The role that carbon offsetting will play in corporate decarbonisation is highly contested. Most large companies are using, or plan to use, carbon credits to neutralise a significant part of their climate impact. But continuing concerns about the environmental integrity of many credits issued in the voluntary carbon market and the long-term effectiveness of offsetting are giving others pause.
Some investors and investor groupings, meanwhile, are pushing for greater transparency from investee companies on their approaches to carbon credit use and are pressing for greater disclosure as companies develop their offsetting strategies.
“This is a really important issue and investors need to start grappling with it,” says Danielle Figueres, president at As You Sow, a US-based shareholder representative group, which engages with companies on behalf of a wide range of investors.
“The press to sell offsets is enormous, and we would say that there are insufficient controls on the market. This creates incentives to fraudulent credits.”
This is echoed by Giovanna Eichner, a shareholder advocate at Green Century, a Boston-based sustainability-focused asset manager.
“Investors face risk if companies focus too much on carbon offsets” to meet their decarbonisation goals, she says, adding that a reliance on low-quality carbon credits “would mean companies are not actually mitigating the material risks that climate has to investors”.
Net zero targets
A large number of corporates are relying on offsets to meet their net-zero targets. Two-thirds of the world’s 50 largest companies with net-zero targets plan to use carbon credits to help them meet their goals, according to research by website Carbon Brief in late 2023.
“Our starting point is that the majority of large companies will, to meet net zero, very likely have to use some form of carbon offsetting,” says Nick Gaskell, senior sustainable investment manager at Abrdn, a UK-based investment management firm. “We’re going to need a healthy, high-integrity carbon market that enables capital to flow to the netting off of greenhouse gas emissions.”
Those flows promise to be substantial. Data and analysis firm MSCI tracks corporate use of voluntary carbon credits. It projects that the market could grow from $1.4 billion in 2024 to perhaps $35 billion annually in 2030 and $230 billion-$250 billion by 2050, under its high-growth scenarios.
One reason is that, as companies get closer to their initial, near-term emissions reduction targets – many of which are pegged to 2027 or 2030 – an increasing number are expected to use carbon offsets to plug gaps between commitments and the reality of their emissions profiles.
“Given the pace of decarbonisation so far, I expect that carbon credits are going to rise up the agenda for quite a few of these corporates, because they will have to rely on them to meet their targets,” says Valentin Jahn, deputy director of research and operations at the Transition Pathway Initiative (TPI) Centre, an investor-backed body charged with assessing how companies are decarbonising.
The TPI Centre is seeing evidence of growing offset use by large emitters. Its assessment asks whether a company’s transition plan clarifies the role played by offsets and/or negative emissions technologies. In 2023, it found that only 2 percent of 1,000 high-emitting companies analysed disclosed sufficient information to answer this question.
However, the centre re-ran the numbers for Responsible Investor, and found this figure had risen to 12 percent in 2024.
Growing appetite for credits
In addition, some of the tech giants – which have been among the largest buyers of voluntary carbon credits – are increasing their purchases. They are seeking to compensate for the rising emissions from their data centres, which are growing to meet rocketing demand for energy-intensive artificial intelligence applications.
“We’re going to need a carbon market to achieve net zero, and we’re going to have to start building it now”
Nick Gaskell, Abrdn
In January 2025, for example, Microsoft announced a giant carbon offset deal, reportedly spending $200 million on carbon credits to be generated by reforesting Brazilian farmland.
This growing appetite for offsets is ringing alarm bells for some. Parker Caswell, a climate and energy associate at As You Sow in New York, points to research and reporting that have cast doubt on the environmental efficacy of carbon offsets.
These include a 2024 study in the Nature Climate Change journal that found that 87 percent of offsets retired by companies over 2020-23 “carry a high risk of not providing real and additional emissions reductions”, and a report in The Guardian in 2023, which alleged that more than 90 percent of rainforest carbon offsets approved by Verra, the largest verifier in the voluntary carbon market “are largely worthless and could make global heating worse”. Verra has strongly rebutted the claims.
Caswell also cited a synthesis report from the Science Based Targets initiative (SBTi), published in July 2024, which reviewed evidence of whether carbon credits delivered their intended outcomes, and around their use by companies to meet their net-zero objectives, among other things.
It found that “the evidence submitted to the SBTi generally suggests that there could be clear risks to corporate use of carbon credits for the purpose of offsetting”.
For Figueres at As You Sow, such reports raise two concerns about corporate offset use: “Are companies wasting money by purchasing offsets? Does that make them vulnerable to greenwashing suits?”
Guy Turner, MSCI’s head of carbon markets, acknowledges these critiques. While some reports have been sensationalised, and are based on backward-looking analysis of historical, less robust types of credits, it is important for carbon market proponents to address them, he says.
And the critiques have some validity. In response to concerns about credits’ environmental integrity, a number of service providers, including MSCI, now offer independent ratings of offset projects. An assessment published by the company last year found that only 7 percent of 4,000 projects assessed were rated in the highest A-AAA bands.
However, Turner notes that this shouldn’t deter companies from using credits. “This isn’t to say that all projects are bad, and you should entirely steer away from offsetting. The truth is, you just need to know what you’re doing. Steer away from the bad projects and seek out the good ones.”
A role for carbon credits
Even sceptical groups like As You Sow recognise a role for offsets. “As we head towards 2050, and try to meet the 1.5C goal, there will be some outstanding emissions that are very hard to abate. In that case, we think there is a role for limited carbon offsets,” says Figueres.
The SBTi, which many companies, investors and campaigners consider the gold standard for corporate climate-risk management, allows for carbon credits to offset the last 10 percent of a company’s net-zero target. It is due to update this guidance, offered in its Corporate Net-Zero Standard, in early 2025. It has said it is considering greater use of carbon credits to offset Scope 3 emissions.
However, the SBTi, and other standards, do not allow companies to count carbon credits towards interim emission reduction targets on the path to net zero.
Gaskell at Abrdn agrees with this position, although he notes that it could lead companies to question the value of buying credits, aside from reputational reasons or if they are marketing specific products as “carbon neutral”.
However, he cites two other reasons for purchasing credits. The first is that it can spur internal decarbonisation. “If a company has decided to offset the whole volume of its emissions at $50/tonne, it is economically incentivised to decarbonise at any cost below that level.”
The second is that buyers need to be investing in a high-quality carbon market now to ensure that there is sufficient supply down the road.
“We’re going to need a carbon market to achieve net zero, and we’re going to have to start building it now. Otherwise there won’t be the tonnes of carbon to achieve net zero,” says Gaskell.
Greater scrutiny
Thus far, investors conversations with companies around climate have tended to focus on the basics: encouraging them to measure emissions, set targets and begin to mitigate their own climate impacts and those within their supply chains.
But “the enormous amount of money in the market” seeking to invest in and profit from carbon credits could encourage imprudent offset use by companies, says Figueres.
“We want to make sure that we get ahead of the curve and make sure that, if companies are going to use offsets, they are doing it in a meaningful way. They’re not putting themselves at risk, they’re not putting the climate at risk, and they’re actually reducing emissions meaningfully.”
Green Century engages with companies on their use of carbon credits and has filed several shareholder resolutions on the subject. Its starting point is that companies should be using carbon offsets “as a last resort to reduce their climate impact”, says Eichner, because carbon offsets “cancel out or neutralise emissions rather than meaningful decrease them”.
Similarly, the manager recognises that carbon offsets have a role to place in addressing “a small portion of emissions … only once companies have done everything else”, she adds.
“There is not really one standard that you can point to and say, ‘This is what you should be following’”
Varnika Chawla, Climate Asset Management
However, as the TPI research demonstrates, few companies are providing shareholders with meaningful information on how they plan to use carbon offsets. This has led investors such as Green Century to concentrate, thus far, on reporting. “We tend to focus on disclosures and making sure that companies are being transparent in how they plan to use carbon offsets,” Eichner says.
She adds that these discussions tend to be with companies that are already well advanced in addressing their carbon emissions. “That’s only a conversation we usually get to once we’ve addressed other more pressing issues, like measuring and disclosing emissions, setting science-based targets and putting roadmaps in place to achieve those targets.”
This is a message echoed by at the Voluntary Carbon Markets Integrity Initiative, which has developed a Claims Code of Practice to guide companies on the use of carbon credits. The code contains four “foundational criteria” that companies should meet – including around emissions measuring, target-setting and allocating resources to meeting targets – before they seek to use carbon credits.
Carbon credit challenges
Companies, meanwhile, continue to grapple with the wide range of standards and guidance relating to carbon offsets.
The proliferation of standards has created “a very challenging environment” for corporate buyers, says Varnika Chawla, legal manager at Climate Asset Management, which manages a nature-based investment strategy that pays its corporate investors in carbon credits.
“There is not really one standard that you can point to and say, ‘This is what you should be following’.”
She is hopeful that the agreement on Article 6.4 of the Paris Agreement, at COP29 in Baku in November, will potentially reduce the confusion, by creating a UN-approved class of carbon credit. Once buyers can participate in an international compliance market, “that removes some of the confusion”, she says.
An additional challenge for companies and investors alike is that the regulatory landscape around climate risk disclosure is in flux.
The US Securities and Exchange Commission (SEC) has put its Climate Disclosure Rule – which included requirements for reporting on offsetting – on hold indefinitely. But EU regulations and a new disclosure law in California, AB1305, require companies buying carbon credits to make related disclosures.
“Despite the SEC setback, we see that companies are responding to regulations that are forthcoming in California and bigger companies are seeing regulations coming out of Europe that will enhance emissions disclosures, particularly across their value chain,” says Eichner at Green Century.
Investor pressure builds
David Murphy, a director at carbon asset manager South Pole, notes that CDP, the voluntary environmental disclosure platform, asks a number of questions on carbon credit use, as does the EU’s mandatory Corporate Sustainability Reporting Directive. “There is disclosure pressure on companies to be open about their corporate offsetting strategy,” he says.
Jahn at the TPI Centre says investors should also be looking for transparency around the retirement of carbon offsets, once they are used to meet a company’s climate goals.
“Credits are beginning to be retired at scale. It is important that the retirement process becomes transparent, to allow investors to understand what types of credits that investee companies are using, and whether they carry potential for reputational risk,” he says.
He adds that, for best practice, companies should not only disclose the type and quantity of the offsets they have used, but also the projects from which they originated and the registry used to track their issuance and retirement. As more companies begin to use carbon offsets in earnest, it will be increasingly important for investors to understand how they are approaching this crucial issue, he says.
“Everybody understands that corporate carbon credit use is potentially very important,” says Jahn. “But very few companies are talking about the extent they’re going to rely on them to reach their decarbonisation targets. Even fewer provide any specifics around what carbon credits they might use and how they will ensure the credibility of those credits.”
