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In 2023, there was notable progress in the fight against greenwashing—particularly in the realm of offsetting, as stakeholders increasingly demanded genuine sustainability efforts from companies. Despite this advancement, uncertainty persists around what constitutes true sustainability, leading to challenges for companies in navigating their climate strategies.

What is greenwashing?

Greenwashing refers to making vague, misleading, or unsubstantiated claims regarding environmental progress. Some forms are more obvious than others and can occur in a number of ways such as:

• Claiming environmental progress without concrete action plans
• Being purposefully vague or using generic labels such as “green” or “eco friendly”
• Emphasising a single environmental impact while ignoring other harmful environmental impacts
• Implying that a minor improvement has a major impact on environmental performance

Avoiding greenwashing is one of the greatest perceived barriers to companies looking to meaningfully engage in a climate strategy. This threat often leads to hesitation or even "green-hushing" – the suppression of sustainability efforts due to fear of being accused of greenwashing. This in turn hampers the progress that sustainable leadership can achieve.

However, increased scrutiny of environmental claims is ultimately beneficial. Stricter standards for such claims can encourage wider adoption of environmentally responsible behaviours. It's clear that unsubstantiated claims of positive impact not only hinder climate mitigation efforts but also lead to overestimation. Furthermore, enhanced transparency and the delivery of high-quality action, data, and communication are essential pillars for a more sustainable future.

What does greenwashing have to do with offsetting?

Past offsetting practices allowed too many companies to make large claims to be made on the backs of less credible investments, leading to a loss of trust, major reputation damage, and sometimes even million-dollar lawsuits. These examples, highlighted in Bloomberg and The Guardian, primarily involved avoidance-based offsetting, where companies claimed carbon neutrality despite minimal to no actual environmental impact from the projects. This lack of return is not only detrimental to our common climate goals, but also damages trust in carbon markets, underscoring the importance of transparency and trust in the future of carbon removal markets.

Regulatory bodies continue to work to boost the credibility of environmental claims by combating greenwashing, particularly when it comes to offsetting.

There has been an increase in anti-greenwashing regulatory changes across Europe, such as the EU Green Claims Directive, the Corporate Sustainability Reporting Directive (CSRD), and the UK’s reflective Green Claims Code. The US Federal Trade Commission and Security and Exchange Council has also adopted environmental reporting and claims directives that mention carbon removal. These are a clear indication of the direction the international climate claims landscape is heading.

Rather than viewing these directives as a mere disclosure and reporting activity, they have the potential to showcase a company’s commitment to climate transition planning, thereby incentivising action in deep decarbonisation and investment in carbon removal.

Challenge into opportunity: Green Claims Directive

The EU has made significant progress towards eradicating greenwashing. Most recently, by passing an act to ban misleading advertising practices and require verification and substantiation of environmental claims. Regulations like these can be invaluable assets, providing a clear blueprint and methodology for how to best communicate environmental claims.

The Green Claims directive provides helpful guardrails around making green claims based on offsetting. This is an important move towards ensuring the reliable use of offsets, for two key reasons:

• Claims like carbon neutral, climate neutral, or climate positive lack consistent definitions and methodologies, bringing their validity and accuracy into question
• Ambitious emission reductions alongside removals are the only way to reach a true net zero future

Best practices to avoid greenwashing in your climate strategy

While the regulatory landscape continues to develop, recognised supra-national bodies offer advice on best practices for sustainability communication. These include target-setting bodies, accounting standards, and even climate achievement certifications or ratings.

The bottom line: companies are not alone in navigating how to make a legitimate green claim. By aligning with best practice standards like the Oxford Offsetting Principles or Science Based Targets Initiative, companies can stay ahead of the regulatory curve and share their climate strategies with clarity and transparency. These standards also form the basis of strategy at Klimate.

Moreover, to avoid greenwashing, companies should shift focus from grand claims to providing clear and transparent information about their activities. It's crucial to honestly communicate both the positive and negative climate impacts of investments, as well as acknowledge the road ahead towards taking full environmental responsibility.

Wondering where to start? Not all companies are yet affected by one of the major regulatory directives, working with a target-setting organisation, or have a clearly defined strategy.

• Create a claims framework with specific goals and KPIs, and set clear dos and don’ts.
• Externally verify claims: not sure what something means, or what best practice calls for? Ask an expert and have your claims audited.
• If all else fails, prioritise clarity and transparency.

Greenwashing to green progress

Avoiding greenwashing is crucial for maintaining brand trust and reputation. Being recognised as a leader in climate action will benefit your relationships with stakeholders, including employees, consumers, and investors, over the long term.

This relies on taking quality action and communicating with transparency—essential elements to transform this challenge into an opportunity for climate leadership. Ultimately, the recent increase in scrutiny—and corresponding opportunity to build brand trust—will enable more progress towards our common climate goals to secure a more sustainable future.

What is GHG accounting?

Greenhouse gas (GHG) accounting refers to the process of measuring and monitoring the GHG emissions associated with a company or organisation. Using standardised measuring and reporting per agreed-upon protocols, companies are able to measure the quantity of GHG emissions resulting from their:

• Direct emissions: Emissions produced by the company, such as emissions from on-site combustion or production processes.
• Indirect emissions: Emissions resulting from the energy the company uses, the company’s supply chain, and the end-of-life stages of its products.

Greenhouse gas accounting helps to provide numerical data on greenhouse gas emissions. It provides companies with information which enables them to be held accountable for their emissions, making it possible for companies to take action when it comes to reducing their emissions.

What is the difference between GHG accounting and carbon accounting?

The term GHG accounting is often used interchangeably with carbon accounting, but the two are not completely synonymous.

GHG accounting encompasses all greenhouse gasses, including carbon dioxide. Carbon accounting is a subset of GHG accounting which specifically focuses on measuring and managing carbon dioxide emissions. This enables companies to more accurately account for all emissions within their value chain and serves as the foundation for crafting an impactful reduction and removal strategy.

Find a carbon accounting partner here.

How does GHG accounting work?

GHG accounting involves the following key steps:

1. Identification: Identifying sources of emissions within the company. Examples of these include stationary combustion, transportation, and fugitive emissions.
2. Calculation: Calculating emissions from each source using emission factors and activity data. To account for the different global warming potentials of various greenhouse gasses, emissions are typically reported in terms of carbon dioxide equivalents (CO₂e).
3. Tracking and reporting: Recording and reporting emissions in accordance with established standards and protocols – e.g. the Greenhouse Gas Protocol, ISO 14064, or national regulations. This includes accounting for Scope 1, 2, and 3 emissions.
4. Verification and validation: Ensuring the accuracy and reliability of the data and methods used for GHG accounting. This is often done through external verification or audits.

Methods of GHG accounting

GHG accounting is done using two methods: the spend-based method and the activity-based method.

The spend-based method

The spend-based method uses emission factors that are expressed as emissions per unit of currency spent. The method works by multiplying the financial value of a company purchase by the amount of greenhouse gas and carbon dioxide it emits. This approach is easier and less time-consuming, but also less accurate than the activity-based method.

Advantages and disadvantages of the spend-based method include:

• Easy to implement if financial data is available
• Covers a wide range of activities with one set of financial data
• Less accurate, as this method uses average emission factors rather than specific data
• Emission factors might not reflect the specific suppliers or products purchased by the organisation

The activity-based method

The activity-based method uses data to retrieve information on how many units of specific materials have been purchased. The method accounts for all the steps in the process that may have created a carbon footprint. This includes material sourcing, production, marketing, and much more.

Advantages and disadvantages of the activity-based method include:

• Provides a more precise and accurate measurement of emissions for specific activities
• Allows for targeted emission reduction strategies
• Requires more detailed data on activities and processes
• Can be time consuming and complex to implement, especially for large companies with many different sources of emissions

As both methods have their advantages and disadvantages, many companies choose to use a hybrid approach, combining both methods to gain a more comprehensive understanding of emissions and support more effective decision making.

Why is GHG accounting important?

For companies striving to reach net-zero emissions, GHG accounting is important for numerous reasons. GHG accounting functions as a baseline measurement that provides companies with a clearer understanding of their emission levels – an essential factor for companies looking to set realistic and achievable net-zero targets.

Other reasons GHG accounting is an important element on the journey towards net zero include:

• Monitoring progress: GHG accounting enables companies to monitor their progress on the road towards net zero. By tracking emissions, companies can assess the effectiveness of their strategies and make adjustments as needed.
• Identifying reduction opportunities: By providing detailed information about emission sources, GHG accounting helps companies identify areas for improvement and opportunities for emission reduction – e.g. switching to renewable energy sources or improving energy efficiency.
• Transparency and reporting: Accurate GHG accounting enables companies to transparently report their emissions and progress towards net zero to investors, customers, and other stakeholders, helping to build credibility and trust.
• Compliance with regulations: GHG accounting helps companies comply with relevant regulations and reporting requirements surrounding greenhouse gas emissions.
• Risk management: Understanding emissions and their potential impact helps companies manage climate-related risks. This can include adjusting business strategies and investments to account for customer preferences or future climate policies.
• Access to sustainable financing: Accurate GHG accounting can help companies demonstrate their commitment to sustainability. This can help attract investors and financial institutions that favour companies with strong environmental performance.

The process of GHG accounting can also help drive companies to invest more in innovation within areas such as energy usage, supply chain management, and product design, moving towards a more sustainable future for companies across the globe.

Next steps

GHG accounting provides companies with a clearer understanding of their emission levels, allowing them to better focus their efforts towards the greatest reduction opportunities. When it comes to achieving net zero, reducing your emissions is an important and necessary step in the right direction. However, there is growing consensus that reduction is longer enough to stay within the goals set forward in The Paris Agreement. For a company to reach net zero, residual GHG emissions must be neutralised with an equivalent amount of carbon removal.

At Klimate.co, we provide access to high-quality, innovative, and verifiable carbon removal solutions. We strategically finance projects based on environmental responsibility as well as social and economic development – and we only work with companies that are already taking action to reduce their emissions.