Harnessing the Power of Carbon Credits in Procurement

Governments, corporations and individuals now face growing pressure to cut greenhouse gas emissions.

As organisations work to reduce their carbon footprint, many are looking to carbon credits as a tool to meet sustainability targets, especially in sectors where decarbonisation is complex or costly.

But the use of carbon credits and offsets is not without controversy. In procurement, where supplier relationships and value chain performance matter deeply, understanding the difference between carbon credits, offsetting and insetting is critical for setting meaningful environmental targets.

What carbon credits represent in climate action

Carbon credits function as tradeable certificates, with each one equivalent to one tonne of carbon dioxide either removed from the atmosphere or prevented from being released. Credits come from environmental projects designed to cut or capture emissions, and range from reforestation efforts to the installation of renewable energy infrastructure.

The credits work on a basic principle: where a project delivers a measurable reduction in emissions, that impact can be verified and sold as carbon credits. For example, a wind farm generating clean electricity instead of relying on coal avoids a certain quantity of carbon emissions. That avoided amount is calculated and issued as carbon credits, which can be sold to other entities seeking to offset their own emissions.

Similar logic applies to projects that capture methane emissions from landfills or protect forests from clearance. The goal is to fund verified environmental impact through market mechanisms.

According to Harald Eltvedt, Board Director at Qatalyst and member of SC Ventures, the effectiveness of these credits hinges on governance and transparency: "Carbon credits are essential financial mechanisms for incentivising emissions reductions, but their impact depends entirely on market integrity."

For procurement teams working across complex supply chains, understanding the structure and assurance mechanisms behind these credits is key.

Offsetting emissions

Carbon offsetting involves purchasing carbon credits to compensate for emissions elsewhere. If an organisation produces 100 tonnes of carbon dioxide in a year, it may purchase 100 carbon credits from emission-reducing projects, such as solar farms or sustainable cookstove programmes.

The approach is appealing to companies operating in hard-to-abate industries such as aviation or heavy manufacturing. Offsetting allows them to account for unavoidable emissions while working towards long-term sustainability goals. It is also widely used by firms setting net zero targets.

But this method has many critics. Environmental campaigners often warn that offsetting can be used as a substitute for genuine decarbonisation.

Leyla Ertur, Head of Sustainability at H&M Group, questions the strategic value of offsets: "Carbon offsets weaken corporate climate pledges and make real decarbonisation efforts within value chains less attractive.”

Leyla argues for direct intervention in supply chains to cut absolute emissions, adding: "We firmly believe the priority for any climate strategy should be to take action within corporate value chains to reduce absolute greenhouse gas emissions."

Concerns also exist over the quality and reliability of carbon credits. Even within the carbon markets, questions are raised over how credits are assessed and whether they reflect genuine removals or reductions.

Zara Ahmed of Carbon Direct, which works with companies such as Amazon, highlights this quality gap: "Less than 4% of carbon credits are true removal credits and of those, less than 10% meet our quality criteria. We find those diamonds in the rough."

This lack of consistency means procurement leaders must scrutinise the credits they consider. Where credits are used, assurance, traceability and third-party verification are vital.

Insetting and the supply chain connection

As an alternative to offsetting, carbon insetting focuses on reducing emissions directly within an organisation's value chain. Rather than purchasing credits from external projects, businesses invest in sustainability measures that improve environmental outcomes in their own operations and supply networks.

This method embeds climate action into procurement strategy. A coffee company practising insetting might partner with farmers to introduce regenerative agriculture methods, improving soil carbon storage, reducing fertiliser use and cutting emissions at source. A fashion retailer might work with fabric suppliers to switch to renewable energy or support regenerative cotton initiatives.

The key difference with insetting is that the emission reduction is directly connected to a company's own business model and supplier network. This closer link creates measurable, operational change.

Insetting can also bring wider benefits, including supply chain resilience, stronger supplier relationships and product innovation. By targeting emissions where they originate, companies create more influence and control over their environmental performance.

Offsetting and insetting are not mutually exclusive. Procurement professionals can apply both approaches to meet different sustainability challenges. Where value chain improvements are not immediately feasible, offsets can help address residual emissions. However, long-term procurement strategies should prioritise insetting to align climate goals with operational decision-making.

Understanding how these tools work is crucial for credible sustainability strategies. For procurement teams, the challenge is not just to reduce emissions but to ensure that every action, investment and supplier relationship supports meaningful environmental progress.