Carbon offsetting vs insetting and the role of risk assessments

As businesses ramp up their climate ambitions, carbon offsetting and insetting are becoming central pillars in corporate sustainability strategies. While both aim to reduce greenhouse gas emissions, they operate in very different ways. Understanding those differences is essential to building a credible, long-term approach to net zero. BeZero’s independent analysis supports companies  using both insetting and offsetting strategies with a risk-based approach to maximise climate impact.

What is carbon offsetting?

Carbon offsetting is the process of compensating for emissions by funding projects that reduce or remove emissions elsewhere. These projects are external to a company’s own operations and can include initiatives such as:

• Reforestation or afforestation

• Cookstoves for cleaner cooking

• Methane capture from landfills or agriculture

• Blue carbon projects, such as mangrove restoration

Each carbon credit typically represents the avoidance or removal of one tonne of carbon dioxide (or equivalent greenhouse gas). Companies purchase these credits to 'neutralise' emissions they cannot yet eliminate from their own value chain. 

These are most often used for Scope 1 and 2 emissions (owned emissions and those associated with purchased energy, respectively), as well as residual Scope 3 emissions (indirectly linked to suppliers and customers), which typically account for over 70% of a company’s carbon footprint.

Benefits of offsetting:

• Provides immediate action to neutralise emissions

• Offers flexibility through a wide range of project types, often with benefits to local communities and ecosystems

• Supports global mitigation efforts beyond the company’s footprint

Considerations:

• Requires due diligence to ensure project quality and climate impact

• Risk of reputational harm if used as a substitute for internal reductions

What is carbon insetting?

Carbon insetting focuses on reducing emissions within your own value chain. That could mean supporting regenerative agricultural practices on farms you source from, improving manufacturing processes, transitioning logistics partners to electric vehicles, or working directly with suppliers to reduce their carbon footprint.

While offsetting takes place outside your operations, insetting focuses on Scope 3 emissions. These often include the indirect emissions generated across your supply chain, from purchased goods and services to product end-of-life.

Instead of purchasing credits from external projects, companies invest directly in practices that reduce emissions at the core of their business operations.

Benefits of insetting:

• Helps address Scope 3 emissions, often the largest share of a company’s footprint

• Builds stronger relationships across the supply chain

• Enhances operational resilience and delivers environmental co-benefits

• Seen as a more embedded and credible form of climate action

Considerations:

• Typically requires more time, planning, and collaboration

• Demands supply chain visibility and robust emissions data

Why insetting is gaining momentum

Insetting is growing in popularity for a reason. As expectations around corporate sustainability rise, companies are moving away from one-size-fits-all solutions in favour of action that reflects their actual footprint and influence.

Insetting allows companies to reduce emissions where they have direct operational or financial control. It supports long-term supply chain resilience and delivers benefits that go beyond carbon. These can include biodiversity protection, improved livelihoods, and more secure sourcing.

As an example, Nestlé invests in agroforestry and regenerative practices within its sourcing landscapes, supporting both decarbonisation and social impact. LVMH is working with suppliers to redesign packaging and reduce logistics-related emissions. Patagonia partners with cotton farmers to shift towards regenerative organic methods that improve soil health and store more carbon.

These are not offset purchases. They are integrated investments that align environmental performance with business priorities.

Offsetting still has a role

While insetting is gaining momentum, offsetting still has an important role to play. For many companies, especially in hard-to-abate sectors or those early in their climate journey, high-quality carbon credits offer a practical way to take responsibility now.

Carbon markets also channel funding into essential global mitigation projects. When carefully selected and independently verified, offsets contribute to broader climate solutions that might not happen otherwise.

However, quality is non-negotiable. Poorly vetted offsets can undermine credibility and delay actual decarbonisation. Companies should ensure that their chosen projects issuing carbon credits are additional, permanent, independently verified, and transparently reported. Carbon ratings, such as those provided by BeZero Carbon, offer an objective way to assess credit quality and manage risk.

Measuring and verifying insets

Even though insetting projects often don’t generate tradable credits, their impact still needs to be measurable and defensible. Leading organisations treat insets with the same level of scrutiny as offsets, using clear criteria such as:

• Impact: the project should deliver verifiable climate benefits

• Permanence: carbon benefits must last and be protected from reversal

• Carbon accounting: reductions must be quantifiable and linked to reliable data and realistic baseline scenarios

• Avoidance of double counting: no other party should claim the same reductions

• Stakeholder engagement: projects should consider local communities and generate co-benefits

Verra, Gold Standard, the AIM platform and the International Platform for Insetting (IPI) are among the organisations offering frameworks to help structure, verify, and report on insetting projects. Many companies are also developing their own internal protocols to monitor supply chain interventions and carbon savings.

Depending on context however, risk assessments may need to accommodate the differences between insetting and offsetting claims. A more nuanced approach to additionality may be required, since achieving impact in the value chain matters more than proving an intervention exceeds a business as usual scenario. On the other hand traceability, attribution, causality and demonstrating value chain links all underpin high quality insetting. And an assessment of additionality can inform our view on the impact different interventions may be achieving.

Assessing risk in value chain interventions

Ratings address a number of challenges to high integrity insetting today. First, a lack of transparency. Levels of disclosure for insetting claims are highly variable. 

Second, the rigour with which value chain emissions are quantified can vary widely. Not all methodologies follow best practice. Audit oversight is not always evident. 

Third, corporates seeking to maximise impact may want the tools to understand relative value and optimise return on investment. 

Fourth, ratings can help with comparability when weighing whether to develop interventions in house or in partnership with an intermediary. Some projects are interoperable between inset and verified carbon (offset) markets. 

Fifth, ratings help corporates make credible claims and manage potential reputation risk.

BeZero is working with corporates and actors in the insetting ecosystem to assess a range of insetting interventions, leveraging our expertise and leadership in carbon ratings and risk assessments. This complements the evolving infrastructure focused on achieving the goal of high integrity climate action including new MRV technologies, a range of market based environmental instruments, and myriad reporting frameworks.

Final thoughts

Both offsetting and insetting are valuable tools, but they serve different purposes. Offsetting can provide a fast-track climate impact, while insetting focuses on long-term transformation within your operations and value chain.

Together, they can support a more complete and credible path to net zero. They also allow companies to align climate commitments with business strategy, operational resilience, and stakeholder trust.

Whether investing in offsetting or insetting projects, climate outcomes may vary. Independent carbon ratings and risk assessments play an essential role in helping businesses understand the carbon efficacy of a given project and make informed decisions.

To learn how BeZero’s ratings and products can support your business, get in touch.