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Faced with the environmental, social and economic crises we are experiencing at this moment in history, traditional sustainability, defined as mitigating impacts in accordance with certain standards, is no longer sufficient. It is not enough to compensate for damage while carrying on as before; we must change the way we produce value through transformative solutions. That is why there is increasing talk of regenerative enterprises, capable of actively contributing to the renewal of ecosystems while strengthening communities and economies.

Carbon insetting, a strategy for reducing, preventing or absorbing greenhouse gas emissions related to a company's value chain, capable of generating environmental and social benefits, is also part of this approach.

How does carbon insetting work

Rather than focusing on direct emissions generated by the company (Scope 1) and those related to purchased energy (Scope 2), carbon insetting acts on indirect emissions along the value chain (Scope 3), from the procurement of raw materials to the end-of-life management of products. These are generally the most difficult to reduce and, at the same time, the most important, as they often represent the largest share of a company's overall climate footprint. There are two possible courses of action: carbon avoidance, namely the prevention of future emissions, and carbon removal, which consists of removing and sequestering CO₂ from the atmosphere through Nature-Based Solutions within the areas covered by the supply chain.

“It should be noted that carbon insetting involves two different types of interventions,” Michele Rumiz, senior regional manager at Carbonsink, explains to Renewable Matter. “In addition to activities specifically related to Scope 3 emissions that directly increase the resilience of the supply chain, other activities indirectly strengthen the supply chain by protecting and enhancing the so-called production landscape, a larger area linked to economic activities such as agriculture, livestock farming, forestry and fishing.”

For example, carbon insetting in the agri-food industry entails investing in regenerative agriculture among suppliers, increasing the soil's capacity to sequester carbon through practices such as crop rotation, reducing chemical fertilisers, and increasing organic matter in the soil, thereby contributing to improving the social and economic conditions of the farmers from whom supplies are sourced. “In this case, we are acting directly on Scope 3,” explains Rumiz. “If, on the other hand, we intervene more generally on the natural context in which crops are grown, improving local biodiversity or the water resilience of the territory, then carbon insetting concerns the production landscape.”

Within the manufacturing industry, carbon insetting can translate into supporting suppliers in their transition to renewable energy, the adoption of lower carbon-intensive materials, or the streamlining of production processes.

Looking at specific cases, LVMH encourages regenerative agriculture practices in its strategic supply chains, while Burberry has launched a similar project with wool producers in Australia. Nespresso, in collaboration with its partner Pur Projet, runs Nature-based projects both within and around coffee plantations in various countries.

Offsetting compensates, insetting transforms

Carbon insetting practices have become the focus of attention, partly in response to increasingly frequent criticism of carbon offsetting, until now the more widespread approach. The difference is substantial: in the former case, the company invests in actions that modify production processes, supply chains and organisational models; in the latter, it finances external projects that do not affect its own structural emissions. Indeed, these projects are often unrelated to the company's core business, simply following a remedial logic that is no longer sufficient today.

A classic example is the purchase of carbon credits that support reforestation on other continents or the development of renewable energy in emerging countries. As a result, many practices are criticised for their lack of traceability, risk of greenwashing and uncertain additionality, that is, the difficulty in proving with certainty that the reduction in emissions achieved is actually connected to the company's investment.

The directives: CRCF and carbon farming

Furthermore, interest in carbon insetting is growing for other reasons. First and foremost, new European directives, such as the Corporate Sustainability Reporting Directive (CSRD), demand that companies report in greater detail on emissions throughout the value chain, including Scope 3 impacts. It is true that 2025 ended with the scaling back of regulations in this field – see the final approval of the Omnibus I package by the European Parliament – but the importance of non-financial reporting remains.

“There is a lot of buzz at the legislative level, with an ongoing debate, especially around carbon removal activities: we need to establish how to verify them and to what degree existing calculation methodologies for certifying carbon credits can be useful,” Rumiz continues.

The EU is working on these issues and, with the Carbon Removals and Carbon Farming Regulation (CRCF), has moved towards recognising Scope 3 carbon farming units and their use in addressing value chain emissions, on condition that they are generated by projects consistent with its own supply chain.

“A central issue in the global debate revolves around the connection between removals and supply chains,” adds Rumiz. “Until now, many approaches to insetting required a direct and demonstrable correlation, with a rigorous logic that was difficult to apply on a large scale. Today, however, the concept of the supply shed, i.e., a company's geographical supply area, is emerging. From this perspective, supporting carbon farming initiatives within the regions where raw materials originate could be enough to claim an improvement in the climate footprint, even without a one-to-one connection between individual suppliers and individual removals.”

For example, Boortmalt, a global malting company, in collaboration with the global chemical giant BASF, is carrying out a regenerative agriculture project with a group of barley producers in Ireland, whose impact (removals and avoidance) has been certified, and it has been possible to translate it into a reduction in emissions linked to barley production in its supply chain of almost 90%. “This greater flexibility is not a relaxation of environmental criteria but a necessary condition for making carbon farming economically scalable,” Rumiz emphasises.

The GHG Protocol appears to be moving in this direction, as a few days ago it published the new (and long-awaited) Land Sector Removal Guidance, which introduces a new consistent methodology for accounting for emissions and removals in agriculture and land use.

Generating value beyond carbon

Regardless of legal obligations, however, there is growing pressure from investors and stakeholders for credible climate strategies based on real and verifiable reductions. As confirmed by CRIF's ESG Outlook 2025, the annual report published by the Italian Credit Bureau, banks are rewarding those who invest in sustainable practices and business models with greater credit: in 2024, 76% of loans to large companies went to companies with high ESG adequacy, an increase of more than 20 percentage points compared to 2023, a trend that is also emerging among SMEs.

Carbon insetting is associated with a strong vision of sustainability because it does not separate the environment, economy and society, but integrates decarbonisation into the business model. However, carbon insetting is not easy: it requires higher initial investments, involves close collaboration with suppliers and, as mentioned above, is challenging to measure and not always easy to standardise. In today's carbon market, it is less regulated at a technical level than carbon offsetting, which has long been subject to numerous technical standards, methodologies and registries.

Additionally, Nature-based Solutions are inherently variable in their outcomes, increasing project delivery risk. For businesses, however, it is essential to also address nature: over 50% of global GDP is exposed to risks related to ecosystem degradation, and regenerating ecosystems also means regenerating the economy, as emerged during the Business Roundtable for Climate & Nature, hosted by SDA Bocconi School of Management.

In a rapidly changing scenario, the solution that many companies are currently moving towards is that of developing hybrid strategies: insetting is increasingly becoming the priority, with a view to achieving a real reduction in emissions, while offsetting is set to become a residual tool, used for emissions that cannot be eliminated in the short term or for hard-to-abate quotas, for which it remains sensible to purchase carbon credits and plan compensation activities that are as transparent, traceable and verifiable as possible.

Cover: Envato image