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Up to 30 companies could sign up to trial a new global standard
for corporate climate claims based on their usage of carbon offsets
offered by the Voluntary Carbon Markets Integrity Initiative
(VCMI).
Earlier this week, VCMI launched the provisional Claims Code of Practice in a
bid to create a standardized, Paris Agreement-aligned benchmark for
the voluntary use of carbon credits by companies and other
non-state actors—often to claim carbon neutrality and net-zero
emissions.
Mark Kenber, an executive director at VCMI, told Net-Zero
Business Daily by S&P Global Commodity Insights the
industry group aims to have 25-30 companies in the code's first
"road testing" starting on 21 June.
In partnership with Boston Consulting Group, VCMI will hold a
series of workshops and technical support sessions for the
companies on how to implement the code.
A company that wants to make climate claims based on the code
must aim to achieve net-zero emissions by 2050 or earlier, and
establish interim targets based on a trajectory aligned with
science-based standards.
The road tests will involve some "deep-dive technical work"
related to the "governance, assurance, verification, and
enforcement" of corporate climate claims, Kenber added.
At least 11 companies have committed to participating in the
trial runs, including Google, Unilever, and Hitachi.
"We all as a community work to address the climate crisis. It's
important that we have standard ways, being really genuine in the
ways we're reporting on our progress," Google Chief Sustainability
Officer Kate Brandt said at the code's launch event.
With businesses rushing to make net-zero pledges in recent
quarters, and using carbon offsets to meet their targets, industry estimates show the
voluntary carbon markets' overall liquidity exceeded $1 billion for
the first time last year.
But environmentalists are worried that those corporate climate
commitments might amount to little more than greenwashing, as the voluntary
markets remain largely unregulated and businesses seldom disclose
their offset programs in detail.
Anirban Ghosh, chief sustainability officer at Indian
conglomerate Mahindra, which will also take part in the road test,
suggested the code could play "a critical role" in ensuring climate
pledges are credible.
"However hard we tried, it would be impossible to eliminate all
emissions given the state of technology that exists and [that] is
expected by 2040 or 2050," Ghosh said. "There will be emissions
that will need to be offset, and for that we will need carbon
credits."
Therefore, the usage of carbon offsets must stand up to
scrutiny, he said, adding: "At the end of the day, we do not want
our claims of being net-zero being doubted."
Unilever Chief Sustainability Officer Rebecca Marmot said the
company hopes the code "will deliver much-needed clarity on the
corporate use of voluntary carbon credits and the making of
climate-related claims."
"Climate change is a growing concern for our consumers across
the world, and they expect us to take action," Marmot said.
Starting point for better integrity
Launched last year with funding from the UK government and the
charity Children's Investment Fund Foundation, VCMI aims to serve
as a multi-stakeholder platform that can draw on the expertise of
nonprofits, government officials, and carbon market veterans, among
others.
In recent months, the group has been in talks with businesses
and civil society to develop a standard for corporate climate
claims in the hope of improving market integrity.
Rachel Kyte, VCMI's Co-Chair, said the launch was "a jumping off
point for voluntary carbon markets that can work for all."
"With clarity for business and by business on what is being
claimed, we may harness the potential of the markets to help us
meet our shared net-zero ambitions," Kyte said at the same event.
"The provisional code enshrines an ethic of continual improvement,
which the most recent climate science shows is something we need to
internalize urgently."
According to the code, a company's decarbonization targets need
to align with industry standards like the Science Based Targets
initiative or Transition Pathway Initiative, which are designed to
help the world meet the Paris Agreement goal of capping global
warming at 1.5 degrees Celsius above pre-industrial levels.
Moreover, a company complying with the code has to make public
detailed plans and strategies to achieve the targets, a GHG
emissions inventory, and its advocacy activities.
"We require absolute transparency across all of the code of
practice by the companies that use it," Kenber said. "All that
information must be in the public domain."
Making claims
After meeting the prerequisites, a company can make several
types of yearly climate claims based on the extent to which it is
on track to meet emissions targets and how it offsets the remaining
emissions with carbon credits.
A company can be labeled as Gold by VCMI if it is on the
trajectory to achieve its next interim decarbonization targets for
Scope 1, 2 and 3 emissions via abatement efforts, and has covered
the unabated emissions in full via carbon offsets. It can achieve
VCMI Silver status if at least 20% of the unbated emissions are
covered by carbon offsets.
To get the VCMI Bronze label, a company must be on track to meet
its next interim targets for Scope 1, 2 and 3 emissions, but up to
50% of the emissions reduction can be covered by carbon offsets. It
also needs to offset at least 20% of the unbated emissions with
carbon credits. Bronze status is only available until 2030 to
accelerate decarbonization efforts later this century, according to
VCMI.
Andrea Abrahams, managing director of the International Carbon
Reduction and Offset Alliance, part of trade body the International
Emissions Trading Association, said the code is "very helpful" in
ensuring "strong integrity" and "looks very robust and
prescriptive."
But VCMI doesn't directly provide any "net-zero" labeling
through the code, and Abrahams suggested the newly-launched VCMI
Gold, Silver, and Bronze labels may require "quite a bit of
explaining" to consumers.
"Other terms used to date … can be more easily understood by
consumers," Abrahams told Net-Zero Business Daily. "So
many 'net-zero' claims already exist. There are other protocols in
the market that also use this terminology."
Also, Abrahams said the "hierarchy of claims" does not take into
account sectoral differences. For example, an oil company might be
at a disadvantage in achieving a Gold ranking due to high Scope 3
emissions.
The code separately allows a company to label a brand, service,
or product as "carbon neutral" if its lifecycle emissions or
emissions intensity falls in line with the guidance from the GHG
Protocol Lifecycle Reporting and Accounting Standard, or the
British Standards Institution's Publicly Available Specification
2050/2060 standards.
In the past, bp, Eni, and some other energy firms managed to
sell carbon-neutral petroleum products based on the Publicly
Available Specification standards while using carbon offsets.
Non-profit Carbon Market Watch Policy Officer Gilles Dufrasne
therefore voiced some concerns over the code.
"The proposed guidance is a first step, it is welcome, but it
does not go far enough and doesn't rule out greenwashing," Dufrasne
told Net-Zero Business Daily. "Companies will hence still
be allowed to present carbon-intensive goods as having no net
impact on the climate, which is misleading."
Building on others
All claims need to be verified by a "credible, independent third
party," according to the code. Companies will submit the
verification documents to VCMI to achieve the claims. VCMI does not
plan to publish a list of qualified verifiers itself, but will
refer companies to accreditation organizations for verifiers.
Separately, the code states that companies making claims need to
use "high-quality carbon credits" eligible to be traded within the
International Civil Aviation Organization's Carbon Offsetting and
Reduction Scheme for International Aviation, or meeting the
Integrity Council on Voluntary Carbon Markets' upcoming
standards.
"What we want to do is building on and leveraging [what's there]
rather than creating something new," Kenber said.
Looking forward, VCMI intends to carry out trials throughout the
year. In parallel, there is will be a public consultation through
12 August.
The group expects to issue the formal code late this year or
early next year after receiving enough industry feedback. After
that, a full review will be conducted in 2025.
"We'll have a proper enforcement mechanism in place by the time
we launch the final version," said Kenber, adding that VCMI hopes
consumer watchdogs and advertising authorities across the globe
will start incorporating the code into local regulations in the
next three to five years.
Dufrasne said enforcing and policing this system will be
challenging. "It is welcome that VCMI is attempting to take on this
role … But ultimately, governments will need to step in to fill the
regulatory void," he added.
A bigger voluntary carbon market?
Many industry veterans believe the voluntary markets can expand
greatly with better integrity and transparency. Based on the
Taskforce on Scaling Voluntary Carbon Markets' forecast, the market
could reach up to $50 billion by 2030.
One school of thinking, shared by VCMI, is that more companies
and even individuals will be willing to procure carbon offsets once
they can be certain of their decarbonization effects.
"The code will be critical for building trust in the voluntary
carbon markets and scaling investment into high-quality,
carbon-saving projects," Marmot said. "At the same time, we really
hope it enables consumers, investors, and governments to identify
and prevent greenwashing."
Speaking at the same event, Bank of America's Market President
for Greater Washington D.C. Lawrence Di Rita said the code has the
potential to ensure market integrity and transparency to put the
world on track to a low-carbon future.
"We are working with our customers to achieve the goal of
net-zero, and carbon offsets are an important part," he added.
Another school of thinking, shared by some environmentalists, is
that carbon offsets' actual decarbonization effects are doubtful in
the long term. In particular, emissions reduction of
forestry-related offset projects—the most popular for the
moment—can be nullified by natural disasters.
Charlie Kronick, senior program advisor at Greenpeace UK,
suggested that businesses should invest in abatement efforts rather
than carbon offsets.
While not completely ruling out the use of carbon credits to
offset residual emissions, Kronick stressed that the scale of
voluntary carbon markets needs to be "very limited" for the world
to meet the Paris Agreement's temperature goal.
"The biggest issue facing advocates of voluntary carbon markets
including VCMI is to keep the size of the market small enough … to
drive efforts to actually decarbonize," he added.
Posted 10 June 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.