By Pianpian Wang
Picture yourself in a supermarket deciding between brands of dog food. One brand captures your attention with the claim “carbon-neutral” on the packaging. You have noticed this to be a new and popular trend for companies to include claims such as “carbon neutral” and “net-zero emission carbon footprint” as a way to differentiate their products in the marketplace. It begs the question, what do these terms really mean?
Carbon neutrality or net-zero carbon footprint means that an organization or an individual eliminates as much greenhouse gas as it creates. Generally speaking, the claim of carbon neutrality refers to a means of taking climate action and can be used to engage with consumers regarding the sustainability efforts your company has invested as well as to increase brand value. Therefore, this article primarily focuses on the claim of carbon neutrality from a corporate perspective.
Ok, back to the dog food product on the shelf of the supermarket. Before printing the label of “carbon neutral” on the products or services, business owners may need to understand some potential legal risks if they have not framed the claim properly.
Currently, there is no direct legislation related to the claim of carbon neutrality. That being said, there are some existing laws and regulations that can supervise the usage of carbon neutrality claims. The US Federal Trade Commission (FTC) first issued the Green Guides in 1992 and then revised it in 1996, 1998, and 2012. Note that the Green Guides’ nature is not rules or regulations, instead, it is a description of the types of environmental claims the FTC may or may not find deceptive under Section 5 of the FTC Act, a section about prohibited “unfair or deceptive acts or practices in or affecting commerce”. The 2012 version includes new guidance on 1) use of product certifications and seals of approval; 2) carbon offsets, 3) free-of claims, 4) non-toxic claims, 5) made with renewable energy claims, and 6) made with renewable materials claims.
Besides, due to a lack of strict guidelines for presenting these claims, or setting a framework, companies run potential risks of violating established advertisement laws. If a company does not frame the claim of carbon neutrality accurately, the company could be accused of false advertising or providing misleading information to consumers. Furthermore, publicly listed firms could potentially induce investors to make purchase or sale decisions based on false information, thus resulting in financial losses and violation of securities laws.
Here are some tips to help companies frame and communicate the claim with their stakeholders properly:
Firstly, do not forget to mitigate unavoidable emissions. Many companies implement measures to replace energy sources with renewable energy and assume it is qualified as carbon neutrality. To some extent, the company could claim its energy emissions is carbon neutral. However, a company’s carbon footprint is not only generated from its energy usage.
The Greenhouse Gas Protocol divides emission sources into three scopes. Scope 1 emissions are direct emissions from owned or controlled sources (such as company vehicles, and other direct fuel purchase). Scope 2 emissions are indirect emissions from the generation of purchased energy (such as electricity and natural gas consumption). Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions (such as corporate logistics and supply chains).
Based on this classification, renewable energy adoption can only mitigate the carbon footprint of Scope 2, while Scope 1 and 3 emissions are not included. In this context, the company cannot claim it is carbon neutral since it has not taken measures to reduce carbon emissions generated from Scope 1 and 3. To avoid errors as well as to add credibility to the companies’ carbon emission report, companies should ask a third-party firm to conduct a comprehensive survey to understand their corporate carbon footprint or have the third-party verify their existing carbon calculations.
It is worth mentioning that more and more companies started purchasing carbon offsets regularly, such as Ernst & Young, Microsoft, and Google, to mitigate unavoidable emissions to reach the balance of carbon output and carbon removal.
Second, state what scope is covered in the carbon-neutral claim. If it is not feasible to go entirely carbon neutral as a company within a short time, then the business owner can focus on a more manageable starting point. In practice, there are different scopes that a company can invest in efforts to make carbon-neutral, depending on the company’s available resources (labor and budget): a. business operations, b. logistic support, for example, Esty made their shipping carbon-neutral, c. all products and services, and, d. some products and services, such as Good Clean Love made their most popular product carbon-neutral.
If a company only reduced the carbon footprint of a certain scope such as business operation (office electricity, natural gas, business travel, employee commutes, waste and so on), then the company can claim its business operation is carbon neutral, while it cannot extend the claim to include products or services.
Thirdly, make sure the efforts are consistent and on-going to match the claim. Being carbon neutral is not just a one-time action. It requires companies to continuously monitor their corporate carbon footprint and to take action to remove the same amount of emissions at the same time or afterward. If the action is discontinued, the claim of carbon neutrality would no longer be true. For companies to maintain their status of carbon neutrality business owners must purchase carbon offsets annually to address their unavoidable emissions. That’s because the valid period of carbon offsets is one year.
Lastly, companies can protect their claims by always asking for retirement receipts from their carbon offset sellers for record and audit purposes.