Unveiling the VCMI Claims Code

The Voluntary Carbon Market (VCM) is buzzing with activity and momentum this summer, as multiple global initiatives designed to provide clear direction regarding the appropriate use of carbon credits in corporate sustainability strategies are releasing much-awaited guidance documents. 

On June 19, the Science Based Targets Initiative (SBTi) released their Public Consultation on Beyond Value Chain Mitigation (BVCM). Nearly 10 days later, on June 28, the VCMI released their much-anticipated Claims Code–along with several explanatory documents to share in-depth rationale and expand on what’s next. 

The Claims Code presents a comprehensive four-step approach that outlines the necessary framework for corporations looking to make enterprise-wide environmental claims, with an apparent emphasis on the avoidance of greenwashing. Presumably, this is to (1) maintain alignment amongst a wide variety of key stakeholders and (2) re-establish market confidence. At a high level, the necessary components of a VCMI Claim are:

1. Comply with ‘foundational criteria’ designed to guard against greenwashing, 
2. Select a VCMI Claim based on what percentage of remaining emissions are covered by purchased and retired carbon credits (between 20-100%),
3. Use carbon credits that meet the Integrity Council for the Voluntary Carbon Market’s (ICVCM’s) ‘Core Carbon Principle’ (CCP) label (on an interim basis, CORSIA eligible credits are accepted), and
4. Obtain 3rd party assurance utilizing the VCMI’s framework

Is this the panacea that climate enthusiasts, corporations and investors were looking for? 

Below, Flowcarbon shares key insights that corporations and investors need to know as they plan their engagement with the VCM for the remainder of 2023.

_{Note: See the bottom of this page for acronym meanings and definitions.}

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What are the most important takeaways from the VCMI Claims Code launch?

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The degree of global alignment on the importance of driving capital to the voluntary carbon market – without greenwashing – is noteworthy.

‍The Claims Code itself was clearly structured to gain alignment amongst all key stakeholders–including the punting of some controversial issues until November. The live launch event secured participation from all the key stakeholders one could hope for. National governments were represented by Japan, Kenya, and the United Kingdom. The We Mean Business Coalition, ICVCM, the UNDP, UN High level Expert Group, the Environmental Defense Fund, and the SBTi either participated in a panel or provided recorded statements of support.
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The VCMI has now more clearly defined two core elements of how corporations should use carbon credits:

1. What type of claim should be made—although the VCMI has left the door open to potential revisions. The VCMI has chosen a ‘climate contribution’, ‘tonne-for-tonne’ approach. VCMI Platinum, Gold or Silver Claims will be available depending on whether the corporation retires 100%, 60% or 20% of their remaining emissions. Further research will likely modify and enhance the specific claim names by November, and the VCMI has left the door open to utilizing the other approaches being explored by the SBTi in the future (money-for-tonne or money-for-money).  
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2. What type of carbon credit qualifies for a VCMI-approved claim. Carbon credits will need to have the ICVCM’s CCP label once the relevant carbon credit methodology has been evaluated by the ICVCM. Until then, credits must be CORSIA Eligible Emission Units approved for CORSIA’s Pilot or First Phase. While the importance of scaling up the carbon removals sector with early investment is noted, there are no requirements in this regard. Instead, the VCMI requires comprehensive public disclosure, and recommends prioritizing projects based on the quality of the climate mitigation and co-benefit impacts. Corresponding Adjustments are not required. In Flowcarbon’s view, this setting of a clear and achievable ‘floor’ while enabling robust transparency requirements to naturally incent an appropriate portfolio of carbon credits is wise.

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‍The Code has been smartly structured to incentivize beneficial climate action, not just the avoidance of greenwashing.

Requirements for the setting and public disclosure of near-term science-based targets along with transparency regarding in-value-chain achieved emission reductions and current and future planned financial spend to accomplish emission reduction goals will help ‘crowd-in’ corporates looking to benefit from the use of carbon credits. In addition, the requirement for a public statement to be made describing how advocacy activities are consistent with the Global Standard on Responsible Corporate Lobbying will make it nearly impossible for corporates to make compelling environmental claims in public, then lobby against climate action behind closed doors.

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Threading the needle of incentivizing investment while avoiding greenwashing is very, very difficult—and a substantial amount of work is still to come.

While the Claims Code is now ‘operable’ for established corporations looking to make enterprise-wide Platinum, Gold or Silver claims, there is a substantial body of work to do over the next five months to broaden the applicability of the Claims Code. For startups, SMEs, and specific sectors for which meeting the ‘Foundational Criteria’ is not yet possible, and for any corporate looking to make product, brand or service specific claims, you’ll need to wait until November for further research studies and stakeholder engagement to be complete to get final guidance. 

What does the current state of Claims guidance mean for corporations and investors considering how to engage in the VCM in 2023?

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If you are a corporate that wants to be, and be seen to be, an environmental leader – you should feel a high degree of comfort to start (or continue) taking meaningful action 

While many details are left to be ironed out, both for corporations that are and are not able to meet VCMI’s ‘Foundational Criteria’, there is broad alignment on the need to drive financing to BVCM. The VCMI acknowledged the varied emission profiles of companies in different sectors and the diverse challenges and opportunities companies face in reaching their climate mitigation goals, as well as an uneven ability to pay for BVCM. The VCMI appears to have a clear objective of expanding the universe of corporations that qualify to invest in carbon credits and make VCMI claims, with a comprehensive work programme that will result in updated and enhanced guidance by November 2023.

When considering long-term engagement in the VCM, it is recommended to take into account the following key factors:

• Your intent should be to engage with the VCM over and above your science-based within-value-chain carbon emission reductions
• You should accept that transparent, independent verification of your climate-related investments will be required 
• You should accept that your advocacy activities will be aligned with the Global Standard on Responsible Corporate Lobbying

And remember - in addition to gaining the support of customers, employees, and investors, the primary rationale for supporting carbon projects remains the same – contributing to the global fight against climate change while supporting communities and preserving biodiversity. At Flowcarbon, we work with all types of projects on a daily basis and witness the funding gaps first hand that prevent critical action from taking place. We should all be wary of taxomony and marketing nuances distracting us from the overarching purpose of the VCM, which is to finance high quality carbon projects!

There is a unique and time-limited opportunity to invest in the VCM before all guidance is finalized 

The combination of the need to mobilize massive amounts of private capital to combat climate change and the broad alignment of key stakeholder groups that there needs to be commonly accepted high-integrity pathways for many flavours of corporate environmental claims should give strong comfort that once all the guidance is finalized, high-quality carbon credits will be in high demand yet may be in short supply. Potential investments may look quite different once the ‘rules of the game’ are completely finalized compared to today, when the influx of corporate demand and capital has not yet fully materialized.

There are a handful of risks that should be considered prior to making decisions in 2023

• It is still possible that a percentage of corporations end up rejecting the notion of investing substantial amounts of capital to make high-integrity VCMI-aligned claims over and above their required internal decarbonization efforts. Flowcarbon believes this is unlikely, given both the magnitude of the climate crisis and recent analysis conducted for SBTi  showing that almost 70% of surveyed companies felt that the private sector should be doing more than abatement of value chain emissions for society to limit warming to 1.5°C, but that there was a need for more guidance on best practice. In addition, Trove Research’s analysis of over 4,000 companies revealed that corporations that purchase a material amount of carbon credits demonstrate a faster rate of emissions reduction compared to those that do not. This all lends credence to the view that as the VCMI conducts further research and stakeholder consultation, practical solutions will be found to encourage corporations to invest in BVCM.
• There will be some degree of uncertainty regarding what types of carbon credits will qualify for the ICVCM’s CCP label as the ICVCM finalizes and implements their Assessment Framework across all carbon credit methodologies. The detailed Assessment Framework should be published in July, 2023. Full clarity will begin to arrive as the less controversial carbon credit categories complete their evaluations later in 2023, with the more complex methodology types seeing their evaluations finalized in 2024. By following the CCP’s and working with experts who understand the implications of the Assessment Framework on different methodology types, investors and corporates can make smart long-term decisions–and for the short-term, simply purchasing and retiring CORSIA-eligible units is guaranteed to be accepted by the VCMI.

Flowcarbon is very encouraged by the tremendous momentum and alignment forming in the market. There is no time to waste in deploying massive amounts of capital to preserve and restore our environment–and all key global stakeholders recognize this. 2023 represents a unique opportunity for leadership from corporations and  investors as they lean into the uncertainty and make the long-term commitments needed that will impress stakeholders, generate strong returns, and contribute positively to the world’s fight against climate change.

For further insights on how investors and corporations can maximize their engagement with the voluntary carbon market, please reach out to us here.

To review the full VCMI Claims Code, click here.

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About Flowcarbon

Flowcarbon develops climate solutions leveraging new technologies and innovative financing solutions to scale the voluntary carbon market. 

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_{Science Based Target Initiative (SBTi) - An initiative that mobilizes companies to set emission reduction targets based on climate science. A collaboration between CDP, the UN Global Compact, the WRI, and WWF, the SBTi defines and promotes best practice in science-based target setting, offers resources and guidance to reduce barriers to adoption, and independently assesses and approves companies’ targets. Adopting an SBTi-approved target is one of the We Mean Business Coalition commitments} 

_{Beyond Value Chain Mitigation (BVCM) - Mitigation action or investment that takes place outside of an organization’s value chain. This includes activities that avoid or reduce GHG emissions, and those that remove and store GHGs from the atmosphere. The purchase of high-quality carbon credits beyond a company’s value chain is an example of BVCM}

_{Voluntary Carbon Markets Integrity Initiative (VCMI) - An international initiative to drive credible, net zero-aligned participation in voluntary carbon markets. VCMI was established to help ensure that voluntary carbon markets make a significant, measurable, and positive contribution to achieving the Paris Agreement goals, while also promoting inclusive and sustainable development.}

_{Integrity Council for the Voluntary Carbon Market (ICVCM) - An independent governance body that is developing and enforcing a set of Core Carbon Principles (CCPs) that establishes a new threshold standard for high-quality carbon credits in the voluntary carbon market. The ICVCM will oversee a process to determine the Eligibility of carbon-crediting programs as well as which carbon credit Categories will become CCP-Approved.}

_{Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) - CORSIA is a global scheme to manage emissions from the international aviation industry. CORSIA compliments other carbon reduction measures by offsetting the amount of CO2 emissions that cannot be reduced through the use of technological improvements, operational improvements, and sustainable aviation fuels with emissions units from the carbon market. Specific eligibility criteria exists and is determined by the International Civil Aviation Organization.} 

_{Climate Contribution Approach: An approach where a company purchases or invests in carbon credits or other form of beyond value chain mitigation (BVCM). In a contribution approach, retired carbon credits are not counted towards, nor represent compensation for, a company’s remaining value chain emissions. The retirement of these carbon credits represents a contribution to overall global efforts to mitigate climate change. Both money-fortonne and tonne-for-tonne approaches can both be contribution approaches if companies are using contribution claims.} 

_{Tonne-for-tonne: A method for determining the nature and scale of a company`s commitment to beyond value chain. In addition to delivering on its science-based target (covering value chain emissions), a company would deliver mitigation beyond its value chain proportional to the climate impact of some percentage of the greenhouse gases emitted by that company in a defined period (e.g. in a given year or since the inception of the company). The volume of finance deployed towards BVCM would be determined by the price that a company pays per tCO2e of BVCM (in the case of carbon credits, this would be determined by market prices) and the percentage of unabated emissions that are being “matched" with BVCM in that defined period}

_{Money-for-tonne: A method for determining the nature and scale of a company's commitment to beyond value chain. In addition to delivering on its science-based targets (covering value chain mitigation), a company would channel finance into BVCM based on predefined price of unabated greenhouse gas emitted by that company in a defined period (e.g. in a given year or since the inception of the company). The volume of finance deployed towards BVCM would be determined by the chosen cost of carbon (e.g. a cost of carbon or otherwise) and the unabated emissions in that defined period}

_{Money-for-money: A method for determining the nature and scale of a company's commitment to beyond value chain. In addition to delivering on its science-based target (covering value chain emissions), a company would allocate a share of revenues or profit towards financing climate mitigation beyond the value chain. The volume of finance deployed towards BVCM would be determined by the chosen denominator (e.g. profit or revenue) and the chosen percentage}