Guide: Carbon offsetting for businesses explained

16 November 2021

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Guide: Carbon offsetting for businesses explained

With global emissions increasing and climate change awareness growing rapidly, businesses can no longer put their feet up and let someone else take care of ever-expanding environmental issues for them. Or rather, they could, but customers, investors, and staff alike expect businesses to be more environmentally mindful in their actions.

Carbon offsetting is one such way businesses can help to benefit the planet. But what does it involve?

For businesses looking to reduce their contribution to climate change, we’ll guide you through what carbon offsetting is, how it can help, and the ways in which you can start offsetting your own carbon footprint below.

What is carbon offsetting?

Carbon offsetting is a way of balancing out pollution. It does this through carbon offsets – activities that neutralise carbon dioxide emissions by creating an emission reduction elsewhere.

How do carbon offsets work?

The neutralisation of carbon emissions is achieved by purchasing carbon credits. One carbon credit equates to the absorption or reduction of one tonne of CO2.

So, effectively, your business pays someone else to remove a specific quantity of greenhouse gases from the atmosphere, an action that contributes to carbon reduction around the world.

From planting trees and distributing cleaner-burning cookstoves to financing wind turbine generators, these projects can help your business contribute to more environmentally friendly operations. The purchase of carbon credits also allows such emission reduction projects to remain financially viable and sustainable – essential for businesses that can’t secure funding by themselves.

You can use offsetting in a variety of different ways too, compensating for the likes of:

  • Your business’s residual carbon footprint after your other options have been exhausted
  • Emissions created by a particular product, service, building, project, or event
  • Emissions created by your supply chain

What are the benefits of carbon offsetting?

Improved Corporate Social Responsibility

Much has been made of Corporate Social Responsibility (CSR) in recent times. By being more aware of its role, a business can make decisions that aren’t simply based on financial reasons. And when businesses are seen to be more socially responsible, their customers, shareholders and staff will approve too.

In other words, CSR can be a real boost in terms of positive public relations, brand visibility and market leadership.

Creates more opportunities for carbon reductions

Sometimes a business might not be able to reduce their emissions as much as they’d like. Say their footprint is already small or they’re in an industry where low-carbon options simply aren’t available to them or their market. Carbon offsetting allows these businesses to make up for the emissions they wouldn’t otherwise be able to neutralise themselves.

Helps to uncover supply chain issues

If your business is part of a supply chain, then carbon offsetting ensures you won’t get into any hot water with suppliers and partners on environmental grounds. And by identifying and dealing with the pain points that do contribute to emissions, the savings you make can be used to buy more carbon offsets.

Greater awareness of spending

Carbon offsetting might also unearth some further insights into how you spend your budget. If you find your energy procurement budget doubled by carbon offsetting, perhaps there is value in examining how you could reduce your energy consumption at a base level, reducing your organisation’s environmental impact from the outset. Is it worth spending your money on carbon offsets? Or could you use that money to reduce carbon emissions yourself, for instance?

Are carbon offsets tax deductible?

The short answer is: it depends.

For the most part, the availability of tax deductions depends on whether the purchasing of carbon offsets is, in legal terms, wholly and exclusively for the purposes of the trade.

Let’s say a business uses the fact it is offsetting emissions as a way of attracting more customers through its products or services. It should be possible to show that this spending is wholly and exclusively for the purposes of the trade.

If, however, the expenditure has a dual purpose, it may not be deductible – even if the business purpose is the main purpose.

This may be the case if a business is buying carbon offsets because the owners are passionate about climate change, but they haven’t communicated their actions internally or externally. In this instance, it would be difficult to show that the expenditure is wholly and exclusively for the purposes of the trade.

Examples of carbon offsetting projects

Forestry and conservation: Perhaps the most popular offsetting scheme, reforestation and conservation projects occur across the world.

While they aren’t cheap, their benefits make such projects a strong option. The protection of ecosystems, wildlife and social heritage allow businesses to contribute towards their own CSR.

Renewable energy: When a company invests in renewable energy projects, they’re contributing to the amount of renewable energy on the grid. This helps create jobs, decreases reliance on fossil fuels, and boosts the standing of solar, wind and hydro sectors on a global scale. 

Community projects: In undeveloped parts of the world, community projects can provide energy-efficient methods and technology to local communities. This helps make entire regions sustainable and provides areas where poverty exists with an opportunity to thrive.

Waste to energy: Such projects involve the capturing of methane to convert it into energy. This allows communities to benefit from energy-efficient stoves and clean water in the same way community projects can too.

Looking for further insights into more sustainable business options? You’ll find plenty of information in the resources below:

And don’t forget, you can always give us a call on 0161 837 3356 to speak to someone from our friendly customer service team.

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