Guidance on the use of carbon credits by private companies published today by the Voluntary Carbon Market Integrity Initiative (VCMI) is a step in the right direction to rein in greenwashing. The proposed set of rules forms a welcome basis to move the conversation forward but more attention should be given to how companies can contribute to climate action outside of carbon markets.
The VCMI’s Claims Code of Practice, which was released today (28 June 2023) and aims to “give companies a rulebook to follow for making credible climate claims”, supports a shift away from “offsetting” and “compensation” of greenhouse gas emissions by companies. Instead, it encourages the private sector to use the ‘contribution claims’ model to finance climate action through the purchase of carbon credits while continuing to decarbonise their own operations at a pace commensurate with tackling the climate emergency.
The rulebook sets out clear requirements related to the transparency and integrity of corporate climate action, which will help to differentiate between greenwashing and real climate action. Among other elements, it requires companies to disclose their full emissions footprint, set both short- and long-term targets, engage in some disclosure regarding their lobbying practices, publish essential information about the carbon credits they use (including how old these are), and either disclose how much they have spent to reduce their own emissions or explain why they cannot disclose such information.
“Offsetting is on the way out in many countries around the world,”said Lindsay Otis, policy expert on global carbon markets at Carbon Market Watch. “While the VCMI guidance leaves some doors open for companies to exaggerate their impacts, it largely goes in the right direction and will help in curbing greenwashing practices. Next, it will be important to clearly define what actual claims companies can or cannot make under the VCMI rules. Even with the strong requirements outlined in the published guidance, the door has to be unequivocally slammed shut in the face of ‘carbon neutrality’ claims.”
All that glitters is not gold
Still, some elements leave too much wiggle room for companies, including the possibility to set intensity-based greenhouse gas emissions reduction targets instead of absolute ones. In addition, the coverage of short-term reduction targets for a company’s indirect emissions (scope 3) does not need to go beyond 67% of the emissions covered under that scope. Both of these are requirements that VCMI copied over from the Science-Based Targets Initiative (SBTI).
The VCMI guidance defines three possible levels of claims, confusingly colour-coded as silver, gold and platinum. While proposing a scale of claims is useful to reflect a company’s level of ambition, the use of such claims in isolation could be misleading. For instance, given the common cultural associations linked to the precious metal, a “gold” claim is likely to be interpreted by those unfamiliar with the system as the best available claim, even though “platinum” is also part of the scale. Further defining the exact terminology around these claims will be an important element of the work that VCMI has announced for the coming months.
“Carbon credits can be a way of channelling finance to climate action. But it is too early to rely on any existing initiative to define which credits are good enough, given the poor quality currently available on the market,” said Gilles Dufrasne, policy lead on global carbon markets at Carbon Market Watch. “It remains important for buyers to do their due diligence before buying carbon credits and to avoid using them to exaggerate their climate action.”
No silver bullet
Moreover, carbon markets are not the only show in town – in fact, they are a sideshow compared with other forms of climate action. “Ultimately, the purchase of credits should be seen as one of multiple options to finance climate action. It is not the sole, and likely not even the best,” points out Dufrasne. “VCMI is proposing a good set of guidance to rein in the most abusive use of carbon credits, but it should be clear that carbon credits are themselves not a silver bullet and companies should also invest in climate action through other means.”
The publication of this code of practice continues the move away from offsetting and compensation claims in the voluntary carbon market. Over the past few months, countries agreed unanimously under the UN climate change convention (UNFCCC) to create a new kind of carbon credit that is geared towards contribution claims. Various carbon credit sellers, including SouthPole, MyClimate and ClimatePartner have taken steps to move away from such claims. Gold Standard, the second largest certifier of carbon credits on the voluntary carbon market, has long supported the development of alternative claims. Finally, regulators and national courts are increasingly ruling against companies that use carbon neutrality claims to greenwash their image.