Carbon-neutral IPO claim backed by avoided-deforestation credits
A Hong Kong-headquartered logistics company with revenue of HKD 2 billion plans an IPO. It reports 50,000 tCO2e of Scope 1 and 2 emissions but has not measured Scope 3, which is likely material because it subcontracts most road haulage. The company has purchased 55,000 carbon credits from a REDD+ avoided-deforestation project, vintage 2015, at HKD 45 per tonne. It plans to state in the prospectus and investor deck that it has been 'carbon neutral since 2023' because credits exceed its Scope 1 and 2 emissions. The credits are verified under a major voluntary standard, but the company has not assessed additionality, permanence or double counting. The sponsor asks whether the claim can stay if a footnote explains the methodology. The company also wants to use the claim in a green bond marketing exercise next year.
1. Evaluate the 'carbon neutral since 2023' claim under credible net-zero standards and disclosure expectations.
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The claim is not supportable as stated. Credible net-zero standards require deep reductions in the company's own value-chain emissions before neutralising residual emissions with permanent removals. Purchasing avoided-deforestation credits does not reduce the company's Scope 1 and 2 emissions and is not equivalent to neutralisation. The claim also ignores Scope 3, which is likely material for a logistics company that subcontracts haulage. A footnote explaining the methodology does not cure a headline claim that a reasonable investor would read as saying the company's emissions are neutral. In an IPO prospectus, the misleading-statement risk is significant. The company should remove the 'carbon neutral' headline, report gross emissions and credits separately, and describe the credits as compensation for a stated share of Scope 1 and 2 only. The green bond marketing should not repeat the claim.
2. What due diligence should be performed on the credits before any use in investor materials?
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The company should assess the project's additionality, baseline, leakage, permanence and buffer provisions, measurement and verification, and social and environmental safeguards. It should check whether the credits have been retired on behalf of the company and whether the corresponding emission reductions could be double counted or claimed by the host country or another buyer. The 2015 vintage and low price are warning signs that require scrutiny, not automatic rejection. Avoided deforestation is not a removal, so it cannot neutralise residual emissions in the same way as durable carbon removal. The company should also assess the standard's rules on corresponding adjustments and whether the project has a credible path to financial viability without credit revenue. Legal review should cover any green marketing or prospectus liability. The conclusion should be documented and reflected in the claim.
3. Recommend alternative wording and a climate transition plan for the IPO and the green bond.
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The company should report 50,000 tCO2e of Scope 1 and 2, state that Scope 3 is being measured, and disclose the number, vintage, project type and retirement status of credits purchased. It can say that it purchased credits equivalent to 110% of reported Scope 1 and 2 emissions for 2023, while making clear that this is not a net-zero or carbon-neutral claim. It should set a near-term reduction target, measure Scope 3, and publish a transition plan with capex for fleet efficiency, modal shift and low-carbon fuels. For the green bond, the use of proceeds should be linked to eligible projects, not to the credit purchase. If the company wants to use credits, it should separate insetting or beyond-value-chain mitigation from its inventory and avoid using them to justify a neutral claim until it has achieved deep reductions and uses durable removals.