Updated international standards for carbon neutrality and net zero are lending credibility to the voluntary carbon market, which has taken a reputational battering in recent years
At a glance
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The introduction of ISO 14068 and a forthcoming net zero standard provide a “reasonable” approach to the use of carbon credits, while emphasising the need for direct decarbonisation
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Sources say companies face difficulty achieving net zero through direct emissions reductions alone, with many relying on external factors such as grid decarbonisation. ISO standards aim to balance realism with ambition, allowing some use of offsets if they are verified by third parties
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The concept of carbon neutrality has faced a backlash due to widespread consumer confusion and regulatory scrutiny, leading to lawsuits, and shifting public opinion — which increasingly favours stricter definitions and enhanced transparency
Updates to the International Organization for Standardization’s standard for carbon neutrality and an upcoming standard for net zero are putting wind in the sails of carbon market proponents.
Carbon markets have been an open question at UN climate conferences since the Paris Agreement was signed in 2016. The specifics of Article 6 of the agreement — which governs country-to-country carbon trading — have not yet been agreed upon, but expectations are high that COP29, which begins in Azerbaijan on Monday, will see a major breakthrough, which would be a further boon for carbon credits.
The ISO provides technical standards on a wide range of products and services, from wine glass manufacturing to musical pitches. In 2023, it introduced ISO 14068 as a new standard for carbon neutrality, and its first net zero standard is due to be published by COP30, in November 2025.
The Science Based Targets initiative is concurrently working on its own net zero standard, which saw it embroiled in scandal earlier this year when it initially proposed allowing companies to use carbon credits to offset their Scope 3 emissions.
In July, the SBTi published a discussion paper saying “direct decarbonisation must remain the priority” for corporates’ climate goals. Its current position is that companies making a net zero claim should cut their own emissions by at least 90 per cent before offsetting the remaining with high quality carbon removals.
The ISO is seen as slightly more reasonable than the “perceived anti-market” SBTi, says Benedikt von Butler, portfolio manager at Evolution Asset Management in Berlin. “The ISO not only certifies carbon neutrality — thus providing credibility to claims — but is also less restrictive [than the SBTi] vis-à-vis use of carbon credits,” he tells Sustainable Views.
Companies must apply for certification of their compliance with ISO standards from an external source, which should, in theory, insulate them from greenwashing accusations to some extent.
Realism or surrender?
Even so, ISO 14068 still requires companies to set out a 1.5C-aligned reduction pathway, in line with the SBTi, explains Chris Hocknell, director at sustainability consultancy Eight Versa in London. It specifies that while companies are permitted to use offsets these must be verified by a third party and, much like the SBTi’s position, that companies should also be working towards direct decarbonisation.
“The key difference [between the SBTi and ISO 14068] is that ISO does not enforce a fixed target for annual reductions. It’s more flexible in the short term, which is what businesses need,” Hocknell tells Sustainable Views.
It does, however, require direct reductions to be made between the commitment to becoming carbon neutral and the first certified claim. Essentially, companies cannot claim carbon neutrality in year one of ISO certification.
“A lot of companies we speak to are realising that net zero is really hard to achieve and is really quite restrictive,” Hocknell adds. “There are a lot of head-bangers who believe the only path is direct emissions reduction. But many of those people haven’t sat down with a company and tried to work out how to achieve that [90 per cent] reduction.”
He believes most companies can achieve a 25 to 35 per cent direct emissions reduction, with much of the rest reliant on external forces such as grid decarbonisation and tougher rules on raw materials manufacturing. “Net zero is probably only achievable [via direct emissions reductions] for 10 per cent of companies,” he adds.
A boost for carbon credits
The big change with the ISO’s new standards is that they put the burden of verification on companies, Alexis Normand, CEO of carbon management platform Greenly, tells Sustainable Views.
“Companies do face reputational risk from buying the wrong types of offsets, but not enough in my opinion,” he says. “Shifting the verification burden to companies should mean that project quality improves — largely because there will be clearer additionality.”
In Greenly’s assessments of quality carbon credit projects, it excludes renewables, reforestation and forest protection projects “because the additionality was too low”. It also filters out projects that price carbon at anything lower than €25/tonne, “just to make sure our customers aren’t taking any risks”, explains Normand.
The voluntary carbon market continues to thrive, and is expected to hit $100bn by 2030, according to Morgan Stanley. In June, Microsoft announced the largest ever purchase of carbon credits — eight million tonnes — from Brazilian investment bank BTG Pactual.
Carbon neutrality out of favour
According to Holly Nicholson, policy associate at carbon market solutions platform Abatable in London, the concept of “carbon neutrality” lost popularity towards the end of the 2010s due to corporates’ extensive use of the term, which led to significant consumer confusion.
“It’s becoming less and less publicly acceptable to claim carbon neutrality. The industry might understand that the company [that claims it] is offsetting, but the average person tends to think there is zero carbon associated with production,” she tells Sustainable Views.
A 2022 investigation by the UK Advertising Standards Agency found little consensus around the meaning of both “carbon neutral” and “net zero”, with consumers tending to believe the phrases implied an absolute reduction in carbon emissions.
The regulatory environment has changed considerably since then, along with public opinion. The EU’s Green Claims Directive forbids the use of unsubstantiated “carbon neutral” claims for products, but not for companies. Various national advertising bodies, including those of the UK, France and Germany, have also begun to scrutinise and act over these claims following several high-profile investigations and lawsuits.
In the US, Delta Air Lines is facing an ongoing lawsuit over its 2020 plan to become carbon neutral by 2030, which plaintiffs say is “false and misleading” as the company is overly reliant on carbon offsets. Consumer goods brand Danone is facing a similar case over its claim that Evian water is carbon neutral.
Tech giant Apple has also come under fire for a 2023 claim that its new Apple Watch was carbon neutral while at the same time saying it had reduced its total emissions by “over 45 per cent” since 2015. This amounts to “claiming your pinky [finger] is cancer-free when the rest of your body is not”, according to a 2023 article.
“Carbon neutrality is a naive and dangerous concept, because the Intergovernmental Panel on Climate Change predicts that it’s going to be very tough to scale offsets to a point where they constitute more than five to 10 per cent of global emissions,” says Greenly’s Normand.
“I’m not saying we don’t need offsets — I’m hopeful that COP29 will see governments agree on a standard for offsets, and allow organisations like the ISO to implement that standard — but I am saying that words matter,” he adds. “The concept of carbon neutrality should die.”
