Navigating the risks of greenwashing in the voluntary carbon market

Together with the International Swaps and Derivatives Association (ISDA), in April we published a note which elegantly unpacks the risk of greenwashing in the context of the voluntary carbon market (VCM), including addressing the use of carbon credits against climate targets.

Carbon markets remain a key mechanism for channelling private sector funds towards the global net-zero transition, crucial for meeting the Paris Agreement's climate targets. Increasingly, we are seeing a convergence of compliance-based systems, mandated by governments, with voluntary project activities; and companies using Verified Carbon Credits (VCCs) created through these project activities to meet interim (voluntary) emissions targets on their decarbonisation pathway.   The VCM allows firms to use VCCs which are achieved at a lower marginal cost of abatement, enabling them to reduce emissions in a more cost-effective manner. This flexibility can potentially accelerate the decarbonisation process and facilitate greater reductions than would be possible through direct action alone.

However, one of the main obstacles in delivering the lowest cost abatement through VCCs and liquid transparent VCMs is the perceived risk of greenwashing and its associated reputational and regulatory risks. 

You can read more in the full report, in which we:

• provide an overview of VCCs; 
• explain greenwashing; 
• describe the origin, causes and risks of nature- and technology-based VCC methodologies at both the credit and system level; 
• discuss the effects of greenwashing on primary and secondary carbon markets; 
• highlight market reforms to minimize the risk of greenwashing (both regulatory and industry-led efforts); and 
• provide recommendations.