Regulating purchase-enabled sustainability action in businesses—International Day of Forests 2019

Regulating purchase-enabled sustainability action in businesses—International Day of Forests 2019

First published in LexisPSL. LexisPSL Environment includes a dedicated subtopic with practical guidance and legal news items on responsible business, human rights and sustainability. Click here for a free trial of LexisPSL.

With climate change and environmental impact increasingly on businesses’ radars, there is a rising trend for purchase-enabled sustainability action business models, eg promising to plant a tree for each purchase. Tree-planting has been adopted by a growing number of companies intending to offset their carbon emissions. While this may be attractive to environment-conscious consumers, little is known about how to measure and verify the effectiveness of these models. In other words, how do we know trees are actually being planted, and what difference does this action realistically make? Jono Adams, sustainability consultant at Anthesis Group, comments on these purchase-enabled sustainability action models and the voluntary nature of regulation.

Good intentions?

Despite 80% of European companies considering climate change as a business risk, most have no targets for reducing their greenhouse gas emissions and 53% have no climate goals, according to the Carbon Disclosure Project report 2018. It appears that, despite growing concerns about climate change, many businesses are slow to accept their environmental responsibility.

Adams says the move towards purchase-enabled sustainability regimes, such as tree-planting, sometimes starts with businesses’ intention to reduce their environmental impact as much as possible but equally, it may simply be motivated by encouraging more sales of their product by appearing to be a more responsible organisation.

For the businesses that are considering their environmental responsibility—from those who want to reduce their carbon footprint to those who want to make an ‘overall positive environmental and/or social impact’—a range of options are available, such as:

  • developing a strategy that is in line with the ambitions set as part of the Paris Agreement to keep global temperature increase below 2⁰C—Adams suggests a science-based carbon target
  • B-Corporate certification, which includes committing to a clear and agreed set of principles to sign up to ‘use profits and growth as a means to a greater end—positive impact for their employees, communities, and the environment’

The key point to note, Adams emphasises, is the ‘diverse range of starting points’, whether a global corporate brand is transitioning from having a large environmental impact to an overall positive impact or through to those that are set up solely to make a positive impact from the start.

Regulatory requirements are part of the motivation for companies to engage in environmental action. In the UK alone, Adams explains ‘there are a number of stand-out regulatory frameworks that have effected significant change’ over the years, including:

  • the UK Clean Air Act 1956, which responded to the Great Smog in 1952 caused by coal-burning
  • the Montreal Protocol 1987, where the UK played a major role in agreeing to phase out the production and use of ozone-depleting substances
  • the UK Landfill Tax, introduced in 1996, which Adams calls ‘arguably one of the most effective “green” taxes’
  • the Climate Change Act 2008—which introduced a new duty for the Secretary of State to ensure that the net UK carbon account for all greenhouse gases for the year 2050 is at least 80% lower than the 1990 baseline, with the aim of avoiding dangerous climate change

Businesses supporting environmental projects is not a new topic. However, companies using purchase-enabled sustainability business actions like tree-planting introduce what Adams calls the ‘role of aligning the buying of a product with resulting environmental actions’. This, Adams says, is a newer profile, and the promotions for these range from incentivising consumption to offsetting purchases.

Offsetting and effectiveness

Carbon offsetting is an internationally recognised way to take responsibility for unavoidable carbon emissions and reduce a company’s carbon footprint. Simply, it works on the principle that, for every one tonne of carbon produced by an unavoidable part of the business function (eg transporting goods to another country via car) the business subtracts one tonne of carbon somewhere else (eg by using renewable fuel for another part of the process). The result is the one tonne of unavoidable carbon produced is ‘offset’ by saving carbon production elsewhere.

This is distinct from some of the claims that are being made which appear to be offsetting but without applying existing offsetting standards. Adams claims, ‘there are hundreds, if not thousands of companies that are suggesting that they are offsetting a purchase on your behalf,’ and indeed there are a big variety of companies offering to plant trees in exchange for their goods/services. Some clothing retailers promise to ‘plant ten trees for every purchase’, some manufacturers promote they plant a tree for every item sold (such as a watch), through to search engines that use ‘the ad revenue from your searches to plant trees where they are needed the most’.

This may appeal to consumers who are hoping to find an environmentally-friendly alternative to the standard search engines and clothing suppliers, as it implies that the planting of the trees offsets the negative impacts of emissions for transporting, and manufacturing goods. But, Adams says, in many cases, these companies ‘clearly have not quantified the impact of their service/product and therefore are spuriously suggesting that the ‘offset’ is adequate’. Indeed, he questions how effective planting trees is at offsetting carbon emissions in companies:

‘Clearly the impact of creating a watch is more than the benefit of planting a tree. Most of these companies don’t sufficiently analyse their impact to then accurately offset their impact—and planting a tree certainly won’t cut it. For most credible offsetting programmes and standards, it is simply not included as an appropriate reduction project.’

He suggests that to be fully effective at reducing its carbon emissions, a company’s best option is a combination of ‘reducing its emissions significantly—if not entirely—by using only renewable emissions and, additionally, plant a load of trees which is aligned to its product use’.

This opens up the bigger question for companies as a whole—do companies need to recycle 100% of profits into the mission of the company or not? Adams answers:

‘Surely this needs to be the case, at least indirectly. It is important to consider impact—ie what is more “pro-environmental”? An entity that sets itself up as a mission-led company recycling all profits into positive impact, or a large corporate entity without such a lauded mission and not shy about profit making but with a produce/service that has a hugely positive impact on a certain issue[.]’

Co-benefit schemes

While offsets are traded based on their climate benefits, many projects also have a host of additional impacts, known as ‘co-benefits’. Adams explains that these co-benefits are often in line with other aspects of sustainable development, such as:

  • ‘supporting the local economy through job training and creation’
  • ‘preserving watershed areas that supply clean water’
  • ‘safeguarding biodiversity’

In many cases, Adams adds, ‘co-benefits are integral to the project and often one of the main reasons that suppliers and many buyers are engaged in voluntary carbon markets’.

Regulating voluntary carbon markets

Adams claims, ‘airline industry offsetting in the late 2000s started the trend for offsetting related to a consumer product’, however the schemes placed the cost with the consumer. An example of this is Air New Zealand’s FlyNeutral, which gives consumers the option to pay extra to offset the emissions the flight produces. Flyneutral sets out the way it calculates the flight emissions and details the offsetting process, however Adams warns that, in the past, the ‘lack of credibility’ of some offsetting practises ‘led to an erosion in [offsetting’s] reputation and therefore a subsequent drop in public declarations’.

This was due to a lack of regulation in the early voluntary carbon markets. Initially, many project developers used internal methodologies to calculate their project’s emissions reductions, which led to a lack of clarity, uniformity and understanding.

Now, Adams says ‘most projects adhere to methodologies set out by one of several voluntary standards’. For example, Verra’s verified carbon standard (VCS) programme works to ‘ensure the credibility of emission reduction projects’ by certifying programmes which adhere to their rules and requirements. These rules set out the requirements of the projects regarding reporting, outlining their methodology, upholding transparency and ensuring they are reducing their emissions effectively.

Other voluntary emissions reductions standards include:

  • Gold Standard
  • Voluntary Carbon Standard
  • Climate Action Reserve
  • Voluntary Offset Standard
  • Voluntary Emission Reduction Plus

These all promote transparency and ensure that projects certified under their schemes are delivering on their claims and objectives to reduce emissions. As Adams says, ‘it is critical to ensure, or verify, that the emission reductions generated by these projects are actually occurring’.

Adams points out that ‘operational carbon offsetting continues to grow, not least as part of the solution companies are enacting to align with Paris Agreement ambitions’, and so providing frameworks for companies to adhere to is increasingly important to inform consumers who seek to choose environmentally-friendly options:

‘Voluntary carbon pricing continues to be very varied—from very low to very expensive. While Ecosystem Marketplace has tracked average prices ranging between $3-$6/tCO2e, actual prices range from under $0.1/tCO2e to just over $70/tCO2e. This range in prices may be attributed to several factors, including:

  • project costs (which can differ based on the project’s location and type of activity)
  • buyer’s preferences (eg specific location, project type, co-benefits, or other buyer criteria)
  • the type of the transaction (typically, offsets bought in bulk tend to sell at lower prices than offsets bought in smaller quantities)

Accountability and regulation

What is crucial—and surprising considering the increasing number of carbon-offsetting business regimes appearing on the market—is that the voluntary market is, according to Adams, unregulated. This means that consumers who want to verify how effective the carbon offsetting of their purchase is must do so themselves. This could be done through direct communication with the company or researching to see if they are in possession of a voluntary carbon standard certificate.

On the other side, for businesses who wish to demonstrate their carbon neutrality and promote trust and transparency among their customers, Adams suggests PAS 2060 (published by the British Standards Institute) and the CarbonNeutral Protocal verification.

Regulating carbon neutrality is increasingly important to ensure consumer awareness, Adams points out, arguing that businesses who promise tree-planting in exchange for purchases ‘actually incentivise consumption—eg buy more hoodies, undertake more searches’. This could potentially increase the problems that we currently face—increasing waste and production instead of reducing the impact on the environment.

Adams says it may be seen by many as ‘unenlightened thinking ignoring the circular economy which is critical to managing consumerism’. Companies would be better to encourage recycling, and clothes-mending rather than purchasing more, to reduce their carbon footprint. Or, if planting more trees is the goal, Adams suggests companies could start or support campaigns to increase tree-planting across the globe. This could fit easily into existing business-models by means of simple donations to a tree-planting charity.

Future sustainable business models

There are an increasing number of levers both in policy and non-policy that are driving companies to implement impact reducing activities, including:

  • the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, for which member corporations develop voluntary, consistent climate-related financial risk disclosures to provide information to investors, lenders, insurers, and other stakeholders
  • RE100 under which companies commit to achieving 100% renewable power
  • CDP reporting, which aims to make environmental reporting and risk management a business norm
  • the Paris Agreement, which includes targets for sustainability and carbon emissions

The focus on climate change and carbon emissions is an international one, which Adams points out through Christiana Figueres’, the former executive secretary of the United Nations framework convention on climate change, Mission 2020 initiative. This sets out recommendations to ‘ramp up’ climate action including ‘a voluntary market or other mechanisms’ to incentivise ‘earth-friendly agriculture’, Scope 3 reporting and focus.

With increasing public pressure and scrutiny on businesses and their environmental responsibility, will purchase-enabled sustainability actions become more popular as time goes on?

Adams advises that ‘there will need to be a continued increase in credibility, but also transparency of impact’.

To ensure the viability of offsetting and carbon neutrality, he envisages a future where more and more business models incorporate voluntary carbon off-setting with the consumer.

The future of off-setting can be found in technological advances, along with innovative off-setting practices such as ‘CarbonClick’, a one-click offset—in the form of a green button on a consumer’s phone screen that adds ten or 20 cents—for each purchase they make on the device. CarbonClick is being developed by two former Air New Zealand employees, Jan Czaplicki and Paul Brady, to introduce what Adams calls ‘a trusted system to drive greater uptake of voluntary carbon-offset schemes’. The product would give the consumer a reference that they can choose to explore further and that will show them exactly which offset they’ve bought and where it is making an impact.

Blockchain, for example, could enable users of ‘CarbonClick’ and other inventions to purchase carbon offsets and track them down to the tree being planted. This offers a more secure and transparent way to guard against double counting of carbon markets, which Adams says ‘has undermined the credibility of such schemes in the past’.

Looking forward

Trust, regulation and transparency are the key topics of discussion surrounding purchase-enabled sustainability action in businesses. Adams says that, with climate change and other international drive to reduce carbon emissions, the pressure on businesses to adapt their models to acknowledge their environmental responsibility is unlikely to reduce.

Therefore, with more businesses likely to look for ways to offset their carbon emissions, it is crucial to increase and tighten regulations on this. Tree-planting, and other forms of offsetting, could well be the currency of the future.

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