A leading climate action group is questioning the effectiveness of carbon credits in offsetting greenhouse gas emissions, underscoring months of controversy about their inclusion in corporate carbon footprint reduction plans.

The Science Based Targets initiative, or SBTi, guides companies to set emissions targets necessary to keep global warming from catastrophic levels. It’s currently reviewing emission reduction approaches detailed in its Corporate Net-Zero Standard, SBTi’s flagship framework on how companies can reduce their global carbon footprint.

As part of its broader revision of the standard, SBTi delved into the effectiveness of carbon credits in reducing Scope 3 emissions, which include a slew of indirect emissions generated up and down a company’s supply chain. Carbon credits, or offsets, allow corporations to pay other companies to make emissions-reduction efforts and then count those environmental efforts as their own. Scope 3 emissions make up 75% of an average company’s output and are a major challenge to corporate decarbonization, according to SBTi.

The SBTi study found that carbon credits don’t deliver intended mitigation outcomes, identifying no environmentally effective operating conditions associated with them. It suggested that there are clear risks in corporate use of carbon credits to offset emissions and treating them as fungible tokens with other sources of pollution are “inadvisable, illogical or damaging to global mitigation goals.”

“The outputs released today are a critical step in understanding how the SBTi can develop a more sophisticated approach to Scope 3 to help more businesses set targets,” SBTi Chief Technical Officer Alberto Carrillo Pineda said in a statement.

In theory, a carbon credit represents one metric ton of carbon-dioxide emissions. Companies receive a set number of credits to cap the number of permitted emissions that can be sold to other companies. They’re intended to create a monetary incentive for companies to reduce and offset their emissions.

SBTi issued a call in September 2023 for evidence on the effectiveness of carbon credits for corporate climate targets. It received 438 submissions via a survey and emailed responses, including hard evidence and individual opinions.

After an assessment of the data and reactions, the results were broken down into three themes: the mitigation outcomes and conditions for carbon credits’ effectiveness, case studies on corporate use and implications on net-zero goals and climate finance, and claims that companies make on their use of carbon credits.

The study concluded that though more research had to be done, insights can be drawn that carbon credits don’t effectively reduce emissions, there could be risk in their use by companies to offset emissions, potentially hindering net-zero goals, and claims companies make may not be credible to justify purchasing or retiring carbon credits.

Sustainability research firm Evidensia conducted an independent review of the data and said the sample size was too small to make definitive conclusions. However, the research won’t be used as a basis for policy decision but to guide a more comprehensive probe and revisions to SBTi’s Corporate Net-Zero Standard.

SBTi also published a Scope 3 discussion paper, offering three scenarios where carbon credits could be used to hit targets that aren’t centralized around offsetting emissions.

These include using them to provide evidence of decarbonization in the value chain – the full range of actions that are completed to create and distribute a product, rather than just production.

Carbon credits have been plagued with allegations of fraud and misleading environmental efforts. SBTi drew criticism in April 2024 for considering their reapplication in its Corporate Net-Zero Standard. CEO Luiz Amaral stepped down in early July amid months of controversy.

Multiple promotional products suppliers and distributors adhere to SBTi’s climate control framework, including HanesBrands (asi/59528), Counselor Top 40 supplier Gildan (asi/56842), and Counselor Top 40 distributor HALO Branded Solutions (asi/356000).

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