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Disclosures, standards and the keys to incentivizing investment into real climate action: Applying the ESG Code of Conduct at Sylvera

March 11, 2024

Meeting net zero by 2050 depends on decarbonization efforts and carbon credits to fulfil the ‘net’ in net zero. Companies and investors historically lacked robust, unconflicted information and data to measure progress on critical components of their net zero journeys, from their full emissions to accurate impact assessment of carbon credits. To help solve this, a burgeoning industry of innovators providing the data and insights needed to measure and assess net zero progress at many different points of the journey have emerged – including Sylvera. 

Sylvera’s technology ensures funding is going to the projects, companies, and countries having maximum climate impact to get the world on track for net zero. Ultimately, we’re striving to incentivize investment in real climate action. That means, in time, our data will help create much-needed financial incentives for firms to take serious net zero action, from higher share prices for good climate actors to cheaper borrowing rates for implementing green technologies. However, those taking action need to be able to trust the data underpinning these decisions. At Sylvera, we have set a high bar for trust and data integrity, but policy, regulation and standards can help ensure that all carbon data is accurate, consistent, and reliable. 

In the UK, a frontrunner in shaping policy and regulation to expedite corporate climate action, the International Capital Market Association (ICMA) recently launched a Code of Conduct for ESG Ratings and Data Products Providers (the Code), following an industry-led working group with FCA oversight. Over the last 18 months, Sylvera has spent time with regulators and policymakers, from the International Organization of Securities Commissions to the Financial Conduct Authority, discussing how such standards could shape our emerging carbon data industry and providing feedback on the Code. Now, we’re voluntarily applying the Code throughout our ratings and data processes. 

"The message from governments globally is clear: high-integrity voluntary carbon markets are an important part of the climate solution. Governments must codify integrity standards, drawing on VCMI and ICVCM, while establishing robust regulation that holds companies accountable for their net-zero transitions and drives scale to fight the climate crisis. The UK's Code of Conduct for ESG Ratings and Data Products Providers represents a positive step towards enhancing integrity and confidence in the market.” Lydia Sheldrake, Director of Policy & Partnerships, Voluntary Carbon Markets Integrity Initiative.

Although carbon credit ratings haven’t suffered from the same concerns as traditional ESG ratings over the last five years, the principles in the Code should apply to any market, especially one growing as quickly as the carbon markets. The Code outlines principles that are key to providing independent, conflict-free, transparent and reliable ratings and data relating to the environmental, social or governance (ESG) credentials of entities, instruments, or products. The Code, which can be read in full here, is structured around four key outcomes: good governance; systems and controls that ensure high quality ratings and data products; management of conflicts of interest; and transparency.

“Uplifting the integrity of the voluntary carbon market depends on better data and increasing transparency, and ratings providers are a critical piece of that. As such, it is critical that they’re built on good governance and ethical practices. Standards like the Code of Conduct are a positive development for ensuring there is a minimum bar for governance so carbon market participants can confidently drive more funding to real climate solutions.” – Andrea Abrahams, Managing Director, VCM IETA and ICROA

In the absence of guidance for our business model, we built governance structures based on the regulatory frameworks for credit ratings agencies. Since its founding, Sylvera embedded good governance by design and default. As a result, implementing the Code has given us the opportunity to strengthen existing operations, instead of building new processes from the ground up. 

Key areas of application for our business include:

  1. Good governance: our organisational structure, commercial strategy, and internal Code of Conduct, supporting policies and processes are all designed to ensure we can generate reliable and independent ratings and data. Our Ratings Oversight Committee that sits across all of our Ratings activities and ensures that our high governance standards are met on a daily basis. 
  1. Systems and controls: our peer-reviewed Ratings Frameworks are key to ensuring our Ratings are robust and consistent, and our internal tooling and processes embed pre-publication quality control into every Rating. We also maintain protocols to insulate our Ratings team from commercial and other influence, to ensure our Ratings remain independent. 
  1. Conflicts of interest: Sylvera has never sold, and will never sell, carbon credits. Moreover, in every new product, commercial initiative or customer engagement, we actively question whether any possible conflicts of interest could arise. We have started publishing our conflicts of interest register to provide full visibility as to which potential conflicts we have accepted and how we are managing them. 
  1. Transparency: Sylvera publishes each of its Ratings Frameworks, as well as feedback received from its Framework Review Committee during the development phase. Our policies also commit us to publishing our Ratings in a manner that minimises the asymmetry of information in the VCM (i.e., avoiding privileged access). Lastly, we seek to actively engage and build constructive, conflict-managed relationships with Project Developers and have always maintained a right-to-reply and grievance process. 

Some of the largest companies in the world trust Sylvera’s ratings because of our independence, reliability and robust systems and controls. Voluntarily applying the Code is a significant step toward driving trust in the wider carbon data industry. In time, we believe it could serve as a strong foundation for regulation to ensure companies understand which data providers they can trust as the carbon market data ecosystem proliferates.

With enhanced confidence in the data providers, standards bodies and regulators need to create more climate disclosure obligations, from what their overall emissions are to the carbon credits they buy. These disclosures along with policymakers setting clear expectations for what businesses must do about their unabated emissions on their net zero journeys are critical steps to incentivize investment in real climate action. 

To understand more about how we apply the Code in our day-to-day operations, visit our Governance page for more context on our approach.
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About the author
Head of Legal and Ops

Hayden Cooke is the Head of Legal and Ops at Sylvera. He studied History at the University of Oxford before starting his legal career at Slaughter and May. Prior to Sylvera, Hayden led the Legal and Compliance teams at a heavily regulated, international payments business. He works closely with the Policy team at Sylvera to ensure that incoming regulation will facilitate the scaling of the VCMs with integrity at the forefront.