UK-backed Voluntary Carbon Markets Integrity Initiative (VCMI) has proposed guidelines to assess companies based on the credibility of their carbon emissions claims in a bid to address greenwashing concerns.
The attempt to steer companies to adopt a widely recognised global framework with clear and agreed definitions is important because the current terminology and standards leave a lot to be desired and have left investors confused.
“Such guidance is essential to ensure the integrity of voluntary carbon markets,” said VCMI steering committee co-chairs Tariye Gbadegesin and Rachel Kyte in a consultation paper on Tuesday. “Only with integrity can these markets scale to mobilise the resources and emissions reduction necessary to support achievement of the Paris Agreement goals.”
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
VCMI was launched in July last year with funding from the UK government and the philanthropic arm of the Children’s Investment Fund Management hedge fund.
Its initiative will have implications for Hong Kong, which harbours ambition of becoming a regional market for carbon credits trading, by acting as a bridge between surging global demand for carbon footprint offsets and the world’s largest potential supplier of carbon credits, China.
“At the regional level, stakeholders are paying increasing attention to ‘high integrity’ carbon offsets,” said Jeff Huang, co-founder of Hong Kong-based AEX Holdings, which facilitates electricity and carbon credits trading in China.
High integrity or high quality credits are associated with a “credibly governed” standard-setting board that provides independent validation and tracking.
AEX last August facilitated the first offshore pilot trades of “high integrity” credits under the voluntary China Certified Emission Reduction (CCER) scheme that is expected to be relaunched later this year.
“We expect CCER standards will be further tightened up so that more credits can be issued in line with global standards,” Huang said.
Inconsistent use of terminology on carbon reduction claims and insufficient transparency about companies’ climate performance are “undermining confidence in the integrity of the voluntary carbon market and in corporate commitments, even when commitments are genuine”, VCMI said.
“Without clear and transparent guidance about the use of carbon credits … investors and consumers are not able to effectively allocate capital and direct their purchasing power to incentivise real company leadership on climate mitigation.”
Companies’ stakeholders are also concerned that undifferentiated use of carbon credits could hinder or delay greenhouse gas abatement actions, it added.
Under the proposed guidelines, companies must set clear “science-aligned” interim targets to reduce their own supply chains’ emissions in the near term, before using carbon credit offsets. Only high-quality carbon credits are allowed in all climate mitigation claims using the VCMI framework.
They must also reflect emission reductions or removals that go beyond levels that would occur anyway, had there been no demand for the credits. Companies should also only use carbon credits to supplement, rather than substitute decarbonisation of their own supply chains.
VCMI’s proposed guidelines will be “road-tested” in this year’s second-half by businesses to ascertain their practicality, and opened to comments by diverse stakeholders in a public consultation that ends on August 12.
It aims to engage 20 to 25 companies across the world to put the guidelines through its paces, said Mark Kenber, VCMI’s executive director.
After the proposed framework is finalised as early as the end of the year, businesses will be given “gold”, “silver” or “bronze” recognition for their company-wide climate achievements.
VCMI is not the only initiative seeking to enhance carbon credits quality. Other initiatives include the Integrity Council on Voluntary Carbon Markets (ICVCM), which will launch a public consultation on its proposed assessment framework for “high-quality carbon credits” next month and issue the final version by year-end.
While VCMI focuses on standards for buying and using carbon credits, the ICVCM targets best practices for enhancing the credibility of credits generated and sold by emission reduction project developers, Kenber said. Both initiatives facilitate trading of credits.
More from South China Morning Post: