Despite Backlash Against Carbon Offsets, Companies Fund Their Own Projects

GSK Plc, a major pharmaceutical company in London that is famous for its steel-and-glass headquarters, has stepped out into waters that are less familiar to it: a mangrove nursery in coastal Indonesia, which is being carefully cultivated to support crabs, fish, and carbon for the future.

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In fact, GSK is looking for the precious carbon in mangroves, as the company hopes to use their carbon-capture capability to eliminate greenhouse gas emissions that are emitted from its factories, cars, and asthma inhalers, all of which emit greenhouse gases. Due to its concerns about the poor quality and questionable climate benefits of carbon offsets that are offered on the open market from brokers, the drugmaker is now preparing its own credits.

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According to Adele Cheli, sustainability partnerships and strategy director at GSK, carbon offsetting is a key mechanism for moving capital toward the health, environment and nature in need. It doesn't mean we're going to walk away. We're going to work harder and make it better. Just because it's not perfect doesn't mean we're going to step out.

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Similar ideas are being pursued by other companies. Shell Plc launched a "nature-based solutions" team to work on projects in Australia and Senegal as the first large corporation to develop offsets. From 2030 onwards, TotalEnergies SE plans to invest $100 million a year in nature-based projects to develop a "natural carbon sink" capable of absorbing more than five million tons of carbon dioxide. An “escalating” effort is being pursued by BP Plc to develop carbon credits, in which the company holds a majority stake. 

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In the last year, Chevron Corp. said it was supporting a reforestation project in Louisiana that will generate carbon offsets through the support of a Gambian mangrove project. Danish clean energy giant Orsted A/S has announced that it intends to generate carbon removal credits through this project. Furthermore, Bayer AG is working with Indian farmers on reducing the level of methane being produced in rice cultivation, which can then be monetized through carbon credits. 

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According to Klaus Kunz, founder and head of the ESG strategy of Bayer, a German agribusiness and pharmaceutical company, the existing offsetting schemes are being challenged. He added, "If done properly, it can be a very positive tool."

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There is also a risk that offsets are an untested and unproven proposition for corporations that are under intense scrutiny from investors who are concerned about the environment. Offsets have been shown to be a source of exploitation in poorer nations for a number of years. Several experts have expressed concern about an “undue reliance” on offsets in a recent U.N. report on corporate greenwashing. It has been reported by the UK Climate Change Committee that offsets could disincentivize buyers to reduce their carbon footprint.

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As Nathalie Seddon, professor of biodiversity at Oxford University, described it: "We need to be on red alert" for the new breed of corporate offsets, which "need not replace or delay radical steps to decarbonize," and should be used to support these efforts.

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A number of companies, including GSK and Volkswagen, expressed their awareness of the greenwashing risk and the necessity to prioritize reducing emissions and avoiding greenwashing. As a result of consultations with technical experts, GSK said it prioritized carbon removal credits for its 2030 target. In terms of the 2045 target, removal offsets would only be permitted. Among the issues they consulted with were "additionality" and "leakage," and how the company could share benefits with local communities.

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This could have significant implications if the entry of large companies is successful, as it could transform the nascent $1.3 billion market into a professional one and trigger new growth.

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According to Philip Hardwick, former executive of emissions business at Barclays Plc and JPMorgan Chase & Co., the idea is to manage the process of procurement, quality and spending for your own projects rather than by buying offsets from a broker, where the risk is truly caveat emptor.

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According to someone familiar with this matter who declined to be identified, Volkswagen AG - which emits about 30 times more direct and indirect greenhouse gases than GSK - has a goal of generating 40 million credits a year by 2030 based on their direct and indirect emissions. There was no comment from VW on the target offered by a Volkswagen spokesperson.