Most companies that made public climate commitments in the past decade took the same path. They calculated their emissions, then paid for projects elsewhere in the world to absorb an equivalent amount. A reforestation scheme in Brazil, a cookstove programme in Kenya. The logic was clean on paper. The problem is that in 2023, independent analysis found that more than 90 percent of rainforest offset credits certified by Verra, the world’s leading carbon standard, had no real climate benefit. The trees were counted, the credits were sold, but the actual reductions either never happened or were massively overstated.
This is where insetting enters.
Insetting is a sustainability strategy in which a company invests in emission reduction projects within its own value chain rather than outside it. The International Platform for Insetting, whose corporate members include Nestle, H&M Group, Chanel, Kering, and Nespresso, defines it as the actions taken by an organisation to fight climate change within its own value chain in a manner which generates multiple positive sustainable impacts. The defining phrase is within its own value chain. Where offsetting sends money to unrelated projects in distant places, insetting directs investment into the actual farms, factories, and suppliers that your business already depends on.
The term was coined roughly a decade ago by Plan Vivo and PurProject, two organisations focused on nature-based climate solutions. For most of its early life insetting remained a niche concept. That changed fast. By 2025 it had moved from the margins of corporate sustainability to one of the most actively debated frameworks in climate strategy, driven by tightening regulatory pressure and the growing recognition that supply chain emissions were far larger than most companies had acknowledged.
In practical terms insetting looks different across industries but follows the same logic. A coffee company working with farmers in Ethiopia might fund the transition from chemical fertilisers to regenerative soil practices on those farms, reducing the agricultural emissions embedded in every bag it sells. A fashion brand might pay for a fabric supplier in Bangladesh to replace coal-fired boilers with electric heating. A food manufacturer might work with its dairy suppliers to implement methane-reducing feed additives. In each case the company is not paying a third party to absorb emissions somewhere abstract. It is reaching into its existing supply relationships and funding real change in the places where its actual environmental impact originates.
The business case extends beyond emissions. When a company invests in a supplier’s ability to reduce emissions, it simultaneously builds a deeper supply relationship, reduces future climate-related disruption risk, and gains greater visibility into conditions that affect both its reporting and operational continuity. Conservation International, which published high-integrity insetting principles in May 2025 with input from more than 100 individuals across 40 organisations including Environmental Defense Fund and The Nature Conservancy, noted that insetting done properly strengthens the long-term resilience of both the company and its suppliers simultaneously. Their full insetting principles and interactive supply chain dashboard are publicly available for companies looking to map climate mitigation potential across their sourcing regions.
The regulatory picture in 2026 has added urgency. The AIM Platform, counting Amazon, Dow, Patagonia, H&M Group, Netflix, and REI among its members, published its completed Version 1.0 Standard and Guidance for value chain interventions in April 2026 after two years of piloting. This is the first globally auditable framework specifically designed for insetting claims. In the same month, the GHG Protocol released its Scope 3 Standard Phase 1 Progress Update, March 2026, which for the first time formally proposes how inset credits should be treated within corporate emissions inventories. The EU’s Corporate Sustainability Reporting Directive is simultaneously requiring large European companies to report on supply chain emissions in greater detail from 2026, and California’s SB 253 requires Scope 1 and 2 disclosures in 2026 with Scope 3 following in 2027. The EU anti-greenwashing rules coming fully into force by September 2026 also directly affect how companies can make claims about supply chain sustainability, meaning that the informal, unverified insetting arrangements many companies relied on previously will no longer be legally defensible in European markets.
Insetting is no longer a voluntary best practice for sustainability leaders. For large companies with significant agricultural, food, or manufacturing supply chains, it is becoming the expected mechanism for addressing the emissions that offsetting was never able to credibly reach.
The Problem with Carbon Offsetting That Nobody Talks About
Carbon offsetting has been the default climate strategy for large corporations for over two decades. The premise is simple: you produce emissions, you pay for a project somewhere else to absorb the equivalent amount, and your carbon account balances. For years this arrangement went largely unquestioned. That changed decisively in 2025.
The University of Oxford and the University of Pennsylvania jointly published the most comprehensive review of carbon offsetting evidence ever conducted, examining over 970 million tonnes of carbon credits representing nearly 20 percent of all credits ever issued globally. Their conclusion was unambiguous. Carbon offsetting has been largely ineffective over 25 years, riddled with what the researchers described as intractable problems including non-additionality, impermanence, leakage, and double-counting. Non-additionality means credits are issued for projects that would have happened anyway without offset financing. The review found that only 2 percent of Clean Development Mechanism projects demonstrated a high likelihood of genuine additionality.
A separate Corporate Accountability report published in October 2025 analysed the 47 largest offset projects active in 2024 and found that 80 percent of the credits retired were problematic. Cookstove projects, which represent more than 15 percent of voluntary market projects, showed ninefold over-crediting according to 2024 research published in Nature Communications. The market responded accordingly. The voluntary carbon market contracted by 60 percent between 2022 and 2024. Despite billions spent on offsets, atmospheric carbon dioxide reached a record 424 parts per million in 2024 according to the World Meteorological Organization. This is not a peripheral problem. It is the structural failure that made insetting necessary.
What Insetting Actually Means in Plain English
Think of it this way. A yogurt brand does not produce its biggest emissions in its factory. It produces them on the dairy farms that supply its milk. An apparel company does not generate its heaviest footprint in its offices. It generates it in the fabric mills, dye houses, and cotton farms across its supply chain. For most companies, these upstream and downstream emissions, classified as Scope 3, represent 70 to 80 percent of their total carbon footprint.
Insetting means going directly into those supply relationships and funding the change rather than paying a stranger elsewhere to absorb the number on a spreadsheet. The yogurt brand funds advanced manure management on its dairy farms. The apparel company pays for its fabric supplier to replace coal boilers with renewable heating. The auto manufacturer co-finances a steel supplier’s switch to lower-emission production.
No external project. No distant forest. The money goes where the emissions actually come from.
Why Insetting Specifically Targets Scope 3 Emissions and Why That Matters
To understand why insetting is built around Scope 3, you first need to understand the three emission categories. Scope 1 covers direct emissions from a company’s own operations, including fuel burned in its factories, fleet vehicles, and on-site machinery. Scope 2 covers purchased electricity. Both are within a company’s direct control and relatively straightforward to reduce. Scope 3 is everything else. It covers all the indirect emissions that occur upstream and downstream across the value chain, from raw material extraction through to how customers eventually dispose of the product.
According to CDP data, Scope 3 emissions account for between 70 and 90 percent of the average company’s total carbon footprint. In food, agriculture, and apparel the figure is frequently above 90 percent. A World Economic Forum analysis published in April 2026 found that only 5 percent of US companies currently report their Scope 3 emissions despite these representing the overwhelming majority of their actual climate impact.
This is precisely why insetting targets Scope 3. Offsetting can never touch it. You cannot compensate for supply chain emissions by planting trees in an unrelated country. The Science Based Targets initiative, under its Corporate Net Zero Standard, requires any company where Scope 3 exceeds 40 percent of total emissions to set an explicit Scope 3 reduction target. Given that threshold applies to virtually every company in manufacturing, food, fashion, or logistics, insetting has moved from optional to structurally necessary.
The March 2026 GHG Protocol Scope 3 progress update reinforced this by proposing clearer treatment of verified supply chain interventions within corporate emissions inventories. This marks the first time insetting has received formal accounting recognition at this level.
Insetting vs Offsetting What Is the Real Difference and When to Use Each
The structural difference between insetting and offsetting comes down to one question: does the emission reduction happen inside your supply chain or outside it?
When a company offsets, it purchases credits generated by projects that have no connection to its own operations. A electronics manufacturer funds a forest conservation project in a country where it has no suppliers, no factories, no commercial presence. The manufacturer’s gross emissions stay exactly the same. The offset sits on a separate ledger as a compensatory transaction. If that forest project is later found to be fraudulent or the trees burn down, the company’s actual climate impact was never changed. It was only accounted for differently.
When a company insets, it invests directly into the supply chain that creates its products. The emission reduction happens at the source. A wheat buyer funds regenerative soil practices on the farms it sources from. The carbon intensity of that wheat then falls, and when the company calculates its Scope 3 inventory, it uses the lower supplier-specific emission factor. The reduction is permanently built into the company’s gross footprint, not applied at the end of a spreadsheet to produce a cleaner net number.
This accounting difference matters enormously under current standards. The Science Based Targets initiative does not allow companies to use traditional offsets to meet their mid-term Scope 3 reduction targets. Insetting, when properly measured and verified, supports those targets directly because it changes the actual emissions rather than compensating for them.
The two mechanisms are not always in competition. Offsetting still has a legitimate role for residual emissions that cannot be eliminated, typically the final 5 to 10 percent of a company’s footprint once deep decarbonisation has been achieved. But using offsets as a substitute for supply chain action, which was standard practice for most of the past two decades, is no longer scientifically credible or, in many jurisdictions, legally defensible.
The Three Insetting Models and How Companies Choose Between Them
Not every company insets the same way. The mechanics depend on how well a company knows its suppliers, how stable those supply relationships are, and how much capital it can deploy directly into the chain. Three distinct models have emerged in practice.
The first is the performance-based incentive model. The buying company embeds sustainability metrics directly into its procurement pricing. Suppliers receive no upfront capital. Instead, they earn a financial premium per unit for commodities that meet verified environmental standards, such as a bonus per litre of milk from farmers using optimised feed additives, or a higher price per kilogram of cotton grown without chemical inputs. The emission reduction is driven entirely by financial incentive. This model works best for large, fragmented supply chains where direct asset management over individual suppliers is not realistic.
The second is the tiered action and scoring model. The corporation builds a standardised sustainability menu, which is a point-based matrix covering practices like cover cropping, installing renewable energy at processing facilities, or establishing biodiversity corridors. Suppliers accumulate points and unlock escalating rewards: extended contracts, preferred-vendor status, or financial bonuses. A smallholder farm and a large processing plant can both participate because they choose different actions from the same menu. This model suits companies managing a diverse mix of suppliers with varying financial capacity, allowing each supplier to progress at a pace that matches their actual situation.
The third is the landscape and upstream transformation model. The company bypasses incentives entirely and directly finances structural change on the ground by funding agroforestry systems, replacing coal boilers with electric heating, or restoring water basins in the regions it sources from. Nespresso, Chanel, and LVMH favour this approach because their business depends on specific geographies producing specific commodities. For them, direct infrastructure investment is simultaneously a carbon strategy and a supply security decision.
Choosing between these models comes down to four factors: how transparent the supplier relationship is, how frequently suppliers change, whether the supplier network has the data infrastructure to support monitoring and verification, and whether the company has capital expenditure available or is working within operational budgets. Most large companies end up blending all three across different parts of their supply chain.
Expert Insight Note
Most sustainability teams assume they will settle on one insetting model and scale it uniformly across their supplier base. In practice that rarely holds. A company might use performance-based incentives with large commodity suppliers where relationships are transactional, tiered scoring with mid-tier processors where some capital investment is viable, and direct landscape transformation with two or three critical strategic suppliers where supply continuity is non-negotiable. The model is not a company-wide policy. It is a supplier-by-supplier decision that should be revisited as relationships mature and data quality improves. Companies that try to apply one framework across an entire supply chain typically find it works well for 20 percent of suppliers and poorly for the rest.
Is Insetting Right for Your Business or Not
Insetting is not a universal solution. For some companies it is the most credible path to hitting net-zero targets. For others, attempting it without the right foundations creates compliance risk and operational waste. The honest answer depends on what your supply chain actually looks like.
Insetting makes clear sense when Scope 3 emissions dominate your footprint, which is the case for virtually every company in food, agriculture, apparel, or consumer goods. It also makes sense when you rely on specific raw materials from specific geographies. A coffee brand dependent on farms in a particular region of Ethiopia has a direct business interest in keeping those farms productive and low-carbon. The insetting investment protects both the climate outcome and the supply line simultaneously. Established supplier relationships are the third indicator. If you have multi-year contracts and real visibility into Tier 1 and Tier 2 suppliers, you have the foundation to track, verify, and report reductions credibly.
Insetting becomes difficult or counterproductive in three situations. If your procurement runs through commodity spot markets where suppliers change every quarter based on price, there is no stable relationship to build a reduction programme on. If your raw materials are blended at regional hubs before they reach you, tracing emissions back to a specific farm or facility becomes extremely difficult, and any claims you make become legally exposed under the EU anti-greenwashing rules now in force. And if your organisation lacks dedicated capital budgets and the operational capacity to manage multi-year supplier programmes, the overhead of running a genuine insetting initiative will outpace its benefits.
The practical test is straightforward. If you can name your key suppliers, measure their emissions, and maintain those relationships over several years, insetting is worth pursuing seriously. If you cannot do those three things yet, building that infrastructure comes first.
How Real Companies Are Using Insetting Right Now
The gap between corporate climate commitments and verifiable action is closing, and insetting is the mechanism driving that shift. Across apparel, food, retail, and heavy industry, major brands have moved past pilot programmes and embedded value chain investment into their core procurement operations.
H&M Group tackled one of apparel’s most stubborn problems directly. The fashion industry’s biggest Scope 3 liability is not retail operations but the coal-fired energy running textile factories across Asia. Rather than purchasing offsets to balance those emissions on paper, H&M Group funded the physical removal of over 100 coal-fired boilers across its supplier factories, replacing them with electric heating systems connected to renewable grids. The carbon intensity of the fabrics entering H&M’s supply chain fell as a direct result, and suppliers gained protection from volatile fossil fuel pricing at the same time.
PepsiCo and Starbucks both targeted the ground their products grow in. PepsiCo works directly with farmers and fertiliser manufacturers to transition toward low-emission inputs and regenerative practices including cover cropping across its agricultural supply base. Starbucks funds agroforestry systems within its coffee sourcing regions, providing capital for farmers to plant shade trees alongside coffee crops. Both approaches sequester carbon inside the companies’ own sourcing footprint, improve soil water retention, reduce dependence on chemical inputs, and protect yields against drought and temperature stress.
Walmart took a different approach suited to a retailer with thousands of small and mid-sized suppliers. Through Project Gigaton, Walmart partnered with financial institutions including HSBC to offer preferential financing to vendors that adopt science-based emission targets. The programme also aggregates the collective purchasing power of Walmart’s supplier base to facilitate renewable energy procurement at a scale no individual small supplier could access independently. Smaller vendors get affordable capital and clean energy structures. Walmart gets verified carbon reductions embedded across the products on its shelves.
Heidelberg Materials demonstrates that insetting is not confined to consumer goods or agriculture. The company reduced the carbon intensity of its cement by replacing traditional clinker with industrial byproducts and calcined clay in its manufacturing formulations. Because cement is a foundational material across construction and infrastructure, every tonne of lower-carbon cement sold transfers a direct Scope 3 reduction to the buyers downstream.
What connects these cases is that none of them relied on buying credits elsewhere. The reductions happened inside the supply chain, which is precisely where the emissions were coming from.
Why Insetting Is Still Hard to Do Properly and What Gets in the Way
The logic of insetting is straightforward. The execution is not. Between the corporate boardroom commitment and a verified emission reduction on a supplier’s farm or factory floor sits a chain of operational, data, and regulatory problems that most insetting programmes underestimate.
The first obstacle is traceability. Modern commodity supply chains are built on blending. When wheat leaves a farm, soy leaves a harvest point, or copper leaves a mine, it enters regional silos and processing hubs where it is mixed with material from dozens of other sources. A company can fund regenerative farming practices on a specific set of farms, but by the time that crop reaches its factory, it has been combined with conventionally grown material at an aggregation point where physical traceability is gone. According to the Rocky Mountain Institute, nearly 40 percent of global industrial greenhouse gas emissions are tied to these complex supply chains, which are typically five and a half times larger than a business’s own direct assets. Book-and-claim systems and supply shed frameworks exist as workarounds, but verifying that a digital registry purchase genuinely corresponds to physical sourcing from a specific region remains an ongoing audit problem with no clean solution.
The second obstacle is data. Insetting requires accurate baseline emissions data from the suppliers you are trying to change. That data rarely exists in usable form. According to Boston Consulting Group research, only 9 percent of global corporations can comprehensively measure their emissions across all scopes. More than 86 percent of companies still manage their baseline carbon data in spreadsheets rather than integrated accounting systems. Beyond Tier 1 suppliers, the visibility gap widens further. A large consumer goods company may have strong data relationships with its direct packaging suppliers but little to no contractual leverage over the smallholder farmers or raw material processors three tiers upstream. Without primary field data, companies fall back on industry spend averages, which means a supplier that genuinely cuts its emissions through better farming practices may never appear as a reduction on the buying company’s ledger at all.
The third obstacle is regulatory fragmentation combined with double-counting risk. Because Scope 3 boundaries overlap by design, one company’s indirect emissions are another company’s direct emissions. If a retailer funds an efficiency upgrade at a shared supplier facility, multiple downstream buyers sourcing from that same facility can each claim the same tonne of avoided carbon without any unified tracking system catching the duplication. The GHG Protocol’s ongoing Scope 3 Standard revision, with a Phase 1 progress update published in March 2026, is working to enforce stricter rules around data quality and source disaggregation. The AIM Platform’s Quality, Accounting and Reporting Standard and the Bloom Registry are both designed to issue verified intervention units with documented right-to-report status, but these infrastructures are still maturing. Until they are fully operational and widely adopted, the risk of contested or duplicated claims remains real for any company making public insetting commitments.
What Standards Govern Insetting and How Companies Report It
Insetting does not have its own isolated accounting category. Standard-setters treat it under the broader framework of value chain interventions, and three bodies set the rules that matter most.
The GHG Protocol provides the foundational layer through its Corporate Value Chain Scope 3 Standard, which governs how companies calculate and disclose indirect emissions across their supply chains. For land-based interventions specifically, the GHG Protocol developed the Land Sector and Removals Standard, which establishes explicit rules for quantifying and reporting emissions reductions and biogenic carbon removals within supply chain boundaries. The March 2026 Phase 1 progress update proposed stricter requirements around data quality and source disaggregation, pushing companies away from estimated spend-based averages toward primary supplier-level data.
The Science Based Targets initiative determines how value chain interventions count toward net-zero trajectories under its Corporate Net-Zero Standard. SBTi explicitly differentiates high-integrity value chain interventions from external offsets. Offsets cannot be used to meet mid-term Scope 3 reduction targets. Verified insetting can, because it changes the actual emission factor of the inputs entering a company’s operations rather than compensating for them on a separate ledger.
The AIM Platform provides the operational rulebook for verification. Its Version 1.0 Standard and Guidance, published in April 2026, uses two core tests. The Association Test requires a company to prove a genuine physical or economic connection to the supply region where the intervention occurs. The Quality, Accounting and Reporting Standard then governs how verified reductions are recorded and disclosed. Together these prevent companies from claiming reductions in landscapes they have no real sourcing relationship with.
In practice, reporting works as follows. When a company executes a verified insetting project, the resulting reduction lowers the emission factor for that specific raw material category. The company then inputs this lower supplier-specific figure into its Scope 3 Category 1 inventory rather than using a generic industry average. The gross Scope 3 number falls at the source. This lower gross figure is then disclosed through CDP, which requires disaggregated Scope 3 data by category, through the ISSB S2 Standard for auditable climate-related financial disclosures, and through the EU’s Corporate Sustainability Reporting Directive, which requires verified supply chain impact reporting from large European companies from 2026 onward.
The 95 percent completeness threshold now embedded in the GHG Protocol’s proposed revisions means selective disclosure is no longer viable. Companies must account for nearly all of their relevant Scope 3 activities, which creates direct pressure to execute verified insetting rather than relying on estimates.
Where Insetting Is Headed and Why It Is Growing Faster Than Offsetting
The voluntary carbon offset market contracted by 60 percent between 2022 and 2024. In the same period, the number of companies holding validated Science Based Targets grew by 40 percent, with over 10,000 organisations now committed, collectively representing more than 40 percent of total global market capitalisation. These two trends moving in opposite directions tell the same story. Capital is leaving external offsetting and flowing into value chain investment.
Three pressures are driving this shift simultaneously.
The first is regulatory. Under SBTi’s Corporate Net-Zero Standard, any company where Scope 3 exceeds 40 percent of its total emissions profile must set a formal Scope 3 reduction target and achieve 90 to 95 percent gross decarbonisation across the value chain before 2050. External offsets cannot be used to meet those mid-term targets. Companies have no structural choice but to reduce the actual emission factors of their suppliers, which is precisely what insetting does.
The second is financial logic. Offsetting is an operational expense with no return. The money leaves the business and purchases a credit from an unrelated project. Insetting is a capital investment. The money goes into the supply chain the business depends on, improving soil health, reducing input costs, stabilising yields against climate shocks, and building supplier resilience. Half of the world’s 500 largest companies have either implemented or are planning internal carbon pricing systems to ring-fence dedicated budgets for exactly this kind of supply chain investment, according to CDP data.
The third is legal exposure. Regulators including the UK Advertising Standards Authority and the Financial Conduct Authority have tightened enforcement around carbon neutral claims built on unverified external offsets. Companies are responding by moving toward contribution claims, explicitly disclosing their gross emissions and framing their climate spending as direct investment into supplier communities and operational infrastructure rather than carbon accounting adjustments.
Looking ahead, three developments will accelerate insetting further. Supply shed frameworks are emerging to allow multiple buyers sourcing from the same region to co-invest in local regenerative infrastructure and co-claim verified reductions without duplication risk. AI and satellite remote sensing are reducing the cost of farm-level verification, making primary data collection viable at scale. And insetting outcomes are being built directly into legally mandated filings under the EU’s Corporate Sustainability Reporting Directive and California’s SB 253, transforming it from a voluntary practice into an auditable financial requirement for operating in major markets.
