How do you achieve real CO₂ reductions while remaining SBTi-compliant? Carbon insetting and offsetting are two core approaches that can help you achieve this. While insetting focuses on measures within your value chain, offsetting relies on external projects to compensate for unavoidable emissions. But which approach better suits your goals?
Here are the key points:
Conclusion: Insetting strengthens your climate strategy and meets SBTi requirements, while offsetting makes sense as a supplement for residual emissions. A well-considered combination of both approaches can be the best solution – depending on your company situation.
Carbon insetting describes the direct reduction of CO₂ emissions within a company's own value chain. Typical projects in this area include regenerative agriculture, reforestation, or measures to improve soil health among direct suppliers.
This approach emerged as a response to criticism of offsetting, which is often perceived as "buying out" of emission responsibility. In contrast, insetting integrates climate protection directly into business processes while simultaneously strengthening supply chain resilience.
Carbon insetting focuses exclusively on a company's own value chain. To identify suitable projects, a scoping analysis is necessary that reveals emission hotspots in the supply chain. Companies should consider their available resources as well as long-term business goals to determine the most effective measures. For companies with less complex supply chains – such as software firms – insetting is often less practical. Here, it's recommended to focus on internal energy efficiency measures and offsetting for unavoidable emissions.
The effectiveness of carbon insetting is measured by quantifying greenhouse gas reductions within the value chain. Recognized standards such as the Greenhouse Gas Protocol or the guidelines of the Science Based Targets Initiative (SBTi) serve as the foundation. Additionally, life cycle assessments, external verifications, and digital tools ensure transparency and traceability.
An advantage of insetting lies in the direct traceability of emission reductions: companies can directly demonstrate the impact of their investments in Scope 1, Scope 2, or Scope 3 emissions. Using technologies like satellite monitoring to track land use changes or blockchain for supply chain traceability, German companies can collect precise data and continuously monitor climate impact.
To meet SBTi requirements, insetting projects must achieve real, additional, and verifiable emission reductions within a company's value chain. Since the SBTi prioritizes direct reductions and removals of emissions over external compensation, insetting is considered the preferred approach for achieving science-based climate targets.
A key advantage: the achieved reductions can be directly credited toward SBTi targets since they are effective in the relevant scope categories. In contrast, offsetting projects are often not recognized for SBTi targets. Furthermore, German companies benefit from better alignment with ESG frameworks such as CSRD, EU Taxonomy, and CDP. This underscores commitment to genuine climate action and strengthens credibility.
Initial investments for insetting are typically higher than for offsetting, as structures for project development, stakeholder engagement, and monitoring must first be established. However, return on investment (ROI) should not be evaluated solely based on emission reductions. Rather, the benefits also show in a more resilient supply chain, stronger stakeholder relationships, and potential savings through more efficient resource use.
Long-term, insetting projects can help make supply chains not only more resilient but also higher quality and more cost-effective. Government funding programs can additionally reduce investment costs and improve ROI.
Carbon insetting is increasingly viewed by stakeholders as a more credible and effective approach compared to offsetting. Particularly in Germany, where both regulatory requirements and consumer expectations for corporate responsibility are high, insetting can significantly strengthen brand reputation.
Investors, customers, and authorities appreciate when companies pursue a clear and traceable sustainability strategy that minimizes the risk of greenwashing. Improved stakeholder perception also supports compliance with ESG and climate reporting standards. German companies benefit here from concrete and transparent measures that underpin their sustainability reporting.
In the next section, we'll take a closer look at carbon offsetting.
Carbon offsetting describes the compensation of greenhouse gas emissions through external projects that either remove CO₂ from the atmosphere or reduce emissions elsewhere. Such projects – like reforestation, renewable energy, or direct CO₂ capture technologies – take place outside the company's own value chain.
Originally developed to quickly offset emissions without fundamentally changing business processes, this approach now faces criticism. Particularly questions about long-term impact and so-called additionality are in focus. In the following, we examine the key aspects: scope, measurability, SBTi compliance, costs, and stakeholder perception.
Carbon offsetting always takes place outside a company's direct business activities and supply chains. Companies purchase certificates from third-party providers that verify emission reductions or CO₂ removals through independent projects.
The range of such projects is virtually unlimited. German companies can, for example, invest in forest protection projects in Brazil, solar installations in India, or methane reduction measures in agriculture. This global flexibility makes offsetting particularly attractive for companies that either have high unavoidable emissions or see limited opportunities for internal reduction.
The impact of offsetting projects is certified through standards like VCS, Gold Standard, or Climate Action Reserve. These systems ensure that projects meet strict criteria such as additionality, permanence, and measurability. Each compensated ton of CO₂ is documented through a digital certificate that can only be used once.
A frequently discussed point is the temporal delay of impact: while technical solutions deliver immediate emission reductions, nature-based projects like reforestation often need years to develop their full effect. Additionally, nature-based projects are vulnerable to risks like wildfires, diseases, or changes in land use, which can jeopardize the long-term stability of compensation.
Project quality varies considerably. Therefore, companies should focus on projects that convince through robust monitoring, regular verifications, and transparent reporting. This can minimize the risk of greenwashing.
The Science Based Targets Initiative (SBTi) takes a restrictive stance toward offsetting. External compensation is generally not recognized for achieving SBTi climate targets. The underlying principle is clear: genuine climate action must occur through direct emission reductions within the company's own value chain.
Nevertheless, offsetting can play a complementary role, especially when it comes to unavoidable residual emissions after SBTi targets have been achieved. However, there is a strict distinction between emission reductions (which are relevant for target achievement) and compensation through offsetting (which may only be used for additional climate protection claims).
For German companies, this means: offsetting must not be viewed as a substitute for internal measures. Instead, it should serve as an additional strategy to offset unavoidable emissions.
Compared to internal measures (insetting), offsetting requires lower initial investments. No profound structural changes or long-term project developments are necessary. Costs for CO₂ certificates vary greatly – from a few euros per ton for simple reforestation projects to over 100 euros per ton for technical solutions like direct CO₂ capture.
However, offsetting brings no operational benefits like cost savings or supply chain strengthening. Instead, it primarily offers reputational and compliance benefits. Companies should consider long-term costs, as offsetting represents a recurring expense without creating structural improvements.
With rising certificate prices, stakeholder interest in transparent communication and high-quality projects is also growing.
Public perception of offsetting has deteriorated in recent years. Investors, NGOs, and consumers are increasingly skeptical of offsetting and instead demand genuine emission reductions. This critical attitude is further reinforced by media reports about failed projects, exaggerated climate impacts, and lack of additionality.
Regulatory requirements in Germany and the EU also reflect this development. The Corporate Sustainability Reporting Directive (CSRD) requires detailed disclosure of offsetting activities and their distinction from direct reduction measures. This increases pressure on companies to present transparent and credible strategies.
German companies should therefore communicate offsetting strategically and thoughtfully. High-quality projects and clear presentation as a supplement – not a substitute – to internal measures are perceived much more positively by stakeholders.
After the detailed examination of carbon insetting and offsetting, here follows a clear comparison of their respective advantages and disadvantages. This analysis should help German companies choose the right strategy for their SBTi-compliant climate policy. A clear evaluation of the strengths and weaknesses of both approaches is crucial for making informed decisions.
| Aspect | Carbon Insetting | Carbon Offsetting |
|---|---|---|
| Advantages | • Ability to meet SBTi requirements • Long-term cost savings through efficiency improvements • Supply chain strengthening and risk reduction • Positive perception as genuine climate action • Building internal competencies |
• Low initial investments and quick implementation • High flexibility through global project selection • Immediate compensation effect • Support for international climate protection projects • Easy integration into existing processes |
| Disadvantages | • High initial investments and longer payback periods • Limited project options within the value chain • Complex implementation with high resource requirements • Longer time until measurable impact • Dependence on supplier cooperation |
• No SBTi credit for climate targets • Critical public perception • Risks regarding project quality and permanence • Recurring costs without operational improvements • Risk of greenwashing |
The choice between carbon insetting and offsetting depends heavily on a company's individual situation. Companies with a long-term orientation and sufficient financial resources usually benefit from carbon insetting, as this approach promotes structural changes and offers long-term advantages. Offsetting, on the other hand, is particularly suitable as a transitional solution or complementary measure – especially for companies that currently still have high unavoidable emissions or whose internal reduction possibilities are limited.
It is crucial to carefully select projects and communicate openly to minimize potential reputational risks. Transparency and credibility play a central role in securing stakeholder trust.
The tightened requirements of the Corporate Sustainability Reporting Directive (CSRD) increasingly force companies to clearly present their emission reduction measures. It becomes increasingly important to distinguish between genuine reductions and pure compensation measures. At the same time, quality standards for offsetting projects are rising, and technical innovations like direct CO₂ capture are gaining importance.
Carbon insetting requires higher initial investments but ensures predictable costs long-term and reduces dependence on external certificate markets. In contrast, costs for offsetting projects are often subject to unpredictable market fluctuations, making planning difficult and questioning the economic viability of a strategy based exclusively on offsetting.
This overview provides a solid foundation for strategically integrating both approaches into an SBTi-compliant climate strategy and specifically aligning measures with individual company goals.
Carbon insetting and offsetting play different but complementary roles in an SBTi-compliant climate strategy. While carbon insetting forms the foundation for a credible climate strategy by driving structural changes and reducing emissions long-term, offsetting serves to compensate for unavoidable residual emissions. However, it is not a substitute for direct emission reductions.
For German companies, the focus is clearly on carbon insetting. This approach not only helps meet the strict requirements of the SBTi but also increases operational efficiency. High-quality offsetting projects can be used complementarily to compensate for remaining emissions and achieve the goal of climate neutrality.
The tightened reporting obligations through the CSRD as well as growing stakeholder expectations make a transparent and science-based approach indispensable. These developments highlight how important it is to communicate consistent measures both internally and externally. Companies that invest early in carbon insetting not only benefit from better regulatory positioning but also achieve lasting cost savings and strengthen their supply chain relationships.
The success of an SBTi-compliant climate strategy depends heavily on the individual company situation. Capital-strong companies with complex supply chains can particularly benefit from an insetting focus. For smaller companies with limited resources, it may make sense to initially focus on high-quality offsetting while developing internal reduction measures in parallel. The key is a strategy that is honest and transparent, tailored to the company's specific situation. This not only strengthens credibility but also achieves sustainable efficiency within the value chain.
The difference between carbon insetting and carbon offsetting lies primarily in where and how emissions are reduced. With insetting, companies focus on projects within their own value chain. Examples include regenerative agriculture or sustainable supply chains that aim to reduce emissions directly at the source. Offsetting, on the other hand, relies on external measures, such as reforestation projects or renewable energy initiatives that take place outside the company's own business activities.
Carbon insetting often offers long-term advantages because it not only improves processes within the company but also strengthens the resilience of the entire value chain. However, offsetting can be a meaningful complement, especially when it comes to quickly offsetting emissions and thus achieving rapid progress on climate goals.
Both approaches have their justification. A strategic combination is crucial for developing an effective and SBTi-compliant climate strategy that considers both short-term and long-term goals.
Implementing carbon insetting projects in supply chains often brings several challenges. A central difficulty lies in the complexity of the supply chain, which complicates coordination and monitoring of such projects. Particularly with widely branched or global supply chains, it can be difficult to effectively involve all participants.
Additionally, one frequently encounters skepticism from stakeholders like farmers or suppliers who might initially be critical of the measures. This reluctance can impair cooperation and ultimately the success of the projects.
Another problem area is uncertainty regarding standards and verification processes. Without clear guidelines, there is often a lack of transparency and traceability, which in turn can weaken trust in the projects. To counteract this, it is essential to rely on recognized standards and maintain open, clear communication. This way, companies can build trust and increase acceptance among all participants.
Carbon offsetting is viewed critically by the SBTi because it does not guarantee permanent and direct reduction of greenhouse gas emissions. Another problem is often the lack of transparency and verifiability, which raises doubts about the actual impact of such measures.
Instead, the SBTi emphasizes the importance of concrete emission reductions within the company's own value chain. These approaches are not only more sustainable but also more precisely measurable. Companies should therefore primarily work on reducing their own emissions rather than relying primarily on compensation projects to achieve their climate goals.