NBIM backs key IOSCO suggestions on improving voluntary carbon markets

Norges Bank Investment Management (NBIM) has backed key recommendations from the International Organisation of Securities Commissions (IOSCO) on the integrity and functioning of the voluntary carbon markets (VCMs).

In a letter to the global securities watchdog, NBIM – the asset manager to Norway’s sovereign wealth fund – said it shared IOSCO’s view that key vulnerabilities within VCMs needed to be addressed.

While emphasising that it preferred companies prioritise reducing emissions in their own operations and value chains, NBIM added it recognised that reducing emissions to zero was not currently feasible for every company, and that some of its own holdings actively participated in VCMs. Developing standards for the sector was therefore welcome.

“The lack of transparency on how companies are using voluntary carbon credits in the context of their climate commitments presents a challenge for us when evaluating the credibility and progress of these commitments and achievements,” said NBIM’s chief governance and compliance officer, Carine Smith Ihenacho, and senior ESG policy adviser Elisa Cencig.

“Investors holding portfolios with widespread use of low-quality carbon offsetting may underestimate the climate risk they are exposed to.”

IOSCO proposed 21 measures to improve enforcement, integrity, and transparency within VCMs in its December consultation report, published in connection with COP28. The watchdog is part of a multi-pronged movement to provide guidelines and frameworks to restore confidence in the sector, which has come under increasing scrutiny.

Out of the 21 “Good Practices” proposed by IOSCO, NBIM said it backed four in particular:

• disclosure of an entity’s use of carbon credits to achieve any net greenhouse gas (GHG) emission targets;
• greater transparency around the origination of a carbon credit;
• promoting enhanced disclosures related to the primary issuance of carbon credits and any associated risks;
• greater domestic and international consistency and cooperation.

“Although we are not a direct participant in the voluntary carbon market, we are a long-term investor of companies that do participate as a part of their transition strategy, and therefore need information on companies’ use of voluntary carbon credits to inform our climate change engagements,” NBIM said.

Last week Oxford University announced updated guidance for entities using carbon offsets, calling for a “major course-correction” to get the market on track.

Feedback to GRI on climate standard

Separately, NBIM this week responded to a draft standard for climate change reporting from the Global Reporting Initiative (GRI).

The GRI standard aims to allow organisations to fully disclose climate change transition, adaptation plans and actions; detail annual progress on emissions reduction targets; and explain their use of carbon credits and GHG removals.

In a letter to the GRI, NBIM said that while it welcomed the project’s aim to revise GRI climate-related standards, some proposed requirements about climate change impact reporting may be “too granular”.

“We suggest GRI considers streamlining and removing duplication whenever possible – eg, by combining the disclosure related to the impacts of both transition and adaptation plans on people and environment, or on impacts of both removals and carbon credit projects on people and environment.”

NBIM also proposed that GRI streamlines some of the disclosures related to climate change mitigation and climate change adaptation.

The interoperability of reporting frameworks and standards is a key issue to emerge from the creation of the International Sustainability Standards Board (ISSB) while the EU has introduced the Corporate Sustainability Reporting Directive.

NBIM said it welcomed the collaboration between GRI, the ISSB and the EU authorities on interoperability, and that “[a]gainst this background, we would caution GRI against including reporting requirements which contradict or only marginally improve upon the ISSB standards, and encourage maintaining exactly the same wording for common disclosures”.

Looking for IPE’s latest magazine? Read the digital edition here