In the wake of the Paris Agreement in 2015, the corporate sector rallied around a shared mission to combat climate change. More than half of the world’s largest 2,000 publicly listed companies committed to achieving net-zero emissions by 2050, aligning their strategies with the global goal of limiting temperature increases to 1.5 degrees Celsius. However, recent developments have cast a shadow over these ambitions, threatening to stall progress and leaving the world at risk of missing critical climate targets.
The Promise and Pitfalls of Carbon Offsets
Central to many companies’ strategies has been the use of carbon offsets—credits purchased to compensate for emissions by investing in projects that either reduce or capture carbon dioxide. These offsets have been particularly appealing for addressing the notoriously difficult Scope 3 emissions, which encompass the entire supply chain and often represent the largest portion of a company’s carbon footprint.
Proponents of carbon offsets argue that they offer a pragmatic solution when direct emissions reductions are insufficient or unattainable. Reforestation projects, for example, can absorb significant amounts of CO2, while initiatives like switching to cleaner fuels for domestic cookstoves can reduce emissions at their source. The allure of offsets lies in their potential to bridge the gap between current technological capabilities and the long-term goal of carbon neutrality.
However, this strategy is now facing significant scrutiny. The Science-Based Targets initiative (SBTi), an influential non-profit that audits and validates corporate emissions targets, has recently cast doubt on the effectiveness of carbon offsets. Citing concerns over the verifiability of their climate benefits, SBTi has delayed a decision on whether to permit companies to use offsets to meet their emissions targets until 2025. This postponement has sent ripples of uncertainty through the corporate world, prompting fears that some companies may reconsider or even abandon their net-zero commitments.
Reversal of Fortunes
The SBTi’s stance represents a marked shift from its earlier position. In April, its board of trustees had indicated a willingness to allow greater use of offsets in target-setting. Currently, offsets are only permitted after companies have met their direct emissions reduction targets—a policy designed to ensure that offsets supplement rather than substitute genuine climate action.
This reversal has significant implications. With nearly 6,000 companies using the SBTi to validate their emission targets and more than 2,000 companies committed to getting their targets validated, the initiative is widely regarded as the gold standard in corporate climate commitments. Its emphasis on aligning strategies with climate science has set the benchmark for what constitutes credible climate action in the corporate world.
However, the uncertainty surrounding the future of carbon offsets has left many companies at a crossroads. As Tommy Ricketts, CEO of carbon-ratings agency BeZero Carbon, points out, “There are a lot of companies out there going, ‘we can’t deliver against our targets. We have two options. We look for another way of doing it or we quietly leave the building.’” This sentiment underscores the precariousness of current corporate climate strategies, which may be undermined by the very mechanisms designed to support them.
Risk of Regressing on Climate Ambition
The SBTi’s hesitance to endorse carbon offsets stems from legitimate concerns. The lack of verifiable climate benefits associated with some offset projects has led to accusations of greenwashing, where companies appear to be taking action on climate change without making substantive reductions in their emissions. Moreover, the reliance on offsets can distract from the more challenging but necessary work of transforming business operations to reduce emissions at their source.
Yet, the risk of companies scaling back their climate commitments is real. John Lang of the Energy & Climate Intelligence Unit has suggested that more companies might reduce their near-term emissions targets in response to the SBTi’s position on offsets. This could lead to a slowdown in the momentum that has been building since the Paris Agreement, as companies recalibrate their goals to reflect what they see as more achievable outcomes.
However, it is essential to recognize that recalibrating targets does not necessarily equate to regressing on ambition. As Thomas Day of the NewClimate Institute points out, some companies may be abandoning “lofty-sounding ambitions” that were never grounded in feasible action plans. In this context, a more realistic approach to emissions reductions—focused on direct actions rather than reliance on offsets—could ultimately lead to more meaningful progress.
Path Forward: Innovation and Accountability
The current predicament highlights the need for a renewed focus on innovation and accountability in corporate climate strategies. If offsets are to remain a viable tool in the fight against climate change, they must be backed by rigorous standards that ensure their climate benefits are real, measurable, and permanent. This will require greater transparency in the carbon offset market and more robust mechanisms for monitoring and verifying the impact of offset projects.
At the same time, companies must continue to invest in the development and deployment of clean technologies. The complaints from some businesses about the slow rollout of these technologies and insufficient government support underscore the need for stronger public-private partnerships. Governments must create the policy frameworks and incentives necessary to accelerate the transition away from fossil fuels, while companies must commit to integrating these technologies into their operations.
The corporate sector’s commitment to net-zero emissions is a cornerstone of global efforts to combat climate change. However, the current uncertainty surrounding carbon offsets threatens to derail progress just when it is most needed. As companies navigate this complex landscape, they must prioritize genuine emissions reductions and support the development of credible, science-based solutions. The stakes could not be higher—both for the future of corporate climate action and for the planet.
At this critical juncture, it is imperative that companies resist the temptation to backtrack on their climate commitments. Instead, they must embrace the challenges ahead, driving innovation and accountability to ensure that their green strategies contribute meaningfully to the global effort to mitigate climate change.