“We are carbon neutral.” “We are on a path to net zero.” These phrases appear constantly in sustainability communications — and they are used interchangeably by many businesses, even though they mean different things.
For EU SMBs preparing for CSRD reporting, understanding the distinction matters: using the wrong term in your ESG report can mislead stakeholders and, in some cases, expose you to greenwashing risk.
Carbon Neutral — What It Means
Carbon neutral means that the amount of CO₂ a business emits is balanced by an equivalent amount being removed or offset elsewhere. The net CO₂ balance is zero — but the emissions themselves have not necessarily been reduced.
The most common way businesses claim carbon neutrality is through the purchase of carbon offsets — paying another organisation to reduce or sequester CO₂ on your behalf. Examples include:
- Funding reforestation projects that absorb CO₂
- Paying for renewable energy projects that displace fossil fuel generation
- Funding methane capture at landfill sites
Carbon neutrality does not require you to reduce your own emissions at all. A business can double its energy use, buy enough offsets, and claim carbon neutrality. This is why the term is increasingly questioned by regulators and standards bodies.
Net Zero — What It Means
Net zero is a more demanding standard. It requires:
- Deep decarbonisation first — reducing actual emissions by at least 90% across Scope 1, 2, and 3 (compared to a baseline year)
- Offsetting only the residual — using high-quality carbon removal (not just avoidance) to neutralise the remaining ~10% that cannot yet be eliminated
The key distinction: net zero is primarily about reducing emissions, with offsetting only for what is genuinely unavoidable. Carbon neutrality is primarily about compensating for emissions that have not necessarily been reduced.
Carbon neutral says: “We emit X and pay someone else to compensate for X.” Net zero says: “We have reduced our emissions by 90% and offset the remaining 10% with verified carbon removal.”
The Science Based Targets Initiative (SBTi) Definition
The most widely cited net zero standard is from the Science Based Targets initiative (SBTi), which requires companies to:
- Reduce Scope 1 and 2 emissions by at least 90% by 2050 (versus a 2020 baseline)
- Reduce Scope 3 emissions by at least 90%
- Offset the remaining ≤10% with permanent carbon removal (not just avoidance)
- Set interim targets for 2030 (typically 42–50% reduction)
SBTi net zero targets are externally validated, time-bound, and Scope 3 inclusive — which is why they are increasingly referenced in CSRD reports and investor due diligence.
What Does the EU Say?
The EU's Green Claims Directive (proposed 2023, implementing from 2026–2027) will prohibit vague environmental claims including:
- “Carbon neutral” claims based solely on offsets without emission reductions
- “Net zero” claims without substantiated targets and methodology
- Claims that imply products have no environmental impact
Under the Green Claims Directive, making an unsubstantiated carbon neutrality claim will be treated as misleading commercial practice — which carries fines and reputational consequences. The substantiation required is essentially: a verified carbon footprint report showing your actual emissions.
What Does CSRD Require?
CSRD does not require you to be carbon neutral or net zero. It requires you to:
- Measure and disclose your Scope 1, 2, and 3 emissions
- Disclose any climate targets you have set and your progress against them
- Disclose your use of carbon credits and offsets (if any)
- Explain your transition plan toward decarbonisation (for larger companies)
For EU SMBs under ESRS VSME, the requirement is principally about measurement and transparency, not achieving a specific emission level. You do not need to be carbon neutral or net zero to comply with CSRD — you need to know your number and report it honestly.
Which Term Should Your Business Use?
A practical guide based on your actual situation:
- You have measured emissions and bought offsets:You can say “carbon neutral for [year]” — but disclose the methodology and offset quality. Do not use this as a marketing claim without substantiation.
- You have set a science-based reduction target:You can say “on a path to net zero by [year]” — but disclose the target, base year, and progress.
- You have measured emissions but taken no reduction actions yet:Say “we have calculated our carbon footprint and are working to reduce it.” This is honest, defensible, and more credible than vague neutrality claims.
- You have not yet measured emissions: Do not use either term. Start with the free EmissionPlan calculator to get your baseline.
The Most Important First Step
Whether your goal is carbon neutrality, net zero, or simply CSRD compliance, the starting point is identical: measure your current emissions.
You cannot claim carbon neutrality without knowing how much you emit. You cannot set a net zero target without a verified baseline. And under the EU's Green Claims Directive, any public sustainability claim will need a measured carbon footprint as supporting evidence.
Use the EmissionPlan free calculator to get your Scope 1, 2, and 3 baseline today — no sign-up required. Then create a free account to save your results and generate a CSRD-ready PDF report that gives you the verified foundation for any future sustainability claims.