At the Swiss-based South Pole, the world’s leading climate consultant, a scenario unfolded in late 2022 that now threatens the company’s survival. Mistakes in the development of a major forest preservation project put not only South Pole’s reputation at stake but also the green claims of hundreds of its clients, including Volkswagen, Ernst & Young and the Dutch company Greenchoice.

Despite the internal problems, South Pole’s CEO Renat Heuberger painted a pretty picture to the outside world. On 6 December 2022, he praised the project, about which there had been major concerns internally for months, on LinkedIn. ‘Proud to share the story of one of our most successful forest conservation projects: Kariba in Zimbabwe.’

South Pole offers over 700 offset projects, with which it says it controls a fifth of the world’s voluntary trade in carbon emission rights. The Kariba project is by far their most important: in 2022, it accounted for about a tenth of South Pole’s revenue, which it claims was 232 million euros. Thanks in part to Kariba’s success, South Pole is known as a ‘unicorn’: an unlisted company with an estimated market value of more than a billion dollars.

A day after Heuberger’s LinkedIn post, it is all hands on deck at South Pole. Over a hundred employees, spread across the globe, are participating in an online crisis meeting about the company’s biggest source of income: the Kariba project, which Heuberger applauded just yesterday. Many employees are deeply concerned about Kariba. ‘Are the products we sell through this project based on reality,’ they ask company management. And if not, what does that entail?

‘The objective is to build trust around this truly amazing project’

As the meeting starts, a PowerPoint slide appears with a picture of an iceberg and an illustration of an emperor penguin, South Pole’s logo. Carlos Garcia-Borreguero, the South Pole consultant chairing the meeting, welcomes everyone and states that the purpose of the meeting is to answer critical questions from the penguins – as South Pole’s employees call themselves. ‘So, the objective is to build trust around this truly amazing project.’

‘So Christian, the floor is yours.’ As CEO Renat Heuberger is absent, South Pole’s co-founder Christian Dannecker gets to explain things. As the Executive Director of climate projects, he is one of the few who has been involved in the Kariba project since it started more than a decade ago. ‘Cool, I’ve never spoken about Kariba to 125 people. So, thanks for the attention.’

There is a stony silence, which Dannecker breaks with an uneasy chuckle. ‘OK, I will just talk a little bit about the key points that came up. I have a couple of slides, and then we will go through each question.’ By ‘key points’, Dannecker is referring to the internal unrest about a crucial flaw that renders many of the Kariba products South Pole supplied to its clients worthless. Several employees have since resigned out of discontent. The damage to the company’s reputation will be immense when this transpires, management fears.

A tottering lead

South Pole, founded in 2006 by a group of Swiss college friends, is one of the most influential and, in its own words, also the largest climate consultancy in the world. It sells ‘climate solutions’ to clients such as Volkswagen, Porsche, Nespresso and Gucci.

Nowadays, consumers, employees, suppliers and governments require companies to help combat climate change. This often requires drastic changes in business processes, which can be complex and affect short-term profitability. In that case, it is often more attractive for companies to offset their greenhouse gas emissions elsewhere.

But it’s not as simple as it sounds. You have to be able to capture greenhouse gases for decades – otherwise, there can’t be any offsetting. That is precisely where South Pole’s specialism lies.

The company scours the world for projects that will enable it to offset greenhouse gas emissions, for example, by protecting a forest in Zimbabwe or investing in solar parks in Chile. Investments in such projects generate carbon emission rights. Companies doing business with South Pole can then inform their customers that they can hit the road emission-free (Porsche), drink ‘carbon neutral’ coffee (Nespresso), or contribute to ‘preserving crucial ecosystems’ (Gucci). Using the Kariba project, Dutch energy company Greenchoice provides ‘sustainable gas’ to thousands of Dutch households.

The largest portion of South Pole’s revenue is generated through emissions sales. To the outside world, however, it doesn’t present itself as an emissions trading company but rather as a consultant and provider of ‘climate solutions’. Because in addition to emissions trading, South Pole also establishes offset projects, has its own consultancy arm, and, since June 2021, manages its own investment fund.

In recent years, the demand for their services has grown tremendously. And the company also strengthened its market position by acquiring one competitor after another, including the Italian company Carbonsink and the Belgian company CO2logic. This also caught the attention of major companies like Swisscom and Salesforce, as well as investor Temasek: in 2022, all three announced that they were acquiring minority stakes in South Pole worth millions.

South Pole has known for months that the foundation of their most important project, Kariba in Zimbabwe, is tottering

But now, their carefully constructed market position is at risk. South Pole has known for months that the foundation of their most important project, Kariba in Zimbabwe, is tottering. Some of South Pole’s leading clients’ green claims exist only on paper. This is according to research conducted by Follow the Money, based on internal documents and interviews with multiple sources.

Employees are questioning why management is not informing its clients that a crucial mistake has been made. South Pole has since acknowledged that there are problems but insists that all the carbon credits sold are still ‘legitimate’. Greenchoice and Volkswagen, among others, told Follow the Money that they want to 'further investigate’ the matter themselves.

African money trees

South Pole’s problems originate in Zimbabwe, in a nature reserve about three times the size of Luxembourg, on the border with Zambia. The Kariba area, which includes elephants, lions and hippos, is characterised by a dry forest that gradually transitions into a savannah.

That forest is endangered. Inhabitants of the area, who often live on or below the poverty line, chop down the trees for firewood or agricultural land. This clearcutting results in the release of greenhouse gases that exacerbate the climate crisis.

That makes the Kariba area suitable for carbon offsetting, as Steve Wentzel, a Zimbabwean entrepreneur with a series of startups to his name, discovered over a decade ago. At the time, he ran several small enterprises in the safari business and health insurance. He ended up in the world of carbon emission rights by accident.

‘It started out as a really good business idea. The credit price was 10 dollars per tonne, or so I was told’

‘Ten years ago, I didn’t care about trees and the people there, but now I do,’ he says over the phone from Zimbabwe. ‘I had somebody that owed me money. They could only provide me with some land in a rural area, which was a hunting area.’ There weren’t many animals left, but there were plenty of trees, and Wentzel could get his money back by preserving those. ‘It started out as a really good business idea. The credit price was 10 dollars per tonne, or so I was told.’

And thus, Wentzel founded a new company in 2010: Carbon Green Investments (CGI). Through CGI, he initially invested 750 thousand dollars, with which he would preserve almost 790 thousand hectares of forestland. That included the hunting area and four Zimbabwean communities: ’It started with the safari area, and then other communities stepped in.’

Wentzel hoped to recoup his investment by selling avoided carbon emissions. By helping the communities farm more sustainably, they would chop down fewer trees, preventing greenhouse gas emissions. And so, CGI began cultivating farmland, distributing seeds, investing in eco-tourism and started a bee farm, all aiming to provide villagers with alternative sources of income and prevent deforestation.

Initially, Wentzel financed everything himself. He wanted to sell the non-emitted greenhouse gas emissions as carbon credits: the profits would go partly to himself to recoup his investments and partly to the Zimbabwean communities, who could use them to set up wells and health clinics.

However, not having a network of companies willing to buy carbon credits made it difficult to earn money from tree preservation: Wentzel needed an international business partner. South Pole, which had been focusing on carbon financing since 2006, became that partner. ‘They were the first name that came up on a Google search,’ he says dryly.

South Pole and Wentzel decided to team up in 2011, and in 2013 they brought their Kariba credits to the international market. Businessman Wentzel became a conservationist, and the Kariba project was born.

Kariba has since become South Pole’s showcase project. Between 2011 and 2021, South Pole claims to have saved roughly 36 million tonnes of CO2 with the project – nine times the annual emission of the city of Amsterdam.

The resulting carbon credits are now worth substantially more. Whereas the price of a carbon credit was about one euro in 2011, it is now well over 20 euros. According to Follow the Money’s analysis of internal documents, now confirmed by South Pole, the company has sold roughly 100 million euros worth of Kariba carbon credits to hundreds of clients since the project started.

According to South Pole’s management, the project is a huge success: the Zimbabwean people are happy, clients seem satisfied, and the consultancy firm makes a decent profit. ‘The reason why I get out of bed every morning is to work on delivering such projects to help make the world a better place, through climate finance [..],’ Dannecker wrote about Kariba in 2016. Until 2022, when everything was suddenly called into question: the amount of avoided carbon emissions turned out to be inaccurate.

Inflated figures

Tension at the crisis meeting rises when one of the key questions of the meeting appears on Dannecker’s slide: ‘Are the Kariba credits based on reality?’

Dannecker tries to park the question. ‘What is reality? [..] So we could engage now in a theoretical discussion and say, “Well, if we look back with technology that was not available ten years ago, with know-how we didn’t have ten years ago, to look at how many of these credits are, whatever, legit or not legit.” [..] It would be very tricky to do the math here. So I would say, let’s not even get into this.’

Then he passes the question off to his colleague. ‘I see that Naomi raised her hand. I’m sure she can add to this.’ Naomi Swickard, head of Public Affairs, can only add that South Pole uses verified methodology for Kariba and has always followed the relevant guidelines.

An employee overseeing the sale of carbon credits in North America is not content with that answer. ‘What we ultimately sell to clients is the claim of a credible offset. Because if we have clients coming to us asking: “Hey, that impact that we claim, did that actually happen, yes or no,” I think it would be very important to have a clear statement of confidence from South Pole on the impact that we sold to clients.’

Satellite data recently collected by South Pole shows that the company has heavily overestimated the deforestation

The discussion cuts to the crux of the problem with Kariba: the mathematical model South Pole used. With that model, it calculated how many trees in the area would have been chopped down over the next 30 years if the forest would not be protected. There is an incentive to overestimate the clearcutting: if you assume that local people would have clearcut the forest at breakneck speed, then forest preservation would prevent a lot of carbon emission. The project then generates additional carbon credits and thus additional revenue for South Pole and Steve Wentzel.

At the time, South Pole estimated the future deforestation in the Kariba area at 3.2 per cent of the forest area per year. In other words, if the forest were not protected, it would almost completely disappear within 30 years.

For that estimate, South Pole relies on previous deforestation figures from areas adjacent to the Kariba project that were not being protected. Their reasoning: if deforestation increases faster in these control areas during the project than it does in Kariba, that difference can be attributed to CGI’s efforts.

However, satellite data recently collected by South Pole shows that the company has severely overestimated the deforestation.This is good news for the climate but bad news for South Pole’s business: currently, the company is overestimating the deforestation it would have prevented by about a factor of 14.

In addition, South Pole overestimated the effectiveness of its efforts in Kariba. Of course the local communities did not stop chopping down trees on the very first day that South Pole started to protect the forest; that often takes years. Yet in its calculation model, South Pole pretends that deforestation in the area instantly dropped from 3.2 per cent per year to 0 per cent.

In total, South Pole marketed considerably more carbon credits than the emissions it prevented in Zimbabwe. South Pole’s preliminary estimates, seen by Follow the Money, amount to 27 million tonnes of avoided carbon emissions existing only on paper, almost two-thirds of what the project yielded in total.

South Pole refutes to Follow the Money that the over-issued credits have a negative climate impact. The company expects that the 27-million-tonne CO2 gap can be closed in the coming years by selling new carbon credits at a slower rate. In other words, it wants to offset the overestimated carbon offsets with future carbon offsets.

Although management knew about the overestimates since June 2022, the firm concluded several more big transactions with major clients. In late September 2022, accounting and consultancy firm EY paid over half a million euros to offset carbon through the Kariba project. Even days after South Pole declared a sales stop on all Kariba credits on 9 November 2022, it sold the McKinsey consultancy firm more than 200 thousand euros of Kariba credits, as South Pole’s internal documents prove. (Salient detail: one of South Pole’s founders was a McKinseyan himself).

Almost half of Kariba’s total turnover was amassed in 2022, the year when it was known to have been built on quicksand

2022 thus became the most lucrative year ever for the Kariba project. Almost half of the project’s total turnover was amassed in the year when the project was known to have been built on quicksand.

South Pole informs Follow the Money that in late 2022, it notified several leading clients of the overestimate as a precautionary measure: ‘We were concerned that clients who would wish to buy large follow-on volumes in the future might not be able to if we found that there would be a downward adjustment and we would not have the volumes requested in the next crediting period.’

Customers who had no active relationship were not notified, such as Dutch energy provider Greenchoice, previously by far the largest buyer of Kariba credits. Greenchoice announced that Follow the Money's findings 'come as a surprise’ and that it had acted 'in good faith'. Volkswagen, estimated to have spent at least 10 million euros on Kariba credits in the past, was also not notified. Both companies told Follow the Money that they want to further investigate the matter themselves. Moreover, Volkswagen reports it intends to start its own carbon reduction projects to 'be[come] less dependent on external providers'. Gucci and McKinsey did not respond to Follow the Money’s questions.

The forest as a money press 

The overestimation of carbon offsets is not the only bombshell under the Kariba project. South Pole publicly claims that it keeps 25 per cent of the project’s revenue as commission and that the remainder flows back to CGI, the project itself and the local people. But South Pole confirms to Follow the Money that it actually pocketed considerably more. Through a clever trick, it kept not a quarter but more than 40 per cent of the approximate 100 million revenue for itself.

South Pole did this by not letting its clients buy credits directly from CGI. Instead, South Pole bought them cheaply from CGI and then sold those credits – sometimes years later, when the market price had risen substantially – at a much higher price to its clients, without CGI or the Zimbabwean people seeing any of that excess revenue.

This led to extreme margins. South Pole purchased some credits for less than half a euro, but the selling price was over 20 euros. This way, South Pole made huge profits on more than half of the credits that it resold. Documents seen by Follow the Money confirm this.

And all this while South Pole was boasting in a recent promotional video about its ‘guarantee’ that people in developing countries ‘who have not contributed much to climate change are also benefiting from the solution’. Meanwhile, South Pole earned an extra 18 million euros with this resale, the company confirms upon enquiry, without any benefit to the Zimbabwean people.

A large part of this additional revenue was collected in 2022. Without those high margins, the total operating profit of 11 million euros would probably have been negative last year.

South Pole denies that it 'speculated' with carbon credits: the bulk purchases served to keep the Kariba project alive during years of setbacks (2015-2019) when prices were lower and few companies were interested in carbon credits. It describes the extra profit it succeeded in making as an ‘exceptional windfall’ that was allegedly invested in the company's continued growth.

Red flags raised about partner CGI

On top of this, there are strong doubts within South Pole whether the money that did go to CGI actually reached the Zimbabwean people. It was one of the controversial issues on Dannecker’s PowerPoint slides: 'On July 9 2022, a red flag has been raised that CGI is not willing or not able to prove the use of funds for its intended purpose. What was South Pole's reaction on this red flag from then until today?’

In his response, Dannecker explained that these ‘red flags’ were raised after CGI – based in tax haven Guernsey – emerged negatively from a due diligence investigation South Pole conducted in spring 2022. South Pole wanted to further strengthen its ties with CGI and invest directly in its Zimbabwean partner. But South Pole backtracked on this after it became apparent that it had no way of ascertaining whether the tens of millions it transferred to CGI had been spent as agreed. In other words, South Pole could not guarantee that the local communities received all the money they were promised.

‘So we have overall statements that show us how the money flowed, but not exactly where every dollar went. That would be patronising because it is not our project; it is from the communities,’ Dannecker told his colleagues at the crisis meeting.

When asked, South Pole could not clearly state how much money went to Zimbabwe. Initially, the company claimed it transferred 40 million euros to CGI – an amount Wentzel confirms. But after Follow the Money suggested to South Pole that it made more from Kariba than it disclosed to the outside world, it changed its tune, now claiming that 57 million euros went to Zimbabwe.

In addition, South Pole has limited influence on how this money is spent. Over 30 million is said to have gone to local communities, but the company cannot confirm this with certainty: ‘We trust that this agreement [with Wentzel] is being upheld.’

Steve Wentzel did not respond to questions about South Pole’s doubts regarding his company.

A gaping hole that went unnoticed for ten years

Dannecker manages to skilfully sidestep the sensitive points on Kariba during the crisis meeting. He does not explicitly mention that the Kariba project is now climate-negative: it ended up emitting more CO2 than it managed to retain. Big companies, in good conscience, had offset their emissions against carbon credits that were partly based on nothing; hence, several million tonnes of CO2 have now been released into the air without any compensation.

Overestimating the deforestation that would have occurred without the project – also known as baseline inflation – is a well-known risk with forest projects like Kariba. A study that analysed projects using the same calculation methods in the Democratic Republic of Congo and Madagascar even speaks of ‘untestable guesses’, without any scientific basis.

Nevertheless, these overestimates went unnoticed by the three certification agencies that approved the Kariba project in 2014, 2017 and 2020. In fact, according to the guidelines of Verra, the private (non-profit) company that sets international standards for these types of forest projects, such agencies are not required to verify actual deforestation during those years.

The only thing being checked is whether the calculations were correctly done, based on the calculation model submitted at the start of the project. In those 10 years, it has never been checked whether that model makes any sense at all. In December 2022, when South Pole had already been aware of its overestimate for half a year, Verra accepted its request to issue some 7 million carbon credits that had been generated between 2019 and 2021 – the period in which the deforestation was a factor 14 lower than the model had predicted.

Verra faces a conflict of interest: on the one hand, it wants to maintain a reliable reputation and intervene in case of possible overestimation of carbon credits, and on the other hand, it gets paid a commission of 10 US cents per verified credit. In other words, Verra has to verify South Poles’ calculations but benefits when the amount of carbon credits is not too conservatively estimated.

When Follow the Money asks Verra how they hedge this risk, it sidesteps the question by saying it is ‘one of the cheapest’ and, as a non-profit, only charges a cost-covering commission.

Meanwhile, South Pole, with CEO Renat Heuberger leading the way, continues to point critics to Verra’s guidelines to substantiate that no wrongdoing has occurred.

The risk of a conflict of interest is also lurking at South Pole itself. The company sells carbon credits, provides clients with climate advice, develops offset projects, and since recently, also manages a sustainable investment fund. These responsibilities can easily get mixed up.

By generating its ‘own’ carbon credits through collaborations with parties like CGI, South Pole is able to buy fewer credits from other traders

Like Verra, South Pole and CGI have an interest in overestimating avoided deforestation. By generating its ‘own’ carbon credits through collaborations with parties like CGI, South Pole is able to buy fewer credits from other traders – on which it would have to pay commission.

Furthermore, South Pole employs many climate consultants. Together with the carbon traders, they form the climate solutions department and run a joint turnover. As a result, they risk wearing multiple hats. When a client applies to South Pole to reduce its climate footprint, the consultants might be inclined to recommend carbon offsets and refer the client to their colleagues in sales, even though the climate may benefit more from advice that helps the client to reduce their carbon emissions.

According to South Pole, there is a clear distinction between consultants and sales reps. For example, clients sign separate sales agreements for climate consulting and for carbon credits. It does not mention other assurances. However, South Pole emphasises that providing climate advice and selling emission rights are both necessary to meet climate targets.

The first to get in trouble?

South Pole staff are concerned that the Kariba project is the first in a series where re-evaluation will show that many of the promises have not been fulfilled. ‘This is the first forest project re-evaluation that we do,’ Dannecker replies. ‘I believe basically we are the first around the world.’ Because of the risk of overestimation, no one currently wants to use the old method: ‘There are a lot of projects that are due for an update that are waiting for Verra to finalise the new method. So we’re not alone in that,’ Naomi Swickard, head of Public Affairs, adds. These guidelines are to be released in mid-2023. ‘I don’t think that anyone has actually reassessed a forest conservation baseline because of that issue.’

At Verra, eleven other projects are registered using the same methodology as the Kariba project. These include five projects in Africa, all of which were set up about 10 years ago. Some of these promise to avoid as much as 6 million tonnes of CO2 per year, placing them among the biggest providers of carbon credits within Verra.

But incorrect estimates can also occur with calculation models other than those used for Kariba. A recent analysis by investigative journalism platform SourceMaterial, in collaboration with The Guardian and Die Zeit, found that as much as 94 per cent of all carbon credits from these types of forest projects produce no climate benefit at all.

Based on a number of scientific studies, that research involved analysing about two-thirds of Verra’s forest projects, which together claim to offset 95 million tonnes of CO2. The conclusion: the threat from deforestation was overestimated by 400 per cent on average. Verra denies the allegations and questions the methodology used by the researchers.

Thales West, an environmental economist at the Free University in Amsterdam and lead author of two of these scientific studies, is not surprised by the huge overestimates of the Kariba project. ‘These methodologies are based on a lot of very weak assumptions. That makes them fundamentally flawed. There is a lot of room to game the system.’

According to West, who previously worked as a certifier of forest projects, companies buying up carbon credits should check for themselves whether the projects they lean on actually offset emissions. ‘Buyers should be able to understand the methodologies and analyses themselves. Because depending on how you calibrate the models, you can create an explosion of [supposedly] avoided deforestation – exactly what we see happening in some projects.’

Merely relying on the approval of Verra and the certifying agencies is not enough, according to West. ‘Estimating avoided deforestation will never be perfect, but the methods we use to measure project impacts are lightyears ahead of Verra’s methodologies.’

Responding to questions from Follow the Money, South Pole highlights the importance of selling carbon credits to protect tropical forests. ‘The most important outcome of these projects is to effectively protect forests over the long-term, not whether the annual accounting of credits is exactly correct, as these will be balanced and corrected over the longer-term lifespan of the project.’ According to South Pole, the voluntary carbon market makes a crucial contribution to forest protection, the need for which will only increase. For example, a recent study estimated that 400 billion dollars per year might be needed for forest preservation by the middle of this century as part of global climate action.

West endorses that argument. ‘I think forest conservation needs funding. If the funding is coming from the carbon market, that is great.’

However, he points out that the impact companies like South Pole claim is not demonstrated in scientific research. ‘Our analyses suggest that the current [voluntary] carbon market has had a much lower impact on forest protection than claimed.’

In the meantime, the future of the Kariba project is hanging in the balance. If South Pole has to close the carbon hole they have punched, the project will be shelved, resulting in hardly any money being mobilised for local people for years to come. According to Christian Dannecker, the Kariba project is still ‘heavily dependent on carbon finance.’

South Pole’s internal estimates indicate that it could take ten to fifteen years to close this gap. Until then, it is highly likely that no new Kariba credits can be sold, jeopardising the financial survival of the project in Zimbabwe – and thus the income flow on which the local community has become dependent.

Correction, February 1, 2023: We erroneously stated that that South Pole informed EY in late 2022 of the overestimation. This was not the case.

Translation: Delia Burggraaf