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The Reality of Carbon Offsets

The Covid 19 crisis has brought about a renewed focus on conscious consumption, prompting brands to reexamine the environmental impacts of their products and supply chains. Industry players have doubled down on their promises to shoppers, seeking to reassure them of their commitment to environmental stewardship as uncertainty continues to hang heavy over daily life.

In recent seasons, becoming “carbon neutral” has become the industry’s hottest benchmark for success in the sustainability arena. But brands that have pledged to shrink their carbon footprint aren’t always reducing or eliminating emissions throughout their supply chains, as consumers might be apt to think. In fact, many companies large and small are increasingly relying on carbon offsets—or the purchase of credits to fund carbon emission-reducing activities like reforestation or the production of clean energy—as a means of mitigating their output.

The idea behind offsets is that emissions generated throughout the supply chain will be effectively canceled out by initiatives that either capture greenhouse gases or replace the use of fossil fuels. Measured by the metric ton, each carbon credit is designed to effectively make up for a portion of a company’s total carbon productivity.

When coupled with efforts to slash emissions across raw material cultivation, production processes, transport, and other links in the supply chain, offsets can help brands make definitive progress in reaching their goals, Jason Kibbey, CEO of sustainability insights platform Higg Co., told Sourcing Journal. “Carbon offsets have been around a long time, and they can serve a very beneficial purpose,” he said, citing their propensity to help secure investment in environmental projects that don’t always have a “clear market mechanism for improvement.”

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But while effective sustainability strategies can be supplemented by the purchase of carbon credits, “that’s not actually the way they’re being used in the industry right now,” Kibbey argued. “They’re typically being used in place of emissions reductions, and that’s just not sufficient.”

One issue with brands using offsets as a stand-alone strategy is that they become disincentivized from truly understanding the adverse impact drivers in their supply chains, Kibbey opined. Most brands will find the biggest carbon cost tied up in their Scope 3 emissions, which the Environmental Protection Agency (EPA) describes as “not owned or controlled by the reporting organization, but that the organization indirectly impacts in its value chain.”

Scope 1 emissions come from a company’s own facilities and transportation, and Scope 2 emissions are generated by things like purchased electricity, heating and cooling to support those venues and operations. Meanwhile, Scope 3 emissions encompass a much broader range of activities and services. Contracted factory operations, transport of goods, business travel, fuel and energy for production, and even end-of-life treatment for sold products fall under the third tier of carbon impacts, according to the EPA.

In the apparel supply chain, the agricultural cultivation of raw materials like cotton or leather can come with a high carbon cost, Kibbey said, along with the creation of fibers like virgin polyester, which is made from polymers, or oils, that are pulled from the earth. The process of dyeing and finishing fabrics can be chemical intensive, while the heating of dyes and the water used in the washing process often relies on the use of non-renewable energy powered by coal or other fossil fuels. When it comes to transportation, air freighting goods across the globe is responsible for significant emissions. “Those are just a few areas, but what we need to understand is that we should be looking across the whole value chain—from product design to materials to factory operations—to see how carbon is released.”

If you’re going to offsets first, that is not credible—and companies that are doing that as a strategy will likely find it hurting rather than helping their image in the next few years.” —Jason Kibbey, Higg Co.

If a brand has familiarized itself with its Scope 3 impacts and has mechanisms in place to measure its carbon output, it may be justified in purchasing offsets as a means of supplementing that work, Kibbey said. “If you’re reducing your emissions by 5 percent a year in line with the Paris Agreement, you’re probably a beneficial contributor,” he advised. “However, if you’re going to offsets first, that is not credible—and companies that are doing that as a strategy will likely find it hurting rather than helping their image in the next few years.”

When asked about why brands are increasingly turning to offsets even in the face of skepticism from industry eco-bellwethers like Higg, Kibbey said the answer is simple: finding solutions is hard. “There are a lot of well-meaning companies, designers and CEOs with values that support sustainability, and they’re saying, ‘I don’t know where to start, but at least I can offset.’”

The rise of offsets as a popular strategy for apparel and footwear brands has been a relatively recent development, according to Michael Sadowski, an independent sustainability consultant and advisor to the World Resources Institute (WRI). “I have been working in this field for about 20 years, and maybe 15 years ago, offsets were a bit of a hot topic,” he said, noting that carbon labeling became a trend for commercial goods around that time. “That kind of went away about a decade ago, and now it’s come back.”

While a pervasive strategy used by a wide swath of brands, Nike, Allbirds and Burberry are among the major players who include carbon offsetting as a prong in the efforts toward their sustainability goals.

Sadowski, who previously headed Nike’s sustainable business and innovation team, now advises some of the sector’s largest corporations on their sustainability strategies. Many of these brands are invested in setting environmental goals through the Science Based Targets Initiative (SBTi), he said, which provides companies with a pathway to reduce emissions in line with the Paris climate agreement.

More than 1,000 global businesses have bought into the group’s goal to reduce greenhouse gas emissions with the intent of limiting global warming to 1.5 degrees Celsius, and have taken on the responsibility of tracking progress on their targets annually and disclosing results to stakeholders. Notably, carbon offsets are excluded from SBTi’s guidance for brands, and those that participate in the program’s goals cannot point to carbon credits as a part of their reduction strategies.

SCOPE 3 EMISSIONS: A much broader range of activities and services, including factory operations, transport of goods, business travel, fuel and energy for production, and end-of-life treatment for sold products.

Questions about the viability of offsets have been swirling across the climate science community for some time, with experts questioning their permanence (reforestation efforts have been destroyed by fires, for example) or the ability to accurately gauge a carbon-capturing project’s ultimate impact. Moreover, “You cannot offset your way to a science-based target,” Sadowski said. “Explicitly, reductions are what science is calling for.”

While smaller or less established brands may have limited pots for funding research, development and investment in new materials and processes, Sadowski believes that companies should do what they can to move the needle internally before turning to outside projects as a way to advance their sustainability goals.

“If you’re a company with limited resources and you have $100 to spend on reductions or offsets, ideally you’re spending that money on reductions,” he said. “If you’re going to your supplier and spending $100 to bring renewable energy to their factory, that’s a direct emission of fossil fuel you’re displacing, one-to-one.”

Conversely, spending that $100 on reforestation leaves questions about the carbon-capturing effects of that effort unanswered. “If you plant a tree to offset an emission, does the tree truly pull that amount of carbon from the atmosphere? And what happens if there’s some sort of ecological disturbance—is that really permanent progress?” Sadowski said. Meanwhile, brands are still burning fossil fuels at a tremendous rate each day, and efforts to convert to renewable energy have proven slow at best.

A forthcoming report from WRI will detail some of the emissions “hot spots” in the apparel supply chain, Sadowski said. “Textile mills, where they’re taking yarn and knitting and weaving fabric, and dyeing and finishing that fabric, accounts for roughly 50 percent of the total value chain impact for apparel,” he explained. Carbon output is generated through the use of fossil fuels, like the burning of coal to heat water for dyes and generate steam. Coal is a widely available resource for companies across developed and developing nations, and many facilities already possess the existing infrastructure to use it.

“The use of renewable energy and electricity is really shaped by an array of factors,” he added, from availability to governmental regulation. Brands that produce in Vietnam, like Nike and New Balance, for example, are currently working with manufacturers in the country to lobby for loosening regulations on renewables, the object being a large-scale power purchase agreement with energy providers. Increasingly prominent sourcing players like India and Cambodia also face hurdles when it comes to widespread adoption of renewable energy, due to a lack of energy service providers, which have become increasingly common in the U.S.

“If you have a deregulated market, you can go out and buy renewable energy from any provider,” Sadowski said. “That doesn’t exist in India and some other places, so it’s complicated.”

Moving away from fossil fuels is a distinct area of focus for Sadowski and the brands he services, but he acknowledges that advancing renewable energy use across the globe will take buy-in from players across multiple sectors and geographies.

That shouldn’t discourage apparel brands from taking definitive steps to reduce their carbon impact, though. Improving material efficiency, or making a product with fewer inputs so it is easier to pull apart and recycle at its life’s end, as well as switching to materials like recycled polyester and organic cotton, can cut a brand’s carbon impact, Sadowski said. Process changes and technical innovations like solution dyeing or waterless dyeing can also reduce dependence on coal. “Energy efficiency writ large is a really big opportunity,” he added.

Industry leaders aren’t just working to improve their own operations, but are sharing their best practices with the sector. Adidas has made public guidance for factory partners that includes detailed information on how to monitor energy use and implement energy-saving measures, including scaling the use of green power on site. In 2019, the company funded and provided technical expertise for studies of solar rooftop panels across 80 percent of its strategic supply chain, in countries like Vietnam, Cambodia, China, Indonesia and Myanmar.

This type of investment may have the potential to push the industry toward its ultimate goal. “We generally know what has to happen: we need to decarbonize the apparel supply chain,” Sadowski said. “We need to get all the tiers in the value chain, from raw materials to finished goods, to shift away from coal and gas-based electricity to renewable energy.”

While experts like Sadowski are adamant that brands should be focused on reductions rather than the purchase of offsets, other groups believe carbon credits will factor into any successful sustainability strategy. In fact, Austin Whitman, CEO of carbon reduction certification non-profit Climate Neutral, believes that it is “impossible to become carbon neutral” without them.

The organization, which counts brands like Allbirds, Boyish Jeans, Reformation, Nicholas Kirkwood, Nisolo, Vuori and Ministry of Supply among its recently certified members, helps brands develop strategies to mitigate supply chain impacts while devising plans for reducing future emissions.

“It’s not a one-and-done effort—it’s an annual process, and our goal is to accelerate companies’ investments into decarbonization immediately.” —Austin Whitman, Climate Neutral

“One important thing that is often left out of the conversation about offsetting is that you don’t just offset your emissions once this year, and then say that your climate work is done forever,” Whitman said. “It’s not a one-and-done effort—it’s an annual process, and our goal is to accelerate companies’ investments into decarbonization immediately.”

The only way to make a rapid advancement is to take advantage existing market initiatives, Whitman opined. “Because if a company had its own projects that were already reducing or capturing emissions, their emissions wouldn’t be where they are.”

Whitman also draws a distinction between carbon neutrality and net-zero emissions.

“I think a net-zero world is the point that we’re all trying to get to by 2050,” he said, while “carbon neutrality is a temporary state that continues to be defined and redefined as we march on, hopefully, toward a net-zero world.”

If every company on the market were to achieve carbon neutrality through the use of both reductions and credits in 2022, Whitman believes the world of climate finance would look “entirely different than it does today.” Climate Neutral members tend to spend an average of 0.5 percent of revenues on carbon credits, he said. “If you multiplied that up to every company in the world, you’d have hundreds of billions of dollars of finance going into projects that isn’t happening now.”

Currently, the non-profit works with about 330 global companies, including more than 40 fashion brands, and Climate Neutral hopes to see another 100 entities shoot for certification in 2022. The process begins with an audit to measure carbon impact, and is followed by the purchase of credits from organization-approved partners. After all of their emissions have been effectively credited, brands work with Climate Neutral to develop 12-24-month roadmaps tackle reductions to their carbon output. Larger companies are required to set science-based targets for 2030, Whitman said.

“At the end of that process, there’s the marketing and labeling, which gets companies excited and tells consumers that there’s a connection between the things they buy and climate action,” he said. Climate Neutral’s certification appears as a logo on the product’s packaging, and is tied to a mobile-accessible profile in the group’s brand directory where shoppers can learn more about the company and the program.

When it comes to selecting ventures to fund, “Companies tend to look for projects that they are going to be able to bring to life for their consumers,” Whitman said, “because they like to tell stories about what they’re supporting to compensate for the impacts that they’re having the climate.”

More than half of credits being purchased by Climate Neutral members are tied to the avoidance of emissions through the replacement of fossil fuels with renewable energy, while two-fifths or more are dedicated to capturing carbon through natural climate solutions like reforestation and regenerative agriculture, he added. Companies often opt into initiatives that are geographically aligned with the markets in which they manufacture.

Despite Climate Neutral’s stance on the use of offsets—namely, that they are a necessary part of climate strategy across industries—Whitman conceded that the threat of greenwashing could undercut consumer perception of these efforts if brand’s aren’t stringent about choosing partners.

Reforestation projects in particular can be optically appealing and can make for an interesting consumer-facing story, but “the problem with a lot of tree planting programs is there’s no long-term monitoring and verification of the health of that tree,” he said. “No one is actually independently saying what the order of magnitude of the carbon impact is, versus the benefit that the tree is having.”

Brands with the desire to engage with reforestation efforts must do so “in a quantitative way, where they’re actually looking at both sides of the ledger: emissions, and benefits,” he added. Instead of simply planting a tree for every shopper’s purchase, ideally brands would measure their carbon footprint “from cradle to customer” and develop a program that will be continually monitored and verified to deliver the exact amount of carbon reduction claimed.

“I think the where we see the most spurious claims around this is when companies just do something that’s really limited in scope, and claim a halo benefit to the overall organization without actually matching up numbers,” he added.

Part of Climate Neutral’s goal is to vet the groups from which its members buy carbon credits. “We make sure that companies only purchase from projects that have a verification process that ties the issuance of credits to actual planetary benefit,” Whitman said. A generic tree-planting project is running on the hope that the seedlings it plants will one day grow up to become adult trees, while a vetted carbon offset project provides an accounting of benefits based on past performance. “It isn’t about buying the promise of future benefit, it’s about buying the benefit that has been delivered,” he said.

solar panels carbon offsets

One reason for Climate Neutral’s underscoring of offsets is that they give small companies a chance to contribute to important projects despite the fact that they “don’t have the power and influence over the supply chain” that their larger counterparts, a la Adidas, might. But the organization advises these groups to take definitive steps toward reductions where they can, both in the product design process (like choosing certain materials over others) or choosing suppliers based on their own commitments to efficiency and renewables. “They could choose a factory that’s based in Vietnam that has solar panels on its roof over one that doesn’t,” he said by way of example.

While shoppers and industry insiders alike are right to examine brands’ sustainability claims with clear eyes, Whitman cautions against “calling an investment in carbon credits a cop-out, or a get-out-of-jail-free card, when the alternative is that a company might not do anything.” Brands that commit to offsetting their emissions are incentivized by the self-imposed tax to find solutions and address the pain points in their supply chains, he offered.

“The requirement that we have is that you offset your emissions immediately,” he added, “and the reason is that when companies promise to reduce emissions by 2030 or 2040, there’s far too much risk in that strategy.”

“Who’s policing that, or ensuring that companies actually investing money in decarbonization today? Nobody.”

According to Cindy J. Lin, founder and CEO of Hey Social Good, a platform designed to verify brands’ sustainability and ethics claims, the move toward carbon offsets is largely being driven by public interest. “It’s not just fashion brands—companies of all sizes are seeing a clear push from consumers” toward more sustainable practices and transparency. Offsets have emerged as an attractive way for brands address the toll their operations take on the planet, without necessarily “changing something systemic within their operations.”

Over the course of the past decade, a multitude of carbon credit programs have cropped up, giving way, naturally, to questions about their implementation and impact, Lin said. “There have been carbon offset scams and what they call ‘leakages,’” she explained, wherein a company might invest in saving a portion of a rainforest, for example, just to see another area of that forest razed to the ground later on. There are also disagreements among groups about how to calculate how much carbon these efforts are actually capturing and offsetting.

Lin, who spent close to two decades at the Environmental Protection Agency (EPA), said that regulatory bodies like the United Nations are attempting to push for standardization guidelines that could help verify the efficacy of offset programs and create a process for global standardization. This would lend legitimacy to initiatives truly reducing emissions, and ease the burden on brands and groups like Hey Social Good, which are currently slogging through claims and data to provide brands and consumers with peace of mind.

In the U.S., both scientists and economists have also raised the issue of implementing a carbon tax on corporations, and using the revenue to fund carbon capturing solutions and renewable energy. According to Lin, the issue of standardization stands in the way. The U.S. has seen success with measuring air pollution and offering credits to companies that voluntarily reduce their polluting emissions below EPA-dictated levels, but carbon offsets are so varied and wide-ranging in their objectives and applications that government entities have yet to find a through line that would make vetting and comparison doable.

Despite the general issues with measuring their impact, Lin believes that offsets as part of an overall strategy can work for brands “if we focus on the net benefit.” Investment in environmental initiatives is always worth the effort, but brands should be willing to do the leg work to ensure that they’re buying credits from a reputable source that will actually monitor and assess its impacts over time.

“The thing that’s hard for businesses is that they’re not experts, and they shouldn’t be expected to be,” Lin said. But those that are larger or well-established should be going well beyond buying offsets, especially if they have “the funds and the wherewithal” to engage with consultants or advisors to support their efforts.

“Brands walking a fine line to ensure that their best intentions are rewarded,” she said, “because the whole point of doing this is either a personal mission or commitment, or it’s because it’s linked to their reputation.”

While public interest has helped push a sustainable agenda—and even helped renew brand interest in offsets—Lin predicted that the perception of carbon credits could plummet if consumers begin to finger them as a marketing tool.

“If you’re a brand, go do the hard work first—then tell the story,” she advised, noting that consumers are wise to the concept of greenwashing and are likely to start to wonder “if offsets actually work or not” as brands continue to tout their use. “The first thing a brand should do is look at their supply chain—if they’re going to spend $50,000, or $100,000, or $1 million, I bet they could put that money toward making some aspect of it better, rather than investing in offsets.”

Still, Lin said that pushing the fashion industry toward a more sustainable, carbon-neutral future will take work on the part of both brands and consumers. “There’s a sense that [a business] is supposed to be perfect,” she said, even if it is just taking the first steps toward becoming more efficient and conscious. When a brand highlights an undertaking—a leather goods company moving to a chromium-free tannery, for example—shoppers are often quick to point out other inadequacies in its operations that are harmful to people or the environment. The effort to hold a whole industry to account for its ills is a relatively recent undertaking, she said. “It’s a journey, and there might be 100 steps. That’s okay.”

Ultimately, Lin advised that truth will set brands free—even amid some growing pains. “I think the No. 1 thing that consumers really care about is transparency, over a climate offset logo or certification,” she said. “‘Tell me your story, tell me about your challenges and the things that have been really hard’—when a brand is really vulnerable in that way, you develop more loyalty from your customer.”

Sustainability NOW 2021

This article is part of Sourcing Journal’s Sustainability Report. To download the complete report, click here.