IOSCO public consultation on the integrity and orderly functioning of the Voluntary Carbon Markets.

Today is Tuesday, January 9, 2024.

While the whole World had its eyes on the several COP-28 discussions in Dubai, an important public consultation by a global regulator was published on December 3.

We refer to a Consultation Report to promote the integrity and orderly functioning of the Voluntary Carbon Markets (VCMs) published by IOSCO, the International Organization of Securities Commissions, the leading international policy forum for securities regulators and recognized global standard setter for securities regulation.

In fact, the Consultation Report was annouced at COP28 by Rodrigo Buenaventura, Chair of the IOSCO Sustainable Finance Taskforce STF (and Chairman of the Spain CNMV) who noted the significant importance gained by VCMs in in recent years "but, for these markets to succeed and scale, they need integrity – both environmental and financial". To mention, the co-Chair of IOSCO's STF Carbon Markets Workstream, Verena Ross, is also Chair of the European Securities and Markets Authority (ESMA).

Maybe one of the reasons for COP-28 not deliberating about the carbon markets and related topics, such as Article 6.

Besides the open discussions about the legal nature of carbon credits.

As you know, 2023 was intense in terms initiatives focusing on bringing higher integrity to the voluntary carbon markets. We refer to VCM, VCMI after The Guardian from United Kingdom, Verra in United States, South Pole from Switzerland and its project in Zimbabwe, and now IOSCO from Spain, just to name a few. Besides - why not to say - a kind of run among entities and jurisdiction on who would become World reference, something still open.

The spotlight of carbon credits goes to nature based solutions and maybe the "OPEC of Forests", specially after COP-28 when the World learnt about Saudi Arabia's Green Initiative, to plant 10 billion trees.

Since 2022 IOSCO has been focusing on "potential vulnerabilities" both from the compliance carbon markets (CCMs) and VCMs.

Such efforts lead to IOSCO publishing its Final Report on CCMs in July 2023.

With regards to VCMs, IOSCO undertook a fact-finding exercise with exchanges, market intermediaries, academics, market participants, and carbon crediting programs, from different geographies. The outcome was presented at COP-27 in Egypt. Here are some of the considerations put forward:

1. How to provide market participants with sufficient liquidity and price discovery to execute trades on a timely basis with minimal price dislocation?

2. How relevant VCMs participants may disclose their use of carbon credits in their financial reporting?

3. How, to the extent possible, to standardize carbon credits in order to promote greater liquidity?

4. How to take steps to improve the interoperability of carbon credit registries?

5. Do market participants have sufficient financial integrity to ensure the cash settlement or physical delivery of a carbon credit transaction?

6. What legal challenges VCMs stakeholders may encounter during the lifecycle of a carbon credit?

7. How to ensure that key participants and infrastructures have appropriately robust governance frameworks and effective systems of risk management and internal controls?

IOSCO is now putting Consultation Questions on purpose of a proposed set of Good Practices, grouped as follows:

• Regulatory Frameworks. Includes "domestic and international consistency and cooperation" and "participants’ skill and competence".

• Primary Market Issuance. Includes "soundness and accuracy of registries" and "due diligence".

• Secondary Market Trading. Includes several topics related to Market Functioning and Transparency, Governance, Risk Management and Market Abuse.

• Use and Disclosure of Use of Carbon Credits.

Carbon Credit Markets finds these contents really great, complete, convenient and timelly. High expectations for 2024 and COP-29 in Azerbaijan. Or maybe COP-30 in Brazil.

Click at the image below for the full document. Appendix 1 summarizes the 18 Consultation Questions. Comments should be sent to IOSCO on or before 3 March 2024.

IOSCO members regulate more than 95% of the world's securities markets in more than 130 jurisdictions including: United States (Securities and Exchange Commission and Commodity Futures Trading Commission), China (Securities Regulatory Commission), Japan (Financial Services Agency and two Ministries), France (Autorité des marchés financiers), United Kingdom (Financial Conduct Authority), India (Securities and Exchange Board) and Brazil (Comissão de Valores Mobiliários).

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Photo. Chart Carbon offsets by geography of supply (left) and demand (right). In IOSCO Voluntary Carbon Markets Consultation Report December 2023.