Beyond carbon offsetting

For a long time, financing climate projects meant one thing: carbon offsetting. Companies offset emissions reductions against their carbon footprint and achieved climate neutrality from an accounting perspective. That claim is no longer permissible under the Empowering Consumers Directive (EmpCo).

In our work with clients and stakeholders, we have observed a shift. Companies increasingly focus on the impact of their financial contribution. What matters is not the accounting exercise, but the actual climate action.

There are good reasons for this

Terms like "carbon offsetting", "compensation", or "climate neutral" carry risks. They suggest that the environmental impact of a product or company has been neutralised. This oversimplifies the complexity of emissions reductions. And it draws attention away from what matters most: actually reducing emissions.

Companies that finance climate projects reduce more internally.
Studies show that companies supporting climate projects reduce their own emissions twice as much as companies without this commitment. Climate projects do not replace reduction, they accelerate it.

New rules for environmental and climate claims will apply in the EU from September 2026. The Empowering Consumers Directive (EmpCo) puts an end to misleading claims. Climate neutrality claims based solely on offsetting will no longer be permitted. The same applies to vague terms like "green" or "eco-friendly" without substantiated evidence.

Companies should first reduce their greenhouse gas emissions. Under the SBTi's Net-Zero Standard, investments in avoiding and reducing emissions within the value chain take the highest priority.
Only once these options have been exhausted should companies invest beyond their own science-based targets – in climate projects that deliver global impact.
Climate projects can be classified into three categories based on their contribution to the net zero goal:

The idea of financing climate action across borders originated with the Kyoto Protocol in 1997. It introduced the Clean Development Mechanism (CDM) – the first global mechanism for market-based climate action.

The principle: industrialised countries invested in emission-reduction projects in low- and middle-income countries. In return, they received Certified Emission Reductions (CERs) – credits they could use to meet part of their national obligations.

In parallel, the voluntary carbon market (VCM) emerged. Private actors – companies, organisations, individuals – took the initiative for climate action while governments were still working out solutions. They bought and sold emission reductions voluntarily, not to meet legal obligations.

The VCM developed its own unit: the Verified Emission Reduction (VER). One VER represents one tonne of CO₂ equivalent. Organisations such as Verra (Verified Carbon Standard) and the Gold Standard established standards that defined requirements for project design, monitoring, and third-party verification.
 

"Climate neutrality through offsetting"

Based on this system, the concept of carbon offsetting took shape. Companies calculated their carbon footprint, reduced emissions where possible, and offset the remaining emissions by purchasing carbon credits. The result: climate neutrality from an accounting perspective.
This model is based on a physical fact: greenhouse gases are distributed evenly in the atmosphere. Where on earth emissions are avoided or reduced is irrelevant to global greenhouse gas concentrations.
For many companies, carbon offsetting was the entry point into climate action. It made emissions measurable, raised awareness, and channelled private finance into climate projects worldwide for the first time.
With EmpCo coming into force, climate neutrality claims will no longer be permissible.

From Kyoto to Paris: new rules, new challenges

In 2015, the Paris Agreement replaced the Kyoto Protocol. Under the Kyoto Protocol, developing countries had no binding emission-reduction targets. The Paris Agreement requires all 192 countries to set emission-reduction targets through Nationally Determined Contributions (NDCs).

This changes the rules for the voluntary market. If both the host country of a climate project and the buyer country claim the same emissions reduction, a risk of double counting arises. Article 6 of the Paris Agreement establishes rules for how emission reductions can be transferred and accounted for between countries.

For the VCM, the following applies: when a company purchases VERs, these credits are typically not counted toward the climate targets of the company's home country. The host country may count the emission reduction toward its own NDC. This is not considered double counting, because only the host country is using the reduction in its official climate accounting.

How the VCM works today

The climate impact of projects is measured in tonnes of carbon dioxide equivalent (CO₂e). Once the emission reduction has been verified, a project issues verified emission reductions (VERs). Each VER represents one tonne of CO₂.

The credit is recorded in a public registry managed by an independent organisation such as Verra or the Gold Standard. To demonstrate its contribution, a company purchases the credit and retires it in the registry. This prevents double counting.

Why do standards matter for the voluntary carbon market?

Even though financing climate projects is based on a voluntary commitment, the projects must be consistently validated, registered, and regularly audited by independent bodies.
Internationally recognised standards apply, including the Gold Standard, the Verified Carbon Standard (VCS), and PV Climate.

A rapid and comprehensive reduction of greenhouse gas emissions is critical to limiting global warming to 1.5°C. Financing climate projects is an important tool for companies – both as an immediate measure and as a long-term contribution beyond their own value chain.
Financing climate projects delivers a dual impact: it reduces global emissions and improves the living conditions of local communities.
At the same time, companies benefit directly – through stronger brand perception, more resilient supply chains, and greater attractiveness for talent and investors.