Commentary

VCMs Must Stand up to Scrutiny

Allister Furey, CEO & Co-Founder of Sylvera, says the VCMI new claim could help to unlock urgent action on Scope 3.

Scope 3 can often be the most difficult type of carbon emissions to measure, dampening the prospect of action from business leaders. Unlike Scope 1 or Scope 2 emissions, which can be reduced through adoption of renewable energy and more modern equipment, Scope 3 is far more challenging, covering emissions produced indirectly by a company through its value chain, and use of products.

Choosing suppliers and working with customers who take their responsibility towards lowering their carbon emissions seriously is one of the first steps in creating a value chain that drives progress towards a low-carbon economy. There are contexts however, especially in hard-to-abate sectors, which mean that the road to zero carbon can be complex and costly – or in some cases impossible with the current technologies available. It will take time for industries to transition while green premiums remain high on renewable energy and the incentives are not yet there for investing in more modern equipment. Meanwhile, the climate system doesn’t care about these challenges and merely demands the total sum of emissions tends to net zero.

Bridge the gap

Carbon markets have a powerful role to play in bridging this gap, encouraging businesses to take responsibility for their indirect emissions and help them to reach much-needed progress towards net zero.

Despite some shortcomings for intergovernmental carbon trading, COP28 was still a positive moment for boosting confidence in the carbon market, thanks to announcements from the US’s Commodity Futures Trading Commission (CFTC) and the International Organization of Securities Commissions (IOSCO) announcing clear plans for regulating the Voluntary Carbon Market (VCM). In addition, industry standard body the Voluntary Carbon Markets Integrity Initiative (VCMI) announced a new claim for companies making progress towards science-aligned targets, but unable to fully meet them. This could be pivotal in driving forward how corporates harness carbon markets to reach their sustainability goals.

Although in a testing phase, the new VCMI claim is a display of the type of pragmatism we need from the industry. The claim provides a mechanism to incentivise corporates to make progress towards meeting their targets, while also helping to mobilise urgently needed climate finance to effective solutions that would otherwise go unfunded. VCMI’s analysis shows that carbon markets could help to fill the gap between a company’s Scope 3 target levels and their emissions inventory, unlocking huge demand for climate mitigation projects globally. By giving credit where it’s due, but also imposing a measurable economic cost for slow decarbonisation, it will mean companies will be more likely to meet their targets, and set more ambitious future goals. And, though it has been claimed that credits are a distraction, analysis, including our own and from others in the industry, has shown that the majority of businesses that use carbon credits tend to be more ambitious in their climate action, not less.

To date, companies signed onto a path to net zero under the Science-Based Target Initiative haven’t been able to invest in climate action via carbon credits until they’ve reduced their emissions by 90%. While well-intentioned, this discourages companies from taking urgently needed action to fund climate solutions outside their value chains. As the Global Stocktake makes abundantly clear, the world isn’t on track for net zero and we can’t afford for any urgent action to be discouraged.

Incentives for action

From Sylvera’s work building carbon data to drive meaningful climate action, we are all too aware that to spur such change, we need to bolster the incentives, both carrot and stick. Companies need to feel the cost of having emissions, rather than being rewarded for making statements of intent. Where possible they should also be rewarded for doing the right thing – claims such as that proposed by VCMI can be an important piece of this reward mechanism. It is a tried-and-tested approach to harness financial incentives to drive change in corporate behaviour, evidencing the potential of carbon markets in unlocking progress.

The VCMI’s new claim is a productive first step, but there is still plenty of work to be done so that businesses wake up to and act on their responsibilities when it comes to Scope 3 emissions and driving overall net zero progress. In the first instance, reducing as much emissions as possible still needs to be the main priority.

Beyond that, companies need to leverage the available data and technology to ensure their investments in carbon credits are going to the projects having the most significant climate and community impact.

And, the VCM knows it have a key role to play to facilitate this. Time after time, successive scandals have set it back, tarnishing the real value that credits present. To become a stronger, more credible industry, we must make transparency a key element of how we operate.

A path to real impact

Scope 3 measurement adds significant depth to the way businesses must look at their carbon output, and credits must be a clear, transparent and accessible way to deal with rising obligations. Investors need to be able to view carbon markets confidently, with clear knowledge that their investment will stand up to scrutiny, and have a real impact on the local communities and projects they invest in.

As part of this, we must champion those who are taking their responsibilities seriously. With real transparency in the market, we can, with confidence, highlight best practice and demonstrate that change is possible.

Action on climate does not begin or end with carbon credits, but they serve as a powerful lever for progress towards meeting the ‘net’ in net zero.

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