INTERVIEW: 'Show your homework', urge lawyers advising corporates on ESG claims

Companies need to be more circumspect when making claims about their environmental credentials, especially those based on carbon offsets which are facing a barrage of greenwashing accusations, lawyers from international legal firm Vinson & Elkins told S&P Global Commodity Insights.

"Show your homework" is the most consistent advice being doled out to clients, said Matthew Dobbins, a partner in the environmental and natural resources group of the Houston-headquartered Vinson & Elkins.

The instruction came amid an increasing number of class action lawsuits against 'green' claims, leading some companies to think twice about their involvement in the voluntary carbon market.

"Nobody on the PR side likes to do that because it makes for a very busy website, with very busy marketing material," Dobbins said.

"But if you find some place to show your homework around your carbon reductions or any carbon credit transactions you make, transparency really is, if not a silver bullet, definitely a potential booster shot to help you get through [greenwashing accusations]."

Dobbins and Jon Solorzano, a counsel on the ESG team at Vinson & Elkins, said companies have to avoid making unsubstantiated claims, particularly in emotive language.

"I think people are probably going to be a little bit more careful before they just sort of jump in and then shout from the rooftops that they are carbon neutral because of offsets," Solorzano said.

Low confidence in VCM

The voluntary carbon market has been shaken by a credibility crisis with the efficacy of many projects and carbon credits coming under fire from academia and the media.

The controversy has shone a harsh light on carbon registry Verra and South Pole, a leading trader of carbon credits, with both making major changes to their process and leadership in the past 12 months.

Growing scrutiny has also led to 'greenhushing' from corporates shy of attracting criticism.

More fundamentally, all the scrutiny has seen demand sidestep the market until transparency and trust strengthen, leading to a sharp drop in offset liquidity.

Prices of several carbon offsets have fallen to relatively low levels, with credits for nature-based and household devices particularly weak due to a lack of demand from corporates.

Platts, part of Commodity Insights, assessed nature-based avoidance carbon credits at $3.75/mtCO2e on May 16. The price was a record low $2.70/mtCO2e from Feb. 9-22.

"I think what a lot of companies are struggling is there is [still] no clear pathway to a universally accepted carbon credit or offset... and that's creating a bit of a problem," Dobbins said.

Tread cautiously

The fear of reputational risk has pushed many corporates to think twice about making green claims as the penalties for inaccurate reporting escalate.

Any company in the EU wanting to make an environmental claim will have to prove it under a certification scheme complying with a closely linked directive on green claims, according to the EU's groundbreaking new anti-greenwashing law, which will apply from September 2026.

"Discreet caution is probably the right approach here, as much as everybody wants to move urgently, given the nature of this looming climate crisis," Solorzano said.

The lawyers were convinced litigation related to carbon credit claims would only intensify.

In March, a district court in Amsterdam ruled Dutch airline KLM had used misleading advertising to make environmental claims based on its use of sustainable aviation fuel and offsets.

Delta Airlines and Danone group, which manages Evian bottled water, are also currently embroiled in lawsuits over claims of carbon neutrality.

Big tech appetite

Despite heavy scrutiny on carbon credits markets and allegations of greenwashing, some of the buyers of offsets have continued to place trust in the market, notably big technology companies like Amazon, Microsoft and Shopify.

Solorzano said high profile technology companies were particularly getting behind carbon removal technology projects.

"They see this as an opportunity. I mean there is a lot of innovation in this space. And so, making big bold pronouncements is one way to grow your business and customers and all of those things. So, I think that in those cases, you are probably going to see some pretty audacious claims, and that probably makes sense for their business," he said.

Several of the big tech companies have seen their emissions rise due to the proliferation of data centers and AI generation, both of which are considered carbon intensive. That has been pushing many to get more active in the voluntary carbon market.

The companies are particularly keen on tech-based carbon removals, which help remove CO2 emissions from the atmosphere from technologies such as direct air capture, biomass carbon removal and storage, and biochar projects.

But the more traditional buyers, which tend belong to big retail and heavy emitting energy sectors, are likely to proceed with vigilance in fear of reputational risks.

"With regards to big carbon offset buyers, the Fortune 100 companies, I think you are probably seeing a little bit more caution because they are the ones who are going to face the scrutiny probably more. And so, they are being a little bit more careful," Solorzano said.