Over the past decade, climate change discourse has shifted from optional to regulatory, emphasizing the need for net-zero emissions and aligning with IPCC's 1.5-degree Celsius target. Nature-based solutions are crucial in this effort, offering significant carbon reduction potential. Research by the World Economic Forum (2021) (1) suggests they could deliver about one-third of the needed emissions cuts by 2030, equivalent to roughly 7 Gigatons of carbon removal, and at a lower cost than alternative methods

Reflecting on 2023

Overview

In 2023, the Voluntary Carbon Market (VCM) encountered challenges despite record issuance and high prices. Criticism regarding integrity and transparency dampened achievements. Concerns over project integrity, offsetting claims, and the market's role in the Paris Agreement's Article 6 led to cautious buyer and investor behavior. Gloomy investor sentiment persisted due to global monetary policy tightening and increased capital costs.

Key Developments

Here are the key global and national developments of Voluntary Carbon Markets for the year of 2023.

Global Developments

New REDD+ Methodology

Verra unveiled its long-awaited REDD+ methodology (VM0048) on November 27, 2023, targeting over-crediting issues in avoided deforestation projects. Developed in 2020, this methodology addresses concerns regarding baseline, leakage, and co-benefits, enhancing project integrity and potentially impacting market dynamics by stimulating buyer interest and increasing investments in global forest protection efforts. (7)

Regulation of Company Claims & Alternatives Introduced

The EU banned misleading green claims reliant on carbon offsets, effective by 2026, aiming to ensure accuracy in environmental messaging. Only sustainability labels endorsed by approved certification schemes will be permitted within the bloc. Additionally, VCMI and ICVCM collaborated to establish comprehensive guidelines ensuring integrity across Voluntary Carbon Markets (VCMs), introducing standards for carbon projects and advising companies on carbon credit usage and communication. (2) VCMI enhanced its Claims Code with an MRA Framework and 'Carbon Integrity' Claims branding. It introduced the beta version of the 'Scope 3 Flexibility'(3) Claim to address scope 3 emissions responsibly.

Advancements in Sustainability Accounting and Disclosure

Efforts to enhance transparency and credibility in voluntary carbon markets continued in 2023:

• The International Sustainability Standards Board (ISSB) released IFRS S1 and IFRS S2, aligning with TCFD recommendations and enhancing transparency in sustainability reporting. (4)
• Despite the dissolution of the Task Force on Climate-Related Financial Disclosures (TCFD), companies are still obligated to disclose TCFD-related information, overseen by the International Financial Reporting Standards (IFRS). (5)
• The European Commission adopted the European Sustainability Reporting Standards (ESRS) for companies under the Corporate Sustainability Reporting Directive (CSRD), ensuring interoperability with global standards and reducing duplicate reporting. (6)

COP28: Initiatives & Article 6 Negotiations

The year's pivotal climate event saw a blend of successes and hurdles. While carbon market talks remained uncertain, advancements in Article 6 negotiations signaled positive momentum amid ongoing uncertainties, with many issues slated for resolution in the next COP.