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

Business of climate change

Eric Ng

Published: 2:00pm, 3 Oct 2023

Why you can trust SCMP

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.

2 new Hong Kong-based registries to boost carbon credits trade: founders

“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.

While global marketplaces already have their own eligibility criteria, endorsing the council’s principles and assessment framework would go a long way in enhancing the high standards of credits transacted on their platforms, Harris said. This includes Core Climate, a one-year old platform operated by Hong Kong Exchanges and Clearing (HKEX).

03:38

China plans to build 1,000 large parks in 5 years to green its concrete jungles

“Although they can be run like supermarkets that sell both high- and low-end products, they have a responsibility to encourage the proliferation of high-quality credits, and their endorsement of a trusted quality regime is important,” she added.

HKEX has engaged with various international organisations, including the integrity council, to collaborate on advancing the world’s net zero transition, a company spokesman said. All green projects available on Core Climate are verified against Verra’s “Verified Carbon Standard”, he added.

Core Climate’s participants have tripled to nearly 70, HKEX said last month. The exchange operator offers carbon credits from more than 40 internationally-certified projects in Asia, South America and West Africa. They cover forestry, solar, wind and biomass projects, among others.

01:21

Critics query green credentials of world’s second-largest hydroelectric dam after speedy build

Under the council’s CCP principles, greenhouse gas reduction or depletion in high-integrity projects should be permanent, while measures should be in place to address the risk of reversals. They should also not have occurred in the absence of incentives created by carbon credit revenues.

Processes should be established to prevent double issuance and claiming of duplicate credits, and to avoid locking in carbon-intensive technologies and practices incompatible with the objective of net zero emissions by 2050.

The council will monitor CCP-approved credits and projects, through market intelligence, complaints and audits, it said. It could withdraw its stamp of approval for non-adherence and failure to rectify breaches and false disclosure.

“Recent negative publicity on a well known credit issuer has put off corporate buyers of credits for fear of reputational risks,” said Grace Hui, CEO of carbon financing firm Net Zero Asia. “The CCP-approved label is therefore essential if we were to build trust and liquidity in this nascent market in Hong Kong.”