As the planet rapidly warms and causes disruptive weather events, businesses increasingly understand that they need to address climate change.

Without aggressive action, companies could find themselves with unreliable supply chains (e.g., due to crop failures or shipping delays), and alienated customers, among other negative consequences.

The good news is that over 4,600 companies are already taking action by working with the Science-Based Targets initiative (SBTi). That means they’re setting targets to limit “global warming to well-below 2°C above pre-industrial levels and pursuing efforts to limit warming to 1.5°C,” the SBTi explains.

Among these companies, nearly 1,700 have already set SBTi net-zero commitments. For most companies, that involves cutting carbon emissions by at least 90% by 2050, with carbon removals used for remaining emissions that can’t be eliminated.

In that sense, the decision of whether to invest in carbon reduction vs. carbon offsets is fairly simple:

If you can reasonably reduce carbon emissions, do that first. Once you have a carbon reduction plan in place and are making consistent progress on that plan, use carbon offsets to address emissions you can’t eliminate due to technological, financial, or other constraints.

In this article, we’ll take a deeper dive into this issue of reducing vs. offsetting emissions to help you make more informed choices for the benefit of both your business and the planet.

Calculate, Reduce, Offset

To make the best carbon-related climate decisions for your business, consider the following three steps, taken in chronological order:

1. Calculate: To know what you need to cut or offset, you need to first calculate your carbon footprint.Just as a CFO probably wouldn’t start slashing expenses if they didn’t know overall spend vs. revenue, it doesn’t make much sense to try to align with science-based targets if you’re not sure how much carbon you’re emitting overall.Importantly, this means calculating emissions from all sources, including third-party suppliers and vendors. While these and other Scope 3 emissions sources tend to be harder to calculate, as they’re generally outside your direct control, they tend to make up the majority of a company’s emissions.

   On average, 75% of emissions come from Scope 3 sources, finds CDP.

   But if you know what that full footprint looks like, you can better calculate the cost of, say, switching to lower-emission suppliers in order to reach reduction targets. And if you can’t disengage with some suppliers, then you can better understand how much you need to invest in carbon offsets.

   To determine your current emissions, you can use online carbon footprint calculators to get an initial understanding. From there, you might work with consultants or other organizations that specialize in calculating carbon emissions through a deep review of your business.

2. Reduce: With an understanding of your carbon footprint, you can start to reduce emissions where viable. That can take many approaches, such as:
   • Switching to more energy-efficient appliances, such as replacing a furnace with a heat pump
   • Installing solar panels to generate renewable electricity on-site
   • Switching from gas-powered to electric vehicles for company fleets
   • Encouraging employees to work from home to reduce commuting emissions
   • Setting emissions limits with suppliers and vendors

However, it’s not always practical to reduce carbon emissions, due to factors such as:

Operational Control
If you don’t operationally control the emissions, then there’s only so much you can do to provoke change.

You might ask suppliers to make changes, but they might be unwilling to do so. A small business, for example, might not hold enough buying power to convince suppliers to cut emissions, and there might not be any better alternatives to switch to.

Financial Viability
While you might have good intentions around reducing emissions, it might not be economically feasible to, say, switch to a supplier that costs twice as much as your current one, just to get a small reduction in emissions.

Or, perhaps you want to invest in more energy-efficient or renewable energy projects, yet you’re not in the financial position to do so yet. These investments can take time. There’s a reason net-zero targets tend to be set over decades, rather than assuming all business can cut to zero immediately.

Technological Limitations

Even if you’re willing to spend money to reduce carbon emissions, sometimes the technology isn’t available, or exists at such a small scale, that you can’t reasonably make changes to cut emissions.

For example, many industrial manufacturing processes rely on natural gas furnaces, and there are no alternatives at the required scale.

Or, maybe some types of business travel need to continue for the time being. As much as you try to cut down on flights, for instance, perhaps attending an international conference is integral to securing business growth (Let’s face it, networking at virtual conferences isn’t the same, at least for now.). In that case, given that sustainable aviation fuel remains in its infancy, there’s only so much emissions-cutting you can do.

3. Offset: Given that some emissions sources can’t be cut, at least in the near term, a good solution is to offset your remaining emissions after you’ve started your carbon reduction plan.Another way to think about this is to be carbon neutral on the way to net zero.As you invest in using recycled and low-carbon materials in your production processes, for example, you can also invest in forestry carbon offsets. Not only can that balance your emissions sooner but it can also yield additional benefits, such as protecting biodiversity via forest conservation/restoration.Offsets also tend to be a more affordable way to tackle emissions given the scale of these projects compared to what you’d build internally.

   So, you can become carbon neutral sooner with offsets. Once you’re able to reduce emissions more yourself, you might then decrease your carbon offset purchases or continue to fund carbon offsets to become climate positive.

   Carbon offsets can also buy you time until viable technologies become available. And considering that companies with net-zero goals will still likely have 10% or so of their emissions that can’t be reduced, carbon offsets will play a key role in meeting these targets.

Starting Improving Your Emissions Balance

While net zero is a great goal, it’s a long-term one. Meanwhile, climate change is wreaking havoc now. So, the idea of foregoing carbon offsets is dangerous. For cases where emissions can’t be cut, offsets will play a key role in helping the planet

As the UN notes, “net zero refers to a state by which the greenhouse gases going into the atmosphere are reduced as close to zero as possible and any residual emissions are balanced by permanent removals from the atmosphere.”

In the short term, investing in high-quality carbon offsets can help your company support climate stability, while long term, we can all work toward ongoing reductions that keep emissions from entering the atmosphere in the first place.

If you’re ready to start investing in carbon offsets or want to explore custom sustainability solutions for your business, Terrapass can help.

Schedule a consultation now to accelerate your carbon-neutral and net-zero path.

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