Our use of cookies How to become a carbon neutral business
A carbon neutral business is one that offsets its greenhouse gas emission through purchasing of carbon credits, while also taking steps to cut those emissions.
This guide covers carbon neutrality in depth, including the benefits, how to become carbon neutral, how it differs from net zero, and how retiring carbon credits work.
Contents:
- What is a carbon neutral business?
- What’s the difference between carbon neutral and net zero?
- How to calculate your business carbon footprint
- What are scope emissions for and how do they work?
- Carbon neutral certification and schemes
What is a carbon neutral business?
A carbon neutral business is one that has achieved a net neutral contribution to global warming as per ISO 14068-1, by demonstrating that:
- It has offset its measured direct and indirect greenhouse gas emissions for a specified time period, by purchasing carbon credits that represent their avoidance or removal from the atmosphere elsewhere.
- It is committed to the short, medium and long term reduction of those emissions.
Most organisations opt to get certified through an independent verifier such as the BSI Kitemark or Carbon Trust, to capture the reputational benefits that come from demonstrating their ISO-compliant carbon neutral position.
Aside from a whole organisation, carbon neutrality can apply to something narrower such as a single product, service, event or building, as long as the boundary is clearly defined and stated.
What’s the difference between carbon neutral and net zero?
“Carbon neutral” and “net zero” are often used interchangeably, but in reality describe a balanced carbon budget under a different scope, timescale and set of requirements. These are the key differences:
- Scope: Net zero is a long-term emissions reduction goal, which organisations need to work towards. Carbon neutral demonstrates a balanced carbon budget for a defined period, with emissions reductions that lead to the net zero goal.
- Timescale: Net zero is aligned to a fixed future date, which needs to be 2050 or sooner in the UK due to its climate change pledges. Carbon neutrality applies to a past period, typically a year, where past emissions can be calculated and offset.
- Reduction required: Net zero requires emissions to be cut as close to zero as feasible, around 90% in absolute terms by the fixed date. In contrast, because carbon neutrality is the path to net zero, it only requires improving emissions reductions over time.
- Use of carbon credits: Net zero allows credits only for the small residual that cannot be eliminated, and only those that represent permanent removals. Carbon neutrality allows the wider use of credits, including cheaper avoidance credits, as an organisation works towards net zero.
- Governing standard: Net zero follows the Science Based Targets initiative (SBTi). Carbon neutrality is measured against ISO 14068-1.
What are the benefits for carbon neutral businesses?
Achieving carbon neutrality delivers four tangible commercial benefits:
- Access to public sector contracts and large corporate buyers: Many tenders and large clients now ask suppliers to prove their carbon position. A verified claim is often a condition of eligibility, and businesses without one can be ruled out before they start.
- A stronger reputation: Customers, investors and job candidates increasingly factor sustainability into their choices. A credible carbon claim can be part of the branding strategy that sets the business apart from competitors.
- Lower compliance risk: Rules on misleading environmental claims are tightening, and the Competition and Markets Authority (the UK’s consumer protection regulator) now enforces them. A properly substantiated claim keeps a business on the right side of those rules.
- Lower running costs: Cutting carbon can result in lower energy bills, and less business travel, which can reduce long-term operating costs
How can a business become carbon neutral?
Businesses achieve carbon neutral status for a specified period by demonstrating compliance with ISO 14068-1, typically through a third-party certifier.
The organisations needs to take inventory of its emissions, categorise them, propose ways to reduce them in future, offset them through carbon credits until the budget is balanced, and finally get the documentation in order to pass certification.
Here is what a business needs to do, step-by-step.
1. Define the boundary of the claim
Carbon neutral claims can cover the whole organisation, or a narrower set of activities.
For example, a manufacturer might certify its entire UK operations as carbon neutral, a food brand might certify a single product such as a chocolate bar, and a venue might certify a specific building or a one-off event.
Each is valid, provided the boundary is clearly defined and stated.
2. Measure the carbon emissions footprint
The emissions of all business activities are measured and converted into CO2e for the period of the claim.
The standard requires direct emissions, emissions from the energy the business buys, and the wider indirect emissions across its supply chain, both upstream and downstream, to be estimated.
The carbon accounting behind this is complex, and its nuances are covered in more depth in the how to calculate your business carbon footprint section.
3. Set the carbon reduction pathway
ISO 14068-1 requires a documented plan with a short-term target, a long-term target and a date for eliminating all feasible emissions, in line with or ahead of the UK’s 2050 net zero target.
This is a forward commitment, not something that must already be achieved before the first claim. It is what makes the claim compliant with the standard rather than a bare offset purchase.
Over time the standard expects the plan to actually take effect, so the volume of emissions being offset falls year on year.
4. Offset the residual carbon
With the pathway set, the emissions that cannot yet be cut can be balanced by purchasing an equivalent amount of carbon credits from various UK or international voluntary carbon markets (VCM).
Each credit represents one tonne of CO2e prevented or removed elsewhere, to balance out the company’s own emissions.
Part of a claim’s credibility hinges on the quality of the credits purchased. We explain this in more detail in our business carbon offsets section.
5. Verify and declare carbon neutrality
ISO 14068-1 allows flexible verification, so a carbon neutral claim is only as strong as its evidence.
It can be a self-declaration against the standard, or independent third-party verification for more weight, typically depending on the level of scrutiny the organisation or activity receives.
See our standards and certifications sections for more details.
6. Repeat the process to maintain it over time
Because the claim is time-bound, the footprint is recalculated and the targets tightened every period.
For suppliers bidding on government contracts over £5 million a year, keeping it current is a procurement condition under PPN (Procurement Policy Note) 006, the UK government rule requiring suppliers on major public contracts to publish a Carbon Reduction Plan.
How to calculate your business carbon footprint
The method for calculating total greenhouse gas emissions for carbon neutral claims is standardised under ISO 14068-1.
Once the scope of the claim is defined, i.e. whether that is for a whole business, a product, a service, a one-off event or a building, and for what period of time, the organisation needs to do the following:
1. Taking inventory of carbon emitting activities and processes
The first step is the most time-consuming, and involves cataloguing all the emissions sources within the boundary.
This includes:
- Direct sources of emissions (Scope 1): e.g. driving company vehicles, burning fuel as part of manufacturing a product, or burning charcoal for cooking food at a restaurant.
- Indirect sources of emissions (Scope 2): e.g. the fossil fuel power stations that generate the electricity a business’s premises consume, or purchased heat and steam.
- Upstream/downstream emissions (Scope 3): e.g. cars and trains used for commuting, the water and wastewater services a business uses, and the manufacturing of the raw materials used to make products.
More detail regarding why this division is necessary is available in our emissions scopes section.
2. Gathering the emissions data
Emissions data is needed to account for the sources of emissions identified, and for the period of the claim. This data may be directly measured, estimated or inferred:
- Primary data: Direct measurements such as metered electricity in kWh, litres of fuel, or business mileage. This is the most accurate and is preferred where available.
- Spend-based data: Estimates based on how much was spent on a category, used where direct measurement is not practical, such as purchased goods and services. It is quicker to gather but less precise, since it infers emissions from cost rather than physical use.
Most footprints use both, with primary data for energy and fuel and spend-based estimates for the wider supply chain.
3. Applying emission factors
An emission factor converts a unit of activity into its emissions, for example the CO2e produced per kWh of electricity or per litre of diesel.
UK businesses use the government’s conversion factors, published each year by the Department for Energy Security and Net Zero (ex-BEIS) and still commonly called the Defra factors.
These are updated annually as the grid decarbonises (see our carbon intensity guide for details), so a footprint should be calculated using the factor set for the year being reported.
4. Calculating the total carbon footprint by scope
Each activity is multiplied by its emission factor to give emissions in CO2e, and the results are added up.
The result is a total number of emissions, but also emissions by the activities of each scope. Separating the total carbon footprint by scope is key because it eases making the carbon reduction plan and ensures statistics on business emissions are not double counted.
What are scope emissions for and how do they work?
Scope emissions sort a business’s emissions by how directly the business can influence them, allowing it to build a realistic carbon reduction plan and simplifying accounting and reporting at the industry or national scale.
Below we explain what the three scopes mean and the main purpose of each:
Scope 1, 2 & 3 explained
Scope emissions split emissions into three groups, Scope 1, 2 and 3:
Scope 1: Direct emissions
Scope 1 covers emissions from sources the business owns or controls directly, such as:
- Fuel burned on site or in company vehicles
- Gas boilers, furnaces and a company fleet.
These are the emissions a business has the most immediate control over, since they come from its own equipment and can be cut by changing what it runs and how.
Scope 2: Purchased energy
Scope 2 covers indirect emissions from the energy a business buys and uses, mainly electricity, but also purchased heat.
These emissions happen at the power station rather than on the business’s premises, but they are counted because the business’s demand causes them.
Scope 2 is reported in two ways, depending on the type of business electricity tariff:
- Location-based method: Uses the average emissions of the local grid. Most businesses report this way because they are on a standard tariff, where the electricity is just whatever the supplier draws from the grid.
- Market-based method: Reflects the specific electricity a business has contracted, so a genuine renewable supply can lower this figure. This is what allows a corporate PPA to reduce reported Scope 2 emissions while the electricity arriving through the wires is unchanged.
Scope 3: The value chain
Scope 3 covers all other indirect emissions across the value chain, both upstream and downstream. Upstream includes purchased goods and services, business travel and staff commuting. Downstream includes the use and disposal of products the business sells.
Scope 3 is usually the largest share of a footprint, often by a wide margin, and the hardest to measure, because the emissions occur in operations the business does not own and depends on others for the data.
It is also where most of the real reduction potential sits for many businesses, which is why it cannot simply be left out.
The role of Scope Emissions
Categorising emissions this way is essential to becoming a carbon neutral business, for several reasons:
- Prioritising emissions reduction: The scopes rank emissions by how much control a business holds, so it can cut what it owns first and work outwards to what it only influences.
- Avoiding double counting: Fixing each source in one scope means the same energy is never counted twice. For example, electricity a business buys sits in Scope 2, since the emissions occur at the power station, while any self-generation from an onsite CHP (Combined Heat and Power) unit sits in Scope 1.
- Enabling the counting of national emissions: National totals can be calculated by summing every business’s Scope 1, since those never overlap, while Scope 2 and 3 remain for each business’s own visibility.
- Assigning supply chain responsibility: Scope 3 exists so businesses account for emissions across their value chain, both upstream and downstream. A business can then lower its footprint by choosing suppliers with lower emissions.
Ways to reduce business carbon emissions
There are several practical ways a business can lower its emissions, ranging from quick efficiency gains to longer-term investment. The most common ways include:
- Energy efficiency: Cut waste through LED lighting, better heating controls, insulation and switching off idle equipment. These measures usually lower the business energy bill at the same time, so they often pay for themselves. Find out more in our full guide to energy efficiency tips for businesses.
- Cleaner energy: Move to a renewable electricity tariff or generate on site with solar panels. This reduces the emissions from purchased energy, without changing how the business operates day to day.
- Electrifying heat and transport: Replace gas boilers with heat pumps and combustion vehicles with electric ones. This removes on-site fuel emissions, or Scope 1, though the upfront cost is higher and the payback longer.
- Smarter travel and logistics: Reduce business travel, support low-carbon commuting and choose more efficient transport and delivery. Much of this sits in the value chain, or Scope 3.
- Working with the supply chain: Choose suppliers with lower emissions, ask for their carbon data and design products for longer life and easier disposal. Scope 3 is usually the largest share of a footprint, so this is where much of the real potential sits.
Carbon offsetting for businesses
Carbon offsetting involves purchasing carbon credits to bring the total carbon budget for a carbon neutral claim down to zero.
Each credit represents one tonne of CO2e avoided or removed from the atmosphere by another activity, such as reforestation, conservation or low-carbon power generation.
These credits are issued in voluntary carbon markets, which are separate from the compliance carbon markets designed for large businesses in regulated industries such as power generation and aviation.
Below we explore each of these carbon offsetting components in detail:
Voluntary carbon markets available to businesses
Voluntary markets issue credits that any third party can retire to offset emissions. They are private, and separate from the UK or EU Emissions Trading Scheme, which only regulated sectors must take part in.
Businesses can purchase from both international and UK markets:
- International markets: Mainly Verra’s Verified Carbon Standard and the Gold Standard, where supply is plentiful and cheaper but quality varies widely.
- UK markets: The Woodland Carbon Code covers removals through woodland creation and the Peatland Code covers peatland restoration, and both let a business offset its residual UK-based emissions. Units from both are held on the UK Land Carbon Registry, which publicly records their ownership and use, and gives them UK-specific credibility.
Types of carbon credits a business can choose from
While all carbon credits represent one tonne of CO2e avoided or removed from the atmosphere, each comes from a specific project and activity, in a given year, certified to a particular standard and sold in a particular market.
These attributes are what set a credit’s quality and price apart:
- Activity: What the project actually does, from tree planting and peatland restoration to renewable energy, cleaner cookstoves or engineered carbon capture.
- Avoidance or removal: Whether the credit stops emissions being released (avoidance) or takes carbon back out of the atmosphere and stores it (removal; treated as higher quality).
- Market and location: Where the credit was issued and where the saving happened. UK domestic credits can only offset UK-based emissions, but carry local credibility, while international credits are cheaper and more plentiful but of variable rigour.
- Vintage: The year in which the saving occurred. Recent vintages are generally preferred, as older ones can reflect outdated methods or projects.
- Delivery status: Whether the carbon has been delivered and verified (can be retired immediately) or is still expected (a forward purchase which can be bought cheaper but can only be retired when it is delivered).
- Permanence: How long the carbon stays stored. A forest can burn or be felled within decades, while geological storage lasts millennia, so durability varies enormously.
- Co-benefits: Extra value beyond carbon, such as biodiversity, cleaner water or local jobs, often mapped to the UN Sustainable Development Goals. Strong co-benefits can raise both price and credibility.
How to retire carbon credits to offset the carbon footprint
Retiring carbon credits to offset the emissions of a carbon neutral claim is a multi-step process that involves assessing the quality of the credits, locating them across various inventories, purchasing them, and storing the records appropriately.
Here is what a business needs to do, step by step:
- Determine the number of credits needed: Calculate the residual emissions, in tonnes of CO2e, that need to be offset with credits for the period.
- Determine the quality of credits needed: Credits vary widely in quality and price, from cheap avoidance credits to premium permanent removals. Set a quality bar appropriate to the claim, using a benchmark such as the Integrity Council’s Core Carbon Principles, then balance quality against price and rank the options by preference while avoiding greenwashing.
- Find the credits: Approach a broker or use in-house expertise to source units on a recognised registry such as the UK Land Carbon Registry. Consider cheaper forward credits for future claims as part of a longer-term carbon strategy.
- Purchase and retire the credits: Buy the credits and have them retired on the registry in the business’s name. Retiring a credit permanently cancels it, which is what actually offsets the emissions and prevents any other business from counting the same tonne.
- Keep the records: Retain the retirement certificates and serial numbers as the evidence behind the ISO 14068-1 claim.
Carbon neutral certification and schemes
ISO 14068-1 is the internationally recognised standard for carbon neutrality. It replaced the well-known PAS 2060 specification, which has been retired.
While any business can self-declare that it meets the standard, this carries less weight than independent verification by a third party.
Most businesses therefore prove they meet the standard through one of the following certifications, with the appropriate choice coming down to the size of the business and its audience:
- BSI Kitemark for Carbon Neutrality: Verifies a business directly against ISO 14068-1 through the body that publishes the standard. Suits larger businesses, exporters and manufacturers that need an internationally recognised mark.
- Carbon Trust: A widely recognised verifier whose carbon neutral and route to net zero labels are common in UK corporate reporting. Suits listed companies and large suppliers that report to investors and corporate buyers.
- Planet Mark: A UK certification built around measurement and year-on-year reduction. A lower-cost option that suits SMEs and the built environment.
A business also setting science-based reduction targets can pair any of these with SBTi, which covers the long-term net zero pathway rather than the annual carbon neutral claim.
Carbon neutral businesses FAQs
Our business utilities experts answer the following commonly asked questions regarding becoming a carbon neutral business:
When will the UK be carbon neutral?
The UK is legally committed to reaching net zero by 2050. This is not the same as being carbon neutral.
Net zero is a national, statutory target. Carbon neutrality is a voluntary claim made by a business, an individual or a process, and it only ever covers a defined period such as a single year.
Why do water, electricity and gas utilities have a carbon footprint?
Because supplying them uses energy and releases emissions. Electricity is still generated partly by gas-fired power stations, treating and pumping water uses large amounts of electricity, and gas emits CO2 when burned.
This is why switching to a greener business energy supplier or business water supplier can lower a business’s Scope 2 and Scope 3 emissions without changing how it operates.
Switch today using our business water comparison and business electricity comparison services.
Is biomass energy carbon neutral?
It depends on the carbon balance over the period measured. The emissions from harvesting, processing, transporting and burning the wood need to be matched by what the trees absorbed as they grew, plus any offsets purchased.
In practice, biomass energy schemes like Drax are classed as carbon neutral under greenhouse gas accounting rules, but are rarely certified end-to-end as the accounting is too complex. The carbon neutral claim itself remains contested.
Is Google carbon neutral?
No, not any more. Google claimed carbon neutrality every year from 2007 by buying offsets to match its emissions.
It dropped the claim in 2023 as its emissions rose with AI and data centre demand, and now works towards net zero by 2030 instead. It is a clear example of carbon neutrality being an annual status a business can hold one year and drop the next.
Which businesses are carbon neutral?
Many UK businesses hold carbon neutral certification, verified each year by bodies such as the Carbon Trust, Planet Mark or Carbon Neutral Britain. Well-known examples include Highland Spring, Interface, Logitech and Marks & Spencer.
Can a business be carbon neutral without buying carbon offsets?
In practice, almost never. It would mean cutting emissions to genuine zero, which is virtually impossible for any operation with energy use, travel and a supply chain.
Offsets exist to balance the residual emissions that cannot yet be eliminated. Reducing emissions comes first, but buying credits for what remains is normally what makes the claim add up.
Does switching to renewable electricity make a business carbon neutral?
No, though it helps. A green business energy tariff can lower the emissions from the power a business buys, which is its Scope 2 footprint.
But it does nothing for Scope 1, the fuel it burns directly, or Scope 3, its supply chain and travel. Since Scope 3 is usually the largest share, renewable electricity is only one part of the total.
Can a business lose its carbon neutral status?
Yes. The claim covers a defined period, usually a year, so it has to be earned again each time.
If a business stops measuring its footprint, lets its reductions slip or no longer offsets its residual emissions, the claim lapses.
What records should a business keep to support a carbon neutral claim?
A carbon neutral claim is only as strong as its evidence. A business should keep its activity data, the emission factors applied and the resulting footprint calculation.
It should also retain its carbon reduction plan and, where offsets are used, the retirement certificates and serial numbers for the credits bought. Together these show how the footprint was measured, reduced and balanced under ISO 14068-1.
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