Rising risks for voluntary carbon credits users
Source: Middle East Insurance Review | Mar 2023
The credibility risks for most carbon credits have been rising over the last few months, according to a new report by Sustainable Fitch.
The report, ‘Rising Risks for Users of Voluntary Carbon Credits as Credibility Woes Mount’, said that the multiplication of standards, marketplaces and new services around voluntary carbon markets (VCMs) are adding confusion to an already opaque market, which could erode confidence in those markets until best practices are well established.
There has also been an increase in negative reports about the quality of carbon credits as well as about the lack of quality control or additionality/leakage also.
Attempts to establish standards are making slow but steady progress and should standardise VCMs and give them credibility in the long run.
A major trend of 2023 and beyond is the heightened examination from investors and regulators of carbon accounting practices, net-zero claims and credible transition plans, and increased efforts from authorities to tackle greenwashing.
As a result, corporations could keep a cautious approach regarding offsetting, which suffers from a growing lack of credibility. Companies that wish to make credible efforts towards their net zero commitments are likely to reconsider or reduce their reliance on offsets in the near term and will need to focus to a greater extent on actual emission reduction within their operations and supply chains.
This is likely to require larger investment than buying offsets. Those that continue to rely on low priced offsets risk a reputational backlash, and potential litigation as regulators increase their efforts to stymie greenwashing in 2023. M