Significant price spikes in the energy attribute certificate (EAC) and carbon offset markets have many companies are wondering whether environmental commodities are the right way to reach their goals, asking: is carbon offsetting worth it? These tools that many companies have come to rely on to achieve carbon neutrality have become much more expensive than they may have originally budgeted for. Pair this with headwinds in the renewable energy PPA market, and the question of how to reach goals gets even more complicated.
Now, companies are faced with an impossible dilemma that is putting both their financial risk tolerance and their moral obligations to the test: Do we discontinue our offsetting program and forego our carbon neutrality claim, or do we shell out the cash to buy high-priced offsets and EACs to maintain our carbon neutral status?
Weighing the pros and cons of this decision dredges up some strong and sensitive opinions about a company’s commitment to sustainability and its public reputation. But unfortunately, there are many companies in this exact position today. How to answer this question will be unique to every company, but our experts at Schneider Electric can share our opinion from working with hundreds of companies on their procurement options and affiliated claims.
Is carbon offsetting worth it? The cons of letting your carbon neutral claims lapse
The decision whether to stop buying EACs and/or carbon offsets is not always purely a financial one. When prices spike, it’s important to consider all the possible downsides of backtracking on your carbon neutral claims. While not every consideration will apply to every company, here’s a list of potential risks to weigh when talking about claims with your sustainability and leadership teams:
- Stakeholder scrutiny/criticism: Employees, investors, customers, and NGOs may view backing away from carbon neutrality as an abandonment of your sustainability ambition. You man run the risk of being accused of greenwashing, only acting sustainably when it is cheap or convenient. Any of your past and future claims and commitments may also be brought into question.
- Poor public reputation: Erosion of consumer faith could lead to the perception of your organization as a less responsible company.
- External recognition: Lower placement in sustainability rankings and ESG scores, or not ranking at all.
- Remediation of past claims: There will be a level of effort required to adjust messaging on web, social, print, signage, and other sales and marketing materials that may reference your carbon neutral goal. This messaging must be corrected to avoid potential greenwashing accusations.
- Negative PR: There is always the possibility of negative media attention regarding a lapsed claim. This can be extensive and lead to significant reputational damage.
- Crisis communications: Your communications team will likely want to develop a plan to arm employees and leaders to explain the lapse when asked by customers or media.
- Loss of co-benefits: Offsets and EACs often provide benefits beyond emissions reduction, such as social improvements in local communities, biodiversity impact, water conservation, etc. that will also no longer be valid claims.
Maybe carbon offsetting is worth it? The pros of keeping your carbon neutral claim, no matter the price
Given the variety of potentially negative outcomes, not to mention the lost progress toward your climate action goals, it’s worth revisiting why your company may have decided to aim for carbon neutrality in the first place.
The business case for continuing to buy offsets to reach carbon neutrality includes:
- Reinforced commitment to sustainability: Even amidst financial or other headwinds, companies that continue making progress on their climate action goals strengthen their position among competitors.
- Positive brand reputation: Keeping your carbon neutral claim can position you as a responsible and mission-oriented company and attract positive attention from the media. The determination to maintain your commitment in the face of challenges can even create storytelling opportunities.
- Continued internal momentum: Carbon neutrality is often a stepping stone to a more ambitious climate action goal, such as net-zero emissions. Maintaining a carbon neutral status keeps the company motivated to work toward the next milestone and represents your commitment to reach net-zero, even when the going is difficult. (Read more on the difference between carbon neutral vs. net-zero goals)
- Consistent trajectory: A lapsed claim and corresponding spike in reported emissions on record would draw criticism and need to be explained.
- External recognition: Keeping or enhancing your claims improves your company’s chances of appearing in sustainability or ESG ratings and may improve your CDP score.
- Competitive advantage: Studies show that sustainable companies win the confidence of the public and investors, helping them to have better financial returns, outperform their peers, and attract talent.
Getting your company to carbon neutral requires a multi-faceted approach. Among the powerful solutions companies are exploring, carbon offsets are a credible and often necessary component in your carbon neutrality journey. Download our full guide to carbon offsets to learn more about the role they can play in large-scale emission reduction programs, how they reduce GHGs, and how to select offsets that will meet your organizational goals.