The Voluntary Carbon Market Integrity Initiative (VCMI) today launched its Claims Code of Practice (the Code). The purpose of the Code is to provide clear guidance to companies and other non-state actors on when and how they can credibly make voluntary use of carbon credits as part of their net-zero commitments and climate mitigation strategies, and the claims they can make about that use (see our earlier bulletin here). The Code is expected to have a significant influence on best practices for claims and disclosures on the demand side of the voluntary carbon market.
The Code follows a four-step process briefly summarized below that companies can choose to follow to make credible, voluntary use of carbon credits and receive validation in the form of a “VCMI Claim”.
1. Comply with the Foundational Criteria. The Code provides that before a company makes voluntary use of carbon credits (i.e., making a VCMI Claim), the company must adhere to the following four foundational criteria:
- Maintain and publicly disclose an annual greenhouse gas emissions inventory.
- Set and publicly disclose validated science-based near-term emissions reduction targets, and publicly commit to reaching net zero emissions no later than 2050.
- Demonstrate that the company is on-track towards meeting a near-term emissions reduction target and minimizing cumulative emissions over the target period.
- Demonstrate that the company’s public policy advocacy supports the goals of the Paris Agreement and does not represent a barrier to ambitious climate regulation.
2. Select a VCMI Claim to make. The Code outlines three tiers of enterprise-wide claims and requirements (silver, gold, platinum) that are intended to be aligned with the Science Based Targets initiative (SBTi) and High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities, established by the UN Secretary-General, that companies must review and determine whether they are able to meet. The below table provides an overview of the three tiers:
3. Meet the required carbon credit use and quality thresholds. The VCMI notes that for all claims, companies should seek to use high quality carbon credits. Importantly, the Code emphasizes that carbon credits underpinning VCMI Claims are not counted as internal emission reductions and instead represent a contribution to the company’s climate goals and to the collective global mitigation effort to reach net zero emissions. As such, the Code provides the following threshold requirements:
- companies shall purchase and retire credits approved through the Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles (see our earlier bulletin here); and
- companies shall publicly disclose the types, sources, quantities and other relevant details regarding the carbon credits purchased and retired.
4. Obtain third-party assurance following the VCMI MRA Framework. Companies are required to substantiate a VCMI Claim through transparent reporting of information. This includes reporting on the VCMI Foundational Criteria, the VCMI Claim-specific requirements, whether the carbon credits used to make the VCMI Claim meet the quality threshold, and key information related to the carbon credits used to meet the VCMI, such as the number of credits purchased and retired that are applied to a VCMI Claim. In addition, each of these metrics, which must be reported in the first year of making a VCMI Claim, must be subject to an independent third-party limited assurance in line with International Standard on Assurance Engagements (ISAE) or American Institute of Certified Public Accountants (AICPA) attestation standards, or International Organization of Securities Commissions (IOSCO) standards. Further, the third-party assurance must cover all required items in accordance with the VCMI MRA Framework, which is anticipated to be published in November.