VCMI launches Claims Code of Practice to enhance integrity in the use of carbon credits and associated claims

On 28 June 2023, the Voluntary Carbon Markets Integrity Initiative (“VCMI”) launched its new Claims Code of Practice (the “Claims Code”), to provide guidance for companies on the use of carbon credits and associated claims, and to facilitate more demand-side credibility in the voluntary carbon markets (“VCM”).

Developed through collaboration with various global stakeholders, the Claims Code seeks to enable companies to use carbon credits in a way which is internationally recognised as being robust and of high integrity by meeting the requirements set out in the Claims Code and being in receipt of validation in the form of a “VCMI Claim”. It also aims to provide shareholders, investors, and consumers with guidance to facilitate their assessment of the credibility of corporate climate ambitions and actions, thus incentivising companies to use carbon credits in a transparent way as part of their decarbonisation efforts.

The Claims Code comes at a time of intense scrutiny for carbon credits and carbon offsetting and is intended to be a tool that forms part of continued efforts to build credibility and transparency in the VCM and in relation to how claims are made by companies in respect of their decarbonisation efforts.

The last few months saw various other developments as part of efforts to boost VCM credibility and transparency, including the following:

• The Integrity Council for the Voluntary Carbon Market (ICVCM) and the VCMI  announced a new joint commitment last month to boost confidence in the VCM.
• The ICVCM launched its Core Carbon Principles and Program-level assessment framework in March 2023 (i.e. requirements for carbon-crediting programs), which aims to ensure integrity on the supply side by setting rigorous requirements for disclosure on how projects calculate and quantify emissions impact and how it assesses “additionality” and social and environmental impacts. It is also due to publish a category-level assessment framework (i.e., requirements for categories of carbon credits) in the coming months and to initiate its assessment of carbon-crediting programs shortly after.
• The Science Based Targets Initiative (SBTi) launched a  public consultation on Beyond Value Chain Mitigation (“BVCM”), which is mitigation, in the form of either emission reductions or removals, achieved outside the value chain of the company. Running until 30 July 2023, the SBTi is seeking views from stakeholders to inform its upcoming guidance on this topic with the aim of accelerating and scaling private sector mitigation finance.

How does the VCMI Claims Code work?

The Claims Code acts as a “rulebook” and is based on a four-step process that needs to be followed if companies want to make a “VCMI Claim”. 

The steps require companies to:

(1) Comply with the “Foundational Criteria”: these are designed to be aligned with the long-term goals of the Paris Agreement and represent current corporate best practice. 

There are four criteria as follows:

• maintain and 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 target and minimising cumulative emissions over the target period; and
• 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 from one of the three tiers (Silver, Gold, and Platinum) and meet the respective requirements: each claim requires the purchase and retirement of high-quality carbon credits proportionate to the company’s remaining emissions once the company has demonstrated progress towards meeting its near-term targets. Anyone seeking to make a “VCMI Claim” needs to have met the four Foundational Criteria and be able to demonstrate emissions reductions in comparison to a base year, whether on an absolute or intensity basis. In addition, the percentage of carbon credits to be purchased and retired must increase in each subsequent year after the company makes its VCMI Silver or Gold Claim.

The three Claims tiers work as follows:

• Silver, which is stated to be the most accessible tier, requires the purchase and retirement of high-quality credits in an amount equal to or greater than 20%, and less than 60%, of a company's remaining emissions once it has demonstrated progress towards its near-term targets;
• Gold requires the purchase and retirement of high-quality carbon credits in an amount equal to or greater than 60%, and less than 100%, of a company's remaining emissions once it has demonstrated progress towards its near-term targets; and
• Platinum, which is stated to be the most aspirational tier, requires the purchase and retirement of high-quality carbon credits equal to or greater than 100% of remaining emissions.

(3) Meet the required carbon credit use and quality thresholds: VCMI advises companies to use carbon credits of the highest quality, both to underpin the credibility of their claims and to help drive integrity across the market. Such high-quality carbon credits are defined as those that meet the ICVCM Core Carbon Principles and qualify under its assessment frameworks. All “VCMI Claims” require purchase of carbon credits which represent BVCM, through which companies contribute both to their climate goals and to the collective global effort to reach net zero emissions; and

(4) Obtain third-party assurance following the VCMI Monitoring, Reporting & Assurance (“MRA”) Framework: which requires disclosure of key information related to carbon credits purchased. This framework is currently in the process of being developed - however, the metrics that a company must report publicly on are set out in Annex F to the Claims Code. Each metric must be subject to an independent, third-party limited assurance.

In relation to a company’s responsibility for unabated emissions, the Claims Code only accepts a “tonne-for-tonne” approach to carbon credits, which means that a company delivers mitigation of emissions outside its value chain that is proportional to the climate impact of the greenhouse gases emitted by that company in a defined period. Common claims that might be associated with this approach include “carbon neutral” and “net zero”.

The VCMI have clarified that carbon credits cannot be used for offsetting emissions instead of reducing emissions within corporate value chains, or for making ‘carbon neutral’ claims, under the Claims Code. Instead, companies can use carbon credits to go “above and beyond” the decarbonisation of activities in their own value chain to “further contribute” to cutting emissions (see Environmental Finance coverage, subscription required). Being able to make a VCMI Claim means that the company is already on its way to meeting their near-term targets so the use of carbon credits will be additional to, not a substitute for, their own action.

Future development of VCMI Claims Code

The Claims Code will be supported by additional guidance and modules scheduled to be released in November 2023, when companies are expected to be able to validate claims in line with the MRA framework under the Claims Code.

This includes:

• a guide to reporting – setting out when and how companies should report information relating to the requirements and Foundational Criteria set out under the Claims Code, and allowing them to demonstrate compliance with the steps required to make a “VCMI Claim”;
• assurances procedures guidance – in relation to various requirements for implementing a MRA framework outlining the roles and responsibilities related to the assurance process;
• claims names – a full tiered list of clear, transparent and informative claims that companies can make under the Claims Code; and
• a claims tier structure – a full set of tiers that will apply across the full range of corporate actors and will incorporate a set of specific safeguards and methodologies to avoid greenwashing.

The VCMI also intends to consider development of clearer guidance on scope 3 accounting and target setting, together with an evaluation of a robust framework for brand, product and service level claims in relation to companies’ progress towards long-term net zero commitment, which will take emerging guidance from the UK Competition and Markets Authority and the proposed EU Green Claims Directive into consideration.

In addition, the VCMI announced the formation of the VCMI Stakeholder Forum, which will act as a market sounding board for the VCMI by capturing views from a broad range of market participants to ensure that guidance is well-designed, easy to understand and effective.

The Claims Code, together with further associated guidance, will be a welcome initiative for businesses seeking to minimise risks of greenwashing allegations and risks of litigation in respect of claims made.