The International Organisation of Securities Commissions (IOSCO) has
launched a 90-day public consultation at COP28 outlining a set of good practices to promote the integrity and orderly functioning of voluntary carbon markets (VCMs).
The global securities regulator, which groups market watchdogs from Asia, Europe, Latin America and the US, proposed 21 safety measures to improve integrity, transparency and enforcement in VCMs, a sector of growing importance to combat climate change.
“VCMs have gained significant importance in recent years. But for these markets to succeed, they need integrity – both environmental and financial,” said Rodrigo Buenaventura, chair of IOSCO’s sustainable finance taskforce, told an event at the COP28.
COP28, which began on Nov. 30, is addressing debate over whether ending the use of fossil fuels in the first place should be prioritised over promoting technologies that can capture emissions.
VCMs cover pollution-reducing projects, such as reforestation, renewable energy, biogas and solar power, that generate carbon credits companies buy to offset their emissions and meet net-zero targets.
Banks, investment funds and speculators also buy credits in the hope of re-selling them at a higher price, according to IOSCO.
The proposed good practices build on the key considerations included in the discussion paper published last November. It invited feedback on the approach that regulatory authorities and market participants could take to foster sound and well-functioning VCMs.
IOSCO, whose members commit to applying agreed rules, seeks to standardise terminology in VCMs, a sector that Morgan Stanley bank expects to grow from $2 billion in 2020 to about $250 billion by 2050.
National regulators could require companies to disclose their use of carbon credits, and platforms that trade credits to have better anti-fraud and market manipulation safeguards, IOSCO said.
VCMs are separate from government-regulated carbon markets, such as the emissions trading scheme in the European Union, whichh is the world’s largest.
Verena Ross, co-chair of the STF Carbon Markets Workstream and Chair of the European
Securities and Markets Authority (ESMA) said: “As we delved into VCMs, we realised that in
addition to environmental integrity vulnerabilities, these markets also lacked somecharacteristics of fair, efficient and transparent markets that protect investors – characteristics are at the heart of the IOSCO community and core of every well-functioning securities market.”
Rostin Behnam, IOSCO vice-chairman and co-chair of the STF Carbon Markets Workstream
as well as chairman of the U.S. Commodity Futures Trading Commission added, “The proposed good practices aim to provide a strong foundation on which VCMs may
continue to grow by supporting sound market structures, well-reasoned transparency
objectives, and common-sense market conduct practices.
They were informed by the valuable and generous feedback provided by the stakeholders with whom we have engaged to-date and reflect the experience of IOSCO members in regulating financial markets globally.”
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