Carbon Insetting

Financing suppliers to cut carbon is a much more effective way for large companies to tackle their own carbon footprint

Supplier performance, rather than reforestation, may be a better way to cut carbon

Supplier performance, rather than reforestation, may be a better way to cut carbon

Large companies have traditionally relied on carbon offsetting to demonstrate to consumers and investors that they are cutting their overall environmental impact.

But there are some compelling reasons why this sort of mitigation is not the way forward.

One: there is increasing public scepticism regarding the effectiveness of offset schemes such as hydroelectric dams and reforestation in Africa. It seems the easy way out, another case of the developed world asking the developing world to do the dirty work.

Two: offsetting schemes do nothing to help a business’s long term financial performance or make its own supply chains more secure. With extreme weather incidents, volatile energy prices and public anger at irresponsible business practice all on the rise, companies must look to secure their own supply chains.

That’s why the concept of ‘carbon insetting’ – where a company pays a supplier to reduce its own environmental risk – is gaining precedence.

For example, Entergy, a US energy company, has funded a wetlands restoration project. This has not only benefitted sustainability along the Louisiana coastline but also provides significant natural flooding protection for the company’s infrastructure in the region.

Just the start

The next step is to move beyond ecosystem regeneration and to help suppliers directly, for example by part-funding the capital cost of low carbon delivery vehicles, energy efficient machinery or on-site renewable energy.

Another option, as recently suggested by Best Foot Forward’s co-founder Craig Simmons, would be for a cocoa company to promote the production of biochar as well as cocoa.

Provided the emissions savings are well-managed and independently verified, they could then be used to offset the emissions from, for example, the funding company’s manufacturing operations, which may not be economically viable to reduce further.    

While there are currently few real-world examples of carbon insetting, the trend is for companies to choose offset schemes which “directly impact their scope 3 emissions”.

Such carbon savings not only help companies meet regulations on carbon reductions, they can fund more expensive and imaginative schemes designed at reducing suppliers’ long-term exposure to environmental risk.

This may not be possible with conventional carbon offsetting where the scheme is unrelated to the funding company’s economic activity. 

Of course, companies must first know how much carbon each of their suppliers are responsible for – which is where amee comes in. After all, transparency and knowledge about carbon emissions – as well as water and waste – are the first steps in helping carbon insetting take off.

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