Building integrity: The VCMI Claims Code of Practice

Ryan Fan: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape. I’m your host, Ryan Fan. Please join me as we explore today’s most pressing issues with special guests that will give you some new perspective and help you make sense of what really matters.

Pull Quote: “ We should be able to see predominantly good projects emerging on the market, which should also contribute to motivate others to join, so more companies to set emission reduction targets. Many have, but many more need to join the party”

Ryan Fan: Welcome to our multi-part series, Profiling the Carbon Markets. The purpose of this series is to examine some of the most significant issues facing our clients in both the compliance and voluntary markets. On today’s episode, we’ll explore the Claims Code of Practice, a rule book developed by the Voluntary Carbon Markets Integrity Initiative, or VCMI, helping to guide clients on how they can credibly make voluntary use of carbon credits as part of their climate commitments. For this discussion, I’m delighted to welcome my guest, Ana Carolina Avzaradel Szklo, Technical Director of Markets and Standards at VCMI. Ana has over 18 years of experience working across almost 20 countries in sustainability themes. Prior to joining the VCMI in 2023, she held various technical development, project management and advocacy roles, including at the United Nations Framework Convention for Climate Change, the Humanitize Institute, a Brazilian philanthropic organization, and served in the Brazilian government as a climate change negotiator. That is quite some resume. Hi, Ana. Welcome and thank you for joining us on today’s episode of The Sustainability Agenda.

Ana Carolina Avzaradel Szklo: Hi Ryan, thank you very much for the invitation.

Ryan Fan: I’m very excited to be chatting with you today. I think our audience will take away quite a bit from our conversation. I know our clients are looking for guidance on how to navigate the carbon markets with integrity and I think they’ll learn a lot today. So let’s get into it. Anna, at VCMI, you lead a team that’s responsible for developing and implementing the Claims Code of Practice. Can you maybe give our audience some background on VCMI’s work, why the Claims Code of Practice, and who it was developed for?

Ana Carolina Avzaradel Szklo: Certainly. VCMI is a global non-profit organization empowering governments, companies and other non-state actors to make a real impact on climate action and it has been announced in 2021 by COP26 President-designate Alok Sharma to organize the demand side of voluntary carbon markets. With that mandate, we have developed and published the Claims Code of Practice last year, which has been designed for building integrity in voluntary carbon markets, and with the potential to fill the gaps in climate mitigation financing, enhance corporate efforts to transition to net zero, and support the achievement of countries’ Nationally Determined Contributions and sustainable development objectives. They can also support and accelerate the introduction of robust, well-designed climate policies. However, this potential can only be realized if voluntary carbon markets operate with high integrity. And what does that mean? It means that carbon credits must be generated by activities that truly go beyond business as usual and benefit host communities, the supply side, and that their use increases overall greenhouse gas mitigation rather than substituting for existing actions. So the demand side. The Claims Code addresses integrity on the demand side by guiding companies and other non-state actors on how they can credibly make voluntary use of carbon credits as part of their climate commitments and on the claims they can make regarding the use of those credits. So it provides clarity, transparency and consistency on what these commitments and claims mean and will give confidence to all those engaging with voluntary carbon markets.

Ryan Fan: That’s great, Anna. Thanks for clearing that up. I think our audience really needs to understand about how to navigate the markets in a safe way and with integrity. So with that said, the voluntary carbon markets obviously need to operate with high integrity to help fill gaps in financing for climate mitigation. So how does the Claims Code of Practice actually help to address integrity on the demand side? And then how do companies use it to make credible claims?

Ana Carolina Avzaradel Szklo: The Claims Code of Practice addresses integrity, as I was saying, from the demand side by ensuring that the use of carbon credits is additional and does not replace nor substitute for internal decarbonization that needs to take place by companies. Carbon credits thus cannot be counted towards the achievement of within value chain emission reductions as emission reduction targets. So first, the companies need to comply with what we call foundational criteria. They have been designed to align with the long-term goals of the Paris Agreement and represent current corporate best practice. Then they need to select a VCMI claim to make and meet respective requirements, so they need to choose whether they want to make a silver, a gold or a platinum claim as per the carbon integrity claims that have already been published. And each claim of those requires the purchase and retirement of high quality carbon credits proportionate to remaining emissions once a company has demonstrated progress towards meeting its near term targets. What do we mean by remaining emissions? We’re talking about companies making progress towards net zero, right? So it’s not completely zero. So emissions continue to occur. Even if a company has already met the target, on an annual basis, you still have what we call remaining emissions. So depending on the proportion of those that companies are willing to purchase and retire high quality carbon credits, it will designate the type of claim that they will be able to make. The third step is to meet the carbon credit use and high quality threshold. And the last is to obtain third party assurance following the VCMI Monitoring, Reporting and Assurance Framework. So what do we mean when we’re talking about high quality? We are following the guidance provided last year by the ICVCM, the Integrity Council of Voluntary Carbon Market, as they have published the 10 Core Carbon Principles. So that is what we understand as, given the market, the definition of high quality, and we have brought that directly to the Claims Code. And the Monitoring, Reporting and Assurance Framework, which has been released November last year, also presents very clearly all the metrics, information, and documents that must be provided by companies in the submission process of obtaining a claim.

Ryan Fan: Yeah, Ana, and I think in a previous conversation that you and I had, it was really highlighted that this can be a little bit overwhelming for companies as they embark on this transition, and it’s always a good reminder for them to really realize that nothing is going to be perfect, right? This is always an evolving process, but you have to educate yourself and you have to start taking action now. The VCMI is really helping to provide that clarity. VCMI’s demand side initiatives aim to align with supply side initiatives. How do you see this alignment with ICVCM and other standards scaling the VCM over the long term?

Ana Carolina Avzaradel Szklo: During COP 28 last year, VCMI came together with other standards in the voluntary carbon markets. So the Greenhouse Gas Emission Protocol, the Science Based Targets Initiative, VCMI, and ICVCM, CDP, Women Business, they came together to showcase how these standards together provide what we call an end -to -end framework for high integrity corporate climate action. So for instance, within the foundational criteria that I was explaining, companies are required to publicly disclose their GHG emissions inventory according to the greenhouse gas emission protocol methodology and set near -term emission reduction targets according to SBTI requirements and criteria or equivalent. Within the Monitoring, Reporting and Assurance Framework, we also outline how each metric requested for companies to be submitted relate to specific questions within CDPs reporting questionnaire that most companies report to. So from one side, we show coordination from the other, we also take into consideration the concern of diminishing the administrative burden that companies may have when submitting information to VCMI. Even the glossary that we have within the Claims Code of Practice at the end of the document has been carefully discussed with all of them so that we ensure we speak the same language. We are very much aware of how technical and complex all of this can be. So the VCMI claims code ensures integrity on the demand side, as we’ve been talking about, which means that companies use carbon credits in addition to and not instead of decarbonization and make credible claims. And ICVCM Core Carbon Principles ensure integrity on the supply side. So this means that carbon credits represent real, verified GHG reductions and removals and apply robust environmental and social safeguards. So the combination of both and the concomitant release in 2023 have laid out the solid foundation that was needed in voluntary carbon markets. And what we expect in terms of trends is that this sends a clear signal by providing guidance for what was needed to install trust in the market and boost development of good quality projects from now on to accelerate climate action.

Ryan Fan: That’s a great explanation. Thanks, Anna. I think it’s really important for our audience to just really hone in on this. And I know that you’re going to be spending a bit of time with us just ahead of the Carbon Summit this year on an education piece for our clients. So I really appreciate the extra time that you’re going to be putting into this. Carbon integrity claims are typically made by companies that are already scoring A +, let’s say, on their climate commitments. So for companies that have not yet as advanced in their net zero journey, what resources can VCMI provide to help them build a business case for credible carbon integrity claims?

Ana Carolina Avzaradel Szklo: Well, we look at this as if it was a ladder, right? So if it represents companies decarbonization journey and each step of the way would represent a phase of that journey, which would be associated to a claim companies could make while being constantly incentivized to increase ambition and move up the ladder. So in that case, the carbon integrity claims that have been released last year within the Claims Code of Practice and thatare already available in the market are the top ones. So for companies that are going above and beyond, they have either already met their emission reduction targets or are making progress to do so. So this is what every company in the world should aim for, and it sets the vision that they should seek to implement. Along this journey, however, companies sit within different stages of progress and face several challenges we know throughout the way.So the journey begins with what we call a on-ramp, which would categorize a stage on which companies cannot even yet meet the foundational criteria. So maybe they already have a GHG emissions inventory, but they don’t have yet a science -based targets. They’re just the beginning. They’re interested. They know it’s important. They are committed. They’re making significant efforts, but they’re not there yet. So maybe they don’t even get a claim, but maybe even guidance so that they understand that the pathway they have ahead of them, should be a different one and definitely a more sustainable one. Apart from that, we also have companies that are struggling to reduce scope one and two emissions. And we have companies who are making progress in scope one and two emission reduction, but are facing significant challenges to reduce scope three emissions because of the barriers that they face.So this is one of the claims that we have been working on and focusing on since 2022, when the Provisional Claims Code of Practice was released. In September 2024, we are going to launch a public consultation about the claim that we are currently calling a scope reclaim. The final logo, brand, and name are also still under research and we’re going to convey market research and speak to several stakeholders so that we make sure that it is clear, not only for companies, but also for consumers, for investors, for all the stakeholders in the market. We have been further developing the methodology since last year when we released in November 2023 the beta version of the document. And we have come to realize at the time that there were significant methodological barriers that still had to be addressed overall in voluntary carbon markets. So not something that VCMI alone would be able to take care of, which is why we have publicly invited other standard organizations, GHG accounting organizations, and all other interested parties and stakeholders to work with us throughout this process, which is what we have been developing so far to enhance the requirements, the recommendation, and the guardrails and the calculation in itself that is going to be put forward within this claim. The idea is that the claim recognizes the progress and effort already made by companies who are showing leadership and taking action by investing in high quality carbon credits while they implement the necessary measures to get back to the emission reduction trajectory, which is consistent with their net zero commitment.

Ryan Fan: That’s great, Anna. I think one of the key things you said right there, at least to me, is the sense of cooperation with other standards organizations to work together for a common goal. I think part of the problem with the voluntary markets to date has been this fractured nature of it, but bringing it all together and the VCMI inviting others to participate in this study, I guess it is very important for Scope 3 for sure. So let’s close out our conversation on a bit of a forward looking topic. VCMI participants have described 2024 as an inflection year for the market. So what VCM developments or trends are you monitoring closely this year and why? And then what should companies be looking out for that could help them with their decarbonization strategies?

Ana Carolina Avzaradel Szklo: If I can take one step back before going into the future, you’ve asked about 2024, but I actually think that 2023 was the year in which the solid foundation that voluntary carbon markets needed was provided. So this is what we’ve seen with the publication of the Claims Code of Practice by VCMI and the release of the 10 Core Carbon Principles by ICVCM just one month later. This is precisely what we’ve been seeing companies stating as the main obstacles for what was lacking in the market for them to get involved. So now I think it’s the time for companies to step up and do their homework. That was precisely when we see a research that has been released by Women Business last year, they were saying, well, first of all, we don’t know for sure what a high quality carbon credit means. And second, we don’t know when we can credibly use carbon credits and what can we say when we do that. So from now on, what we believe is that we should be able to see only good projects or at least predominantly good projects emerging on the market. Which should also contribute to motivate others to join, so more companies to set emission reduction targets. Of course, not all of them have done that already. Many have, but many more need to join the party and be more ambitious and set even more ambitious targets for those who have already done so. I think we need a positive cycle back and we’re working for it. We will continue to develop additional claims. The on-ramp additional claim for scope one and two, for instance, that’s also in the pipeline to be further investigated. We’re also currently developing specific guidance for the finance sector. But beyond all of that, there are other parts of the equation that also need to come together. So host countries can also make use of existing tools to expand their comprehension about voluntary carbon markets and make good use of it as an additional tool that can be part of a holistic climate finance strategy. So I think that, yes, the future must be a promising one, and that’s we work for, but also for that to take place, we need to start working on it today, and that’s our call for action.

Ryan Fan: Yeah, I think it’s really important that our audience understands that, you and I have spoken about this before, but it’s not about perfection. It’s about progress. And so if you’re on the sidelines waiting for perfection, it’s never going to come, but you got to start making progress. Educate yourself, start taking some action now. Anna, thank you for taking the time to join the show today and thank you to our listeners for tuning in.

Ana Carolina Avzaradel Szklo: Thank you very much, Ryan. It’s been a pleasure.

Ryan Fan: If you would like to learn more about how your business can navigate the carbon markets, join us for CIBC’s Carbon Summit on October 10th, 2024 in Toronto. The summit will bring together project developers, capital providers, policymakers, and corporate buyers to discuss the evolution of the carbon markets and their nexus with the energy transition. As a prelude to the Carbon Summit, CIBC will also host a session to help companies understand how carbon credits fit into the broader decarbonization plan, and how to navigate the complexities of carbon credit purchasing. To register, please contact your CIBC Relationship Manager. Please join us next time as we tackle some of sustainability’s biggest questions, providing different perspectives to help you move forward. I’m your host, Ryan Fan, and this is the sustainability agenda.

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