For much of the past decade, most agrifood companies looking to address their carbon footprint have relied on purchasing offsets from third parties. Under this model the buying company’s role was entirely transactional, and the measurement burden fell on the sellers. Insetting carbon emissions inverts this arrangement. When a company claims carbon reductions generated from within its own supply chain, it becomes the modeller, the claimant, and the audited party. As part of this arrangement, the company’s own carbon model becomes the evidentiary basis for any credits claimed, and this carries significant implications.
This article examines the specific modelling demands that carbon insetting imposes, the mechanisms through which model design impacts financial outcomes, and the operational approaches that leading companies are adopting to transition from a transactional to an insetting strategy.
Escalating legal liability
In recent years, a transition from voluntary “soft law” guidelines to binding “hard law” directives has reshaped global agrifood governance. The EU’s Corporate Sustainability Reporting Directive (CSRD) has tightened disclosure requirements in ways that favour companies with direct control over their emissions data, and the SBTi explicitly prioritises supply-chain reductions over purchased offsets.
At the same time, corporate climate litigation rapidly advanced, expanding far beyond its traditional focus on the fossil fuel sector to aggressively target the agrifood, retail, and financial industries. The prevalent strategy within this wave of litigation was to deploy consumer protection laws and tort law to challenge “climate disinformation” and “greenwashing”. Advocacy groups and state attorneys used these suits to force behavioural changes, mandate improved transparency, and legally compel investment in genuine, structurally sound climate solutions.
Plaintiffs and regulatory bodies increasingly argued that multinational companies possessed a statutory duty of care under tort law, informed by international soft law and the Paris Agreement, to assess, mitigate, and accurately report their full value chain emissions. Landmark cases in Europe and the US have ultimately affirmed this view. For the agrifood sector, this establishes a significant precedent: when companies publicly claim progress toward “net-zero”, or market products as “carbon neutral”, without possessing the empirical, field-level supply carbon modelling data to substantiate those assertions, they leave themselves legally exposed.
For instance, in late 2024, Tyson Foods and JBS USA, two of the world’s largest meat producers, faced greenwashing lawsuits filed by environmental advocacy groups and the New York Attorney General. The core argument against both companies asserted that their net-zero commitments and climate-smart marketing campaigns were intrinsically false and misleading to consumers, with the plaintiffs arguing that the companies lacked scientifically credible and empirical plans to reduce their Scope 3 beef supply chain emissions, which account for the majority of their total climate footprint.
How insetting carbon emissions shifts the modelling burden inward
The appeal of insetting carbon emissions is straightforward: it aligns carbon reductions with the company’s own supply chain and satisfies growing regulatory pressures with SBTi, investor and stakeholder preferences. Insetting is fast becoming the preferred method for agrifood corporations to decarbonise. However, insetting only delivers this value if the carbon model behind it is of a sufficiently high standard, reflects local conditions, is traceable and transparent, and is rigorously governed. So, while converging regulatory pressures, evolving crediting standards and shifting investor expectations accelerate an industry-wide shift away from offsetting, this transition introduces a new category of risk that many companies have not fully accounted for. Carbon modelling risk.
Under the offset model, the modelling burden sits with a third party. A project developer builds the carbon model, submits it for independent verification under an accredited standard such as Verra or Gold Standard, and issues credits only after validation. The purchasing company only needs to acquire a verified credit from a credible registry. At no point does the buyer need to construct, calibrate, or defend the underlying model. But insetting carbon emissions removes that intermediary, meaning the company claiming the Scope 3 reduction now owns the model, and with it, full responsibility for its quality, calibration, and governance.
This is significant, as under the CSRD, sustainability disclosures are subject to external audit, which means auditors must be able to verify data trails, proper internal controls, and replicable methodologies. Carbon models must be able to withstand independent scrutiny to the same level of rigour that previously sat with an accredited verifier.
In practice, this means a high level of accountability. The model must link particular changes in agricultural practice on specific parcels of land to specific emissions reductions, with clear ownership attribution at each stage. Depending on the model used, this may include the integration of geospatial data and historical satellite imagery to verify claims, and it will likely also require that gross emissions and gross removals be reported separately.
The cost of imprecision
Carbon modelling in agriculture is inherently uncertain. Soil carbon varies across individual plots of land due to differences in moisture, texture, and microbial activity. Equally, nitrous oxide emissions from fertiliser and changing weather conditions can cause soil conditions to fluctuate greatly.
The crediting protocols that govern carbon accounting address this through uncertainty deductions. In simple terms, the less precise a company’s carbon model, the fewer tonnes of sequestered carbon it is permitted to claim. The financial implications are substantial. A highly uncertain model estimating 100 tonnes of sequestration may yield only 50 creditable tonnes, while a more precise model, even one estimating a lower physical outcome, can claim the full amount. When those claims are foundational to green bond impact statements, sustainability-linked loan targets, or CSRD-mandated disclosures, the financial consequences of imperfect models cascade into the company’s balance sheet.
The economic case for insetting over offsetting
A frequent objection to insetting carbon emissions is that its upfront cost exceeds the cost of simply purchasing high-quality offsets. While in certain cases this may hold true, this argument conflates a recurring expense with a capital investment.
Relying on carbon offsets as a primary decarbonisation strategy locks a corporation into a perpetual, inescapable OpEx cycle. Offsets are consumed each year; this exposes the company to severe, uncontrollable volatility in the carbon markets. If the price of high-quality, high-integrity offsets surges due to tightening regulatory constraints or increased global corporate demand, the company’s compliance costs will skyrocket proportionately. Furthermore, offsetting does nothing to insulate the company’s actual physical supply chain from the systemic, existential risks of climate change. From a practical perspective, offsetting merely pays a recurring, volatile penalty for operating an inefficient, high-carbon, and vulnerable supply chain.
In contrast, insetting carbon emissions produces compounding returns. By structurally lowering supply chain emissions, insetting permanently eliminates the future recurring costs of purchasing offsets, acting as a hedge against future carbon price volatility. Second, improving soil health and biodiversity directly enhances the yield resilience, nutrient density, and drought resistance of the physical supply chain, ensuring long-term operational stability and mitigating raw material price shocks. Third, the same data infrastructure that supports insetting carbon emissions may also facilitate access to sustainability-linked finance through Sustainability-Linked Loans (SLLs) and Sustainability-Linked Bonds (SLBs).
In the modern corporate debt market, many financial institutions tie interest rates to a borrower’s performance against ESG targets. When an agrifood company successfully meets these targets, the loan’s margin ratchets down, lowering the company’s overall Weighted Average Cost of Capital (WACC). Recent market transactions highlight the scale of this opportunity. For instance, in 2024, Cofco International secured a massive $2.2 billion sustainability-linked financing facility. The interest rate incentives within this loan were explicitly tied to the successful performance of their SBTi-validated FLAG targets.
What this means for corporate decision-makers
The transition from carbon offsetting to carbon insetting represents a fundamental maturation of corporate environmental strategy within the agrifood sector. As the industry is forced to internalise its Scope 3 emissions liabilities, the historical reliance on transactional, third-party offsets is no longer legally or commercially sufficient to secure regulatory compliance or protect brand integrity. The era of nebulous “net-zero” claims based on unverified, off-balance-sheet interventions has effectively ended, replaced by a rigid paradigm where environmental claims are subjected to the same ruthless evidentiary standards as financial accounts.
The implications of this shift present a clear, urgent strategic trajectory for corporate leadership:
- Food and agribusiness leaders ought to recognise that bringing decarbonisation commitments into the value chain comes with operational and legal risks. Greenwashing litigation is actively targeting the gap between aspirational marketing pledges and empirical Scope 3 data, and so an inability to effectively substantiate any claims will expose the company to severe regulatory, financial, and reputational risk.
- Executives must cease viewing carbon mitigation as a recurring operational penalty and instead proactively redirect capital toward data systems and processes that can establish a permanent structural competitive advantage.
- Scientific rigour is now key to determining credit values. With carbon models imposing severe uncertainty deductions, investing in high-fidelity data collection is a practical necessity. Embracing field-level data collection and robust modelling frameworks will dramatically preserve the economic yield of soil carbon projects over time.
- Leaders should also prioritise developing audit-ready infrastructure and processes. For the modern agrifood corporation, the quality, granularity, and defensibility of the underlying carbon modelling framework determine whether a sustainability claim holds, whether an audit is passed, and whether the enterprise can thrive in a strictly regulated, low-carbon global economy. Companies that build weak systems and processes will ultimately face greater regulatory, financial, and reputational risk.
At Farrelly Mitchell, our ESG and sustainability consultants provide strategic, technical, and commercial expertise to help agribusiness owners, investors, and food industry leaders navigate the transition to a more sustainable and resilient future. From designing and evaluating insetting programmes and carbon modelling approaches to advising on agtech, supply chain optimisation and green finance, we bring integrated expertise and independent insight to environmental and commercial strategy. Contact our experts today to discuss how we can support your organisation’s continued growth and resilience.
