The Problem of Carbon Credits and Offsetting in Corporate Climate Disclosure
34 Pages Posted: 7 May 2024
Date Written: May 6, 2024
Abstract
Corporations are increasingly required or encouraged to disclose information on their climate-related performance. Corporate climate disclosure is regulated by a significant number of hard and soft law instruments. These include the Corporate Sustainability Reporting Directive (CSRD) and other EU instruments as well as the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, the IFRS and GRI sustainability reporting standards and the GHG Protocol.
Many corporate net-zero strategies rely heavily on the premise that continued GHG emissions can be offset, neutralized or compensated by means of carbon credits. However, research shows that carbon credits are typically not effective. They do not deliver the climate benefits they claim to achieve, and are therefore not equivalent to genuine emission reductions or removals.
This article examines how the various instruments regulating corporate climate disclosure deal with carbon credits and offsetting. It finds that the reviewed instruments follow a broadly similar approach. They require corporate GHG emissions to be accounted for separately from carbon credits. Most of them also do not authorize carbon credits to be counted towards emission reduction targets. In addition, all of the reviewed instruments lay down the fundamental requirement that the disclosed information must be true and non-deceptive. Given that they are not effective, claims in corporate climate disclosure that carbon credits offset the undertaking’s GHG emissions do not meet this requirement.
Keywords: climate disclosure, sustainability disclosure, CSRD, carbon credits, offsetting
JEL Classification: K22
Suggested Citation: Suggested Citation