In a previous article, we looked at the viability of carbon offsets as an impact-reduction solution against the backdrop of the COP27 climate talks and escalating global emissions.

While carbon offsetting can be a useful tool, ultimately, it is simply an ‘offsetting’, not carbon reduction, measure. There are many grey areas in determining its contribution to mitigating climate change, evidenced by ever-increasing corporate climate commitments and rising emissions.¹ Looking at the fashion sector, over 130 fashion companies have pledged to halve their emissions by 2030, and there are ever more products are labelled ‘carbon neutral’.² Yet, steady industry growth is projected within a business-as-usual scenario, projecting in a 49% increase (from the 2016 baseline) in climate change impacts.³

To increase transparency, control and ultimately impact reduction, the practice of carbon ‘insetting’ is gaining momentum. Under discussion since 2009,⁴ insetting focuses on an integrated approach that prioritises the reduction of greenhouse gas emissions (GHG) within an organisation’s value chain over activities to mitigate or compensate for emissions beyond it.⁵ The International Platform for Insetting (IPI) defines insetting projects as “interventions along a company’s value chain that are designed to generate GHG emissions reductions and carbon storage, and at the same time create positive impacts for communities, landscapes and ecosystems.”⁶

Diverting finances to invest in an organisation’s supply chain and infrastructure is a way to address climate risk and create more resilient business models. This is because it requires an investigation into the supply chain to identify materialities and further understand the opportunities and feasibility of impact reduction. Unlike offsetting, where a carbon credit can be purchased for around $5 with the click of a button, insetting requires stakeholder consultation, collaborative project design, planning and implementation, and ongoing monitoring. In its practical guidance, the IPI states that insetting projects can last over 10 years, with climate benefits beginning to materialise after one to two years.⁷ Despite the longer time horizon and investment, the business case for insetting supports climate risk mitigation strategies with the opportunity to alleviate physical and transition risks. (It also addresses the climate-adjacent risk of nature-loss and nature-based solutions, which are gaining attention as financial risks and opportunities in and of themselves.) Significantly, it promotes decarbonisation within the value chain, a requirement of the Science-based Target Initiative (SBTi). The very nature of insetting circumvents some of the concerns regarding offsetting by providing more transparency and control over the permanency and ‘additionality’ of projects. (Additionality is a requirement for carbon offset projects, where the emissions capture, removal or storage must have occurred as a direct result of the incentive.)

While there are no official accounting rules for insetting, the IPI identifies that GHG-related activities can fall within two categories. The most common – ‘climate benefit’ – occurs through carbon sequestration (removal), which can count toward neutralising emissions in line with Net Zero targets. The other is with regards to abatement: emissions being avoided or reduced through the use of low-carbon technologies. If these reductions occur directly on the farm or in further processing within the value chain, for example, then they can generally count toward SBTs. Official guidelines for monitoring and accounting for insetting are currently being developed by the SBTs for Nature framework⁸ and the GHG Protocol on Removals and Land Use.⁹

By design, insetting projects are collaborative. While project setups can vary greatly across organisations, project developers are generally engaged by the insetting company to develop the project in a way that supports the overarching goals and is appropriate to the particular geography.¹⁰ While the insetting company finances the project, the project developer manages the project financially and technically, engages with stakeholders and ensures projects are executed correctly, monitored and reported on. As there is an opportunity for more involvement and control from the primary organisation in the planning phase and collaboration with key stakeholders across the supply chain is possible, traceability and transparency can be more achievable than with offsetting. Once insetting initiatives have fulfilled their emission reduction targets and nature-based objectives, excess carbon credits can be sold on voluntary carbon markets to provide additional revenue that could be used to fund further insetting or other business activities.

The essence of insetting was portrayed on the Action Stage at the Global Fashion Summit in 2022, where Danish fashion brand Ganni presented a biodiversity and renewable energy case study.¹¹ To analyse their supply chain, they partnered with Plan A,¹² a SaaS emissions management provider and engaged biodiversity consultants, Strix,¹³ to conduct flora and fauna surveys. Using this data, Ganni then chose to partner with two of their suppliers, Ramil and Rodrigues, to invest in solar power infrastructure. Ganni understood that to meet their ambitious Scope 3 emissions targets, they would need to invest in solutions that directly reduce their emissions, instead of compensating for them elsewhere. The collaborative mentality of insetting was evidenced during an audience Q&A at the Summit, where a representative from brand competitor, Marimekko, revealed that they shared the same suppliers as Ganni and would like to leverage their groundwork, to which Ganni agreed.

All things considered, while robust case studies on insetting are still nascent, as a strategic mechanism, the framework provides an avenue for climate resilience within an organisation. This is because, unlike offsetting, it is a direct investment in quantifiable impact reduction within an organisation’s own supply chain. By calculating Scope 3 emissions, the prospects for identifying risks and opportunities allow for targeted and specific projects to be created and viable impact reduction solutions to be identified and implemented. In addition, the integrated approach of funnelling investment directly to the source of the impact has the opportunity to transform business models, placing decarbonisation and nature-based solutions centre stage.

While it is still too early to assess the outcomes of insetting projects, standardised guidelines, accounting methods, and independent auditing schemes will be essential to ensure the objectives of insetting can materialise with integrity. Nevertheless, the very nature of insetting is promising because, at its core, it focuses on decarbonisation, which is the only action that can maintain the 1.5-degree warming pathway.