Carbon Offsetting 10 Jun 2024
Unlocking the Voluntary Carbon Market: How VCMI Guides Corporations to Credible Carbon Credit Claims
4 Min Reading Time
In an era marked by growing environmental consciousness and regulatory scrutiny, the EU’s proposed Green Claims Directive (GCD) emerges as a critical framework to provide consumers with clarity about corporate environmental claims. This directive, which complements the recently enacted Directive on Empowering Consumers for the Green Transition (Empowering Consumers Directive or ECD), seeks to curb greenwashing by mandating that companies substantiate their environmental claims with robust evidence. As the European Parliament and Council prepare for negotiations later in 2024, the GCD is set to influence not only consumer trust and business practices but also reshape the regulatory landscape, fostering a transition to a low-carbon economy.
At EcoAct, we understand that while most companies do not intentionally engage in greenwashing, many struggle to navigate the fragmented landscape of environmental policy, guidance, and best practice. This article summarises key elements of the GCD and clarifies links with other components of the EU’s climate agenda.
The GCD is fundamentally about ensuring that companies have robust evidence to back up any explicit environmental claims (e.g., ‘carbon neutral’), introducing accountability and transparency into an increasingly opaque network of labels and terms. It builds on the environmental elements of the ECD, which covers more generic claims (e.g., ‘eco-friendly’) and also encompasses social impacts and the circularity of goods and services.
The Parliament and Council both want to make companies submit evidence to validate claims of environmental performance. The European Commission would adopt clear rules on what companies must achieve to make explicit claims, and independent verifiers would be empowered to validate whether the terms have been used accurately, or if such statements should be withdrawn.
Negotiators will also seek to restrict the proliferation of green labels used to delineate products that are more environmentally sustainable than their competitors. To be considered valid, the certification requirements of existing and new eco-labels will need to be assessed, and also meet Commission requirements regarding transparency, dispute resolution, and non-compliance.
In addition, companies will be expected to make more detailed disclosures about their use of carbon credits, such as whether they are associated with emissions reductions or removals, and the standard by which they were certified. Importantly, the GCD will also refine how carbon credits can contribute to environmental claims, aiming to enhance the credibility of these claims by setting clear guidelines. This move is intended to ensure that environmental claims involving carbon credits are backed by rigorous and transparent criteria, as outlined by the EU’s certification framework for carbon removals, which will be explored later.
While new rules to increase trust and effectiveness in the voluntary carbon market (VCM) are welcome, such moves should still be approached with caution. Some analysts have warned that the spectre of new regulation is making weary companies more hesitant to engage with carbon credits, for fear that it will become too easy to inadvertently stumble into greenwashing. Yet with the GCD, the EU aims to provide a centralised directive where companies have been seeking guidance from myriad organisations, including the United Nations, International Organization for Standardization (ISO), Voluntary Carbon Markets Integrity Initiative (VCMI), Integrity Council for the Voluntary Carbon Market (ICVCM), and ICROA.
The GCD complements broader EU efforts to strengthen environmental accountability, as seen with the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). It will be important to explore how corporate responses to the GCD and CSRD in particular can overlap, as we build towards an ecosystem of more centralised regulation that advances the transparent communication of climate action.
The GCD proposals frequently reference the EU’s provisionally agreed Carbon Removal Certification Framework (CRCF). In short, the CRCF lays the groundwork for the issuance of a new class of high-quality carbon removals credits, generated by projects based in the EU and certified by methodologies developed by the European Commission. Negotiators are mulling a system where only carbon credits aligned with CRCF quality standards can be used to make environmental claims. This would allow the EU to be held accountable for its effective endorsement of eligible crediting activities, and clarify what company claims specifically mean in terms of verifiable environmental impact.
With the CRCF on the horizon, there are growing calls for the EU Emissions Trading Scheme (EU ETS) to incorporate removals credits. This pressure comes because the EU ETS is scheduled to run out of credits by 2040, and incorporating CRCF units would increase demand for domestic carbon removals projects, while giving regulated entities more options to compensate for their residual emissions.
Policymakers are hesitant to make promises about integrating carbon credits into the EU ETS, having ended such allowances in 2020 after a troubled relationship with the UN’s Clean Development Mechanism (CDM). Still, with liquidity in the EU ETS set to become an issue, and the strict CRCF eligibility criteria designed to increase trust in carbon credits, this topic will remain on the agenda for years to come.
The Science Based Targets Initiative (SBTi) teasing the use of carbon credits towards Scope 3 emission reduction targets, and the varied response from organisations across the climate sphere, has only introduced more uncertainty. Companies are understandably concerned about making moves amidst an evolving landscape of regulation and guidance, as well as heightened scrutiny from shareholders and customers.
Nonetheless, it is crucial to remember that key rulemaking organisations are all aligned on the enforcement of the mitigation hierarchy – there is no doubt that companies should prioritise avoiding and reducing emissions as far as possible, before seeking to neutralise any remaining impact with carbon credits. This is progress. Where industry leaders can still diverge is on how to increase transparency in the voluntary carbon market while generating global climate finance at the pace required to reduce warming as far as possible.
Alongside carbon mitigation, it is crucial to adopt a holistic approach that includes both decarbonisation and the protection of nature and biodiversity. Initiatives like the Taskforce on Nature-related Financial Disclosures (TNFD) and the EU Biodiversity Strategy for 2030 highlight the importance of integrating nature and biodiversity considerations into climate action strategies.
With a comprehensive approach to sustainability, transparency, and accountability, EcoAct will continue to support our clients in navigating the climate transition – whether this is through setting science-based targets, conducting biodiversity footprinting and screening, plotting emissions reduction pathways, crafting robust offsetting strategies, or procuring high quality carbon credits.
This factsheet covers everything you need to know about aligning to the EU Taxonomy:
Choose EcoAct for industry-leading expertise in climate strategy and sustainability solutions. We’re here to guide your business through every step towards achieving your sustainability goals while supporting your operational success and market reputation.