Carbon finance: credibility crisis shows need to enhance trust and transparency in global markets, association says

A controversy over the accuracy of claims and benefits in green projects has galvanised efforts to enhance trust and transparency for investors

Trading platforms in Hong Kong and mainland China should endorse principles, assessment to boost integrity in global markets, association says

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Wind power generators in Yancheng, Jiangsu province, seen in October 2021. Photo: EPA-EFE

Published: 2:00pm, 3 Oct 2023

Voluntary carbon credit markets, including those in Hong Kong and mainland China, should adopt a newly launched global quality assessment regime to help address concerns about trust and transparency in climate funding, according to financial executives in the industry.

A recent controversy surrounding the credibility of credits issued by Washington-based Verra in one key category – deforestation prevention projects – has raised the reputational alarm for investors with mandates to fund environmentally friendly projects.

“There is a lack of transparency, trust and understanding in the markets,” Tracy Wong Harris, executive vice-president of the Hong Kong Green Finance Association, said in an interview. “This explains the low trading volume and wide price range of credits, which reflect the perceived quality of the underlying projects, from the buyers’ perspective.”

There is a lack of transparency, trust and understanding in the global voluntary carbon credit markets, says Tracy Wong Harris. Photo: Jonathan Wong

The Integrity Council for the Voluntary Carbon Market in March launched its “Core Carbon Principles” (CCP) and an assessment framework that sets high-quality standards for carbon credits. It aims to ensure that the creation and usage of carbon credits are publicly quantifiable and traceable, while the environmental benefits verified by an independent third party.

The initiative came after European media cast doubt on the accuracy of emissions and benefits in some Verra-linked projects to offset their carbon footprints. Verra, the world’s largest issuer of voluntary carbon credits, subsequently revised its methodology.

The independent governance body last month invited credit issuers to apply and submit evidence to have their project categories and crediting methodologies assessed. If they meet its criteria for high integrity, the carbon credits will gain its “CCP-approved” stamp as an added advantage.

“Only with quality credits can the carbon markets give buyers the confidence and trust to trade actively and enhance liquidity,” said Harris, who is also the head of Asia sustainable finance at Standard Chartered, ahead of the association’s annual green finance forum on Wednesday.

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