Up to 30 firms to try out Voluntary Carbon Markets Integrity Initiative’s climate claims code

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.