Verra’s Struggles Demonstrate the Risks and Limitations of Carbon Offsets

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Senior Director and Principal Analyst

Last week Verra CEO David Antonioli stepped down amid growing controversy about the quality of the carbon offsets verified by the company. Verra — which plays in the voluntary carbon market — has been accused of accrediting carbon offsets that don’t meaningfully reduce carbon emissions. 2023 has been marked by bad press: In January, a Guardian investigation claimed that only 6% of Verra’s forestry credits credibly eliminated carbon emissions; in March, land-based projects in Northern Kenya were put into review because of claims they were not compliant with Verra’s rules. Some companies like Gucci, which purchased carbon credits using Verra’s certifications, have since dropped their claims of carbon neutrality. What does this mean for Verra, carbon credits, and companies seeking to use them?

Fatal flaws in forestry

In response to these issues, Verra has begun to update and standardize its rules and practices for forestry-based carbon credits. The issue, however, is bigger than the standards: As we discussed in the report Going Carbon Negative, forestry credits are susceptible to natural disasters like fires, and it is difficult to accurately quantify the amount of carbon actually absorbed as a result of any project. Beyond that, many of Verra’s methodologies were based on avoiding deforestation rather than afforestation or new growth of forests. Credits based on avoiding deforestation will always be suspect, as it’s difficult to say what would have happened in the absence of the credit. These factors made forestry-based credits one of the riskiest approaches that we assessed in the report; these failures were really only a matter of time.

Mismatches between risk and reward

Gucci could have avoided having to walk back its claims of carbon neutrality if it had properly assessed the risks of the carbon credits it was buying. Kering — the multinational that owns Gucci — had a footprint of Scope 1, 2, and 3 emissions of 2.4 Mtonne of eCO2 in 2022. Gucci represents about one-half of Kering’s revenues; assuming Gucci also represents one-half of its emissions, it could have offset its footprint for about USD 170 million (at USD 140/tonne) with very low-risk credits from carbon utilization in cement. While this would have represented a significant cost increase (Gucci probably paid between USD 5 and USD 50 for its offsets), Kering could have borne the cost: It spent roughly EUR 1.3 billion in 2021 and 2022 on stock buybacks; Gucci had roughly EUR 3.7 billion in income. It’s possible those credits weren’t available when Gucci launched its program, but it also could have not made those claims of neutrality. If it had invested a little more, Gucci could have kept its position as a sustainability frontrunner. In a reputation-heavy business like luxury fashion, Gucci’s needless decision to cheap out may come back to hurt it.

The twin sagas of Verra and Gucci highlight the need for companies to have a clearheaded view of the risks of carbon offsets — both from process and reputational risk standpoints. Offsets are tools for companies with limits on their ability to invest in direct decarbonization, not replacements for a long-term strategy to reach net-zero. Gucci has a program to decarbonize its own operations; while bringing that to the supply chain is much harder than buying credits, it’s clearly necessary in the long term. 

The Lux Carbon Credit Portfolio Tool shows how to use carbon credits as an integral part of a company’s net-zero strategy and roadmap.

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