Contribution claim as alternative to carbon neutrality

Lawmakers and consumer protection bodies are taking a very close look at the green claims companies are stating. This is to protect consumers and to create transparency of what the claim really means. 

There have been several lawsuits against corporates which communicated a green claim without backing it up or without having realistic plans to reach the claimed goal. The main issue is that ‘action’ and ‘communication’ did not match up. In order to avoid this companies are adopting new strategies. In this article, we focus on different claims and introduce the topic of ‘Contribution Claim’ as an alternative. 

What is a Contribution Claim?

The Contribution Claim is appropriately used when a company invests in any initiative which helps fight climate change without accounting for any emission reductions on their corporate balance. Initiatives can be carbon credits, research & development investments into innovations combating global warming and other activities supporting climate action. The claim is oftentimes measured of ‘money invested’ into a given initiative or a mix of various initiatives.

If carbon credits are purchased, the company does not account for these as emission reductions on their balance sheet, but only as an investment ‘contributing towards a climate action’. 

How much should be invested into climate initiatives?

Companies should foremost invest in measuring and reducing their emissions. If they chose to go one step further, they can set an internal carbon price to create a budget for investments into these climate initiates. Once the internal carbon price is determined, the company multiplies this by the company’s residual emissions to get the contribution budget. The company can now take this money and allocate it to impactful climate projects. 

Which regulation is key to green claims?

One very prominent regulation in the EU is the EU Green Claim Directive. The proposed directive will require companies to substantiate the voluntary green claims they make in business-to-consumer commercial practices, by complying with several requirements regarding their assessment (e.g. taking a full life-cycle perspective). Stated of climate claims and goals will now need to be transparently explained, and companies need to present realistic plans to reach these. 

Why is this a viable strategy?

Companies deciding to adopt a climate contribution claim focus on supporting the global transition to net-zero, rather than claiming something at company level. It is a conservative approach to communicating climate action whilst still contributing the same investment to it. The contribution claim also allows companies a much broader investment approach into initiatives besides carbon credits.