amount of emissions that can be absorbed and stored long term by nature and other carbon removal measures, leaving zero in the atmosphere (United Nations). As such, Net Zero defines a future state - a company cannot be Net Zero today unless it emits next to no carbon across its entire value chain.
Carbon Neutrality for businesses means that all carbon emissions generated from a company’s products, services and value chain have been compensated or ‘neutralised’ by an equivalent amount of CO2 being absorbed or avoided elsewhere, typically through third-party verified carbon offsets. The expectation is that the company is actively seeking opportunities for decarbonisation, but evidence is rarely provided.
While some standards exist to define and govern the use of the term ‘carbon neutral’, use of the term has not been widely controlled or monitored and as a result, the term has been subject to criticism - more on this below.
Benefits of Carbon Neutral claims
While absolute emissions reduction should be a company’s primary focus, we do see a place for verified carbon offsets for the following reasons:
They represent a viable way to start making an impact, by compensating for current emissions while you start implementing reduction initiatives
Purchasing offsets provides valuable and essential funding for projects around the world and often result in a host of co-benefits for the communities involved. Co-benefits include supporting gender equality, providing clean water to communities and reducing pollution.
Committing to offsetting can serve as a financial incentive for a business to make actual emissions reductions, reducing the required expenditure to offset and turning emissions reduction into a cost saving activity
‘Carbon Neutral’ is a useful term to demonstrate a company's commitment to compensating for their carbon footprint measurement. It can be a clear signal to customers and stakeholders that a company is taking action on climate change.
Setting a goal to become Carbon Neutral encourages companies to understand their carbon footprint measurement and to reduce the emissions that they have control over, rather than continuing to pay for verified carbon offsets. Research shows that companies that buy offsets are more likely to start reducing their Scope 1 & 2 emissions.
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It’s important to recognise that while becoming ‘Carbon Neutral’ suggests positive intent, the term can be controversial. This stems from the fact that the term 'Carbon Neutral' is not well-defined or patrolled, and hence can beckon scrutiny from consumers, regulators and other stakeholders.
The term ‘neutral' implies that the emissions emitted by a company are equivalent to the emissions reduced/avoided elsewhere. ‘Neutralised’ by definition means to make (something) ineffective by applying an opposite force or effect. This concept is at the crux of recently increasing scrutiny surrounding the term 'Carbon Neutral’.
The key risks associated with the term are:
Quality of Offsets: The effectiveness and legitimacy of carbon offsets vary widely and, as a result, research has found some projects to be ineffective. Concerns arise regarding the quality of projects funded by offsets, typically defined by their permanence (whether emissions reductions are sustained over time), and additionally (whether the carbon benefit would have occurred without the funding from offset sales).
Greenwashing: The term may mislead consumers if organisations claim to be carbon neutral (or other environmental claims) without adequate substantiation or explanation.
Offsetting vs. Reduction: Critics argue that relying too heavily on offsets without a focus on carbon reduction initiatives can undermine the urgency of transitioning to sustainable practices.
‘Paying the Problem Away’: Some sceptics may feel that offsetting encourages a ‘pay-to-pollute’ mindset, where companies feel they can simply buy their way out of environmental responsibility. It’s because of these concerns that the UK Advertising Standard Authority (ASA) and EU Green Claims Directive have both recently released strict guidance on green claims to help companies avoid the risks of greenwashing, with ASA banning the use of the term ‘Carbon Neutral’ when the claim is contingent on offsets, unless the company can prove the validity of the offsets. These guidelines are designed to ensure that carbon neutral claims are meaningful, verifiable, and not used as a form of greenwashing.
An actively changing climate landscape
Once considered a peripheral concern, sustainability has now become a central element of business strategy. Companies are increasingly recognising the urgent need to address environmental challenges, not just for regulatory compliance or public relations, but as a core aspect of long-term viability and competitiveness. This shift reflects a growing awareness that sustainable practices are essential for reducing risks, driving innovation, and meeting the expectations of consumers, investors, and stakeholders who are demanding more responsible corporate behaviour.
As more companies embrace green initiatives, the spotlight on their environmental claims and practices intensifies. Stakeholders—including consumers, investors, regulators, and advocacy groups—are increasingly vigilant in assessing whether companies' sustainability efforts are genuine.
Due to the risks outlined above, in the last 12 months we’ve seen corporations and governments alike increasingly shifting from relying on carbon offsets to focusing on genuine carbon reduction initiatives, net zero alignment and science-based carbon targets. Global business leaders are beginning to publicly distance themselves from carbon offsets. We’ve seen Google end its mass purchase of offsets in favour of a 2030 Net Zero goal, and similar action being taken by Telstra (Australia’s largest telecommunications company)in recognition of the urgent need to address emissions directly.
Views are changing in Europe especially, with the EU banning Carbon Neutral claims that rely on carbon offsetting from 2026. With Europe tending to be global leaders in the realm of sustainability and environmental disclosures, we expect to see this point of view make its way over to other global authorities rapidly.
These decisions reflect the sentiment of a recent review of the efficacy of carbon offsets conducted by the Science Based Target Initiative (SBTi), which yielded that ‘carbon credits were found to be mostly ineffective’.
Where does Trace stand?
At Trace, we believe in empowering businesses to make meaningful progress towards Net Zero by first measuring and reducing emissions, and then optionally pursuing positive impact through verified carbon offsets (in that order). Our emphasis on transparent sustainability reporting ensures businesses have the confidence to communicate their emissions reduction initiatives and wider net zero strategy.
We also strongly believe that measuring your carbon footprint in the first place is something to be proud of - it shows that climate is a priority for your organisation, and is an absolutely necessary first step in any emissions reduction plan. Understanding your emissions is a huge part of the journey, only 1 in 25 SMEs do this currently. So by measuring your emissions you are in the top 4% of companies and should be loud and proud about that: what you can measure, you can manage.
The next step is reduction: making a credible plan and demonstrating your progress each year. In many cases reduction can take time to realise. That's ok, talking about your journey, efforts, where you’ve had success and where you have failed is all part of the picture. Over a third of Trace members have started work on a decarbonisation plan using the advice, tools and guidance we have available.
While becoming Carbon Neutral is a valuable interim solution that signals that a company has started managing their Scope 1, 2 and 3 emissions, the primary focus should always remain on absolute emissions reduction via an emissions reduction plan.
In short, we believe carbon neutrality should be encouraged until Net Zero can be fully achieved. However, claims must be clearly and transparently communicated following robust standards, like Trace.
To demonstrate this view, we are changing a couple of things here at Trace.
Our New Badging System
We’re updating our Badging System. During the week commencing 1 October 2024, we’ll be removing the term ‘Carbon Neutral’ from our badges, and focusing on more specific and transparent communication about what action has actually been taken. This change will help our customers reduce the risks associated with greenwashing and carbon offsets, and clearly convey their climate actions. The new badges will be rolled out in the following way:
Any customer using the current ‘Carbon Measured’ badge will automatically be transferred over to the new version of the ‘Carbon Measured’ badge
Any customer using the current ‘Carbon neutral’ or ‘Carbon Positive’ badges will be able to continue doing so until their badge expires or a new measurement is completed
Customers who submit their data between now and 31 December will be able to choose whether they use the old or new badging system
All customers onboarding from 1 January 2025 will receive the new badges upon completion of their measurement
If you choose to offset, your badge will clearly communicate that you have both measured and offset your emissions, and will outline which emissions have been offset.
If you would like to have even greater impact, you can offset 150% of your emissions.
If you don’t choose to offset, you’ll get this newly designed ‘Carbon Measured’ badge
Net vs. Gross emissions reporting
You might be wondering what this means for any sustainable suppliers you’ve painstakingly procured or convinced to offset their emissions, and whether these efforts will still be reflected in your carbon footprint. We believe that supplier engagement is an amazing way to start tackling your Scope 3 emissions, and we’re among the likes of the Greenhouse Gas Protocol and the Science Based Targets Initiative in taking that view. So, naturally we want you to be able to flaunt the fruits of your efforts in this space.
We’ll also be enhancing our emissions reporting to bolster transparency. In the near future, our app will feature both gross and net emissions reporting.
Gross emissions: Gross emissions will give a complete picture of your carbon footprint before any offsets in your value chain, encouraging genuine emissions reduction. This means that your Gross footprint will not reflect any offsetting activities by your suppliers.
Net emissions: this is your carbon footprint after accounting for any carbon offsets, renewable energy credits, or other forms of carbon mitigation within your supply chain. Reporting net emissions allows you to see and celebrate the impact of your supplier engagement or procurement efforts.
We’d love to hear from you!
If you have any questions, concerns or feedback around Carbon Neutrality and our stance on it, please don’t hesitate to reach out to sustainability@our-trace.com.
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