We need to talk about claims: a call for cross-sector alignment
We need to talk about claims. Specifically, the climate claims that are made when corporates retire carbon credits — for example, “this product is carbon neutral’, or “we have offset all of our emissions from travel”.
These claims are incredibly important for taking action to protect the planet and its people. And the precise wording of these claims is enormously important to the voluntary carbon markets (VCMs) because it drives a large proportion of the demand for carbon credits. Without being able to make a claim, many argue there is no reason for corporates to buy carbon credits at all.
So claims matter, a lot. They are also increasingly controversial, inextricably tied to credit quality, and central to the battle for the future of the VCMs. Let’s dive into each of these in turn. But first, a quick tour of different types of claims.
Types of claim
At the dawn of the VCMs, in the late 1980s, there was only one claim: offsetting. Offsetting, and offsets, became almost synonymous with carbon credits. But in recent years an array of related claims have been coined, creating an increasingly fragmented and confusing claims landscape.
In a helpful recent overview of the topic, Danick Trouwloon from Climate Focus, with co-authors Charlotte Streck, Thiago Chagas and Glenpherd Martinus suggest three key elements of a claim relating to carbon credits:
- the intended use of carbon credits (offsetting vs non-offsetting claims)
- the framing and meaning of headline terms (net-zero vs carbon neutral claims)
- the status of the claim (future aspirational commitments vs stated achievements)
While ‘net zero’ and ‘carbon neutral’ are two of the most popular claim types, and the subject of the Trouwloon paper, their definitions are not yet settled, and a plethora of alternative claims and near-synonyms have emerged in recent years.
These include ‘mitigation contribution’, codified to much fanfare in the COP27 decision text, and ‘Beyond Value Chain Mitigation’ (BVCM), popularised by the Science-Based Targets Initiative (SBTi).
While the VCM community has yet to settle on a full taxonomy of claims, there is broad consensus that there is a loose hierarchy of claims, with stronger claims such as ‘net zero’, and more modest claims, such as ‘mitigation contribution’.
Claims are controversial and they are subject to two broad critiques:
- Greenwashing - the most common critique of specific claims relating to the use of carbon credits is that they overstate the environmental impact of the action taken, misleading investors, customers and other stakeholders. (We’ll come back to this in a minute.) The greenwashing critique creates a number of risks for corporates making claims, including reputational harm, litigative action and regulatory sanction.
- Bad Incentives - some argue that the use of carbon credits to make environmental claims disincentivizes companies from reducing their own in-house emissions, and therefore slows global efforts to tackle climate change. It has also been suggested that claims can incentivize consumers to increase their consumption of environmentally harmful products, further slowing efforts to tackle climate change.
The arguments behind these critiques are complex and nuanced. On greenwashing, 54% of cases filed in 2022 resulted in an outcome deemed ‘favorable’ to climate action litigation, while investigative journalism has uncovered some real issues with aspects of the market, though in some articles have mischaracterized the evidence.
On incentives the evidence is mixed, and in the case of increased consumption, limited to a single study. For many these are emotive issues, with positions driven not purely by technical rationales or financial modelling, but by differing views on international and inter-generational justice.
Claims and quality
A significant factor in the greenwashing critique is the concept of credit quality - something we at Sylvera know a bit about. In particular some opponents of claims argue that many, if not all, carbon credits retired to make those claims are in fact achieving less than their stated environmental impact. Our analysis of the market shows that in many cases that is likely to be true. However, there is a significant proportion of high quality credits out there.
Claims and quality can be seen as two sides of the same coin. Identifying a threshold quality level for carbon credits hinges in part on the claim which will be made about those credits. Equally, claims depend in large part on the quality of the specific credits that underlie them.
Given this, the hierarchy of claims outlined above must be aligned with a hierarchy of credit quality. This fragmented landscape presents a challenge. Such a granular approach may represent increased integrity, but it also introduces huge complexity. VCM participants have long recognized that clarity and simplicity in the market are essential for bringing confidence and liquidity, and ultimately, scale.
This is one of several knotty issues that need resolving for consensus to emerge on claims.
Battle for the future of the VCMs - guidance to the rescue?
Hopefully 2023 will be the year these issues relating to the claims / quality nexus will be resolved, as we have not one but three major initiatives due to provide definitive guidance on the topic:
- the Science-Based Targets Initiative (SBTi) will publish guidance on ‘Beyond Value Chain Mitigation’ (BVCM)
- the Voluntary Carbon Markets Integrity Initiative (VCMI) will publish their final claims code of practice (CCoP), building on their provisional claims code of conduct published last year
- the Integrity Council on Voluntary Carbon Markets (IC VCM) will publish details of how they will assess credits against their core carbon principles (CCPs)
The big risk is that these groups could contradict one another, and that their collective guidance fails to provide the clarity the market needs. This could be not just a major missed opportunity, but highly problematic for the sector.
So much of the market, not to mention policy makers and regulators, are looking to these groups to solve these complex challenges. If they can’t present a consistent, coherent response, some will argue that no one can — therefore the VCMs are inherently flawed and so have no role in the net zero transition.
This is why we strongly urge the SBTi, VCMI and IC VCM to work together to align on a workable, high integrity position that facilitates exponentially rising investments in emissions reductions, both in-house and globally.
We stand ready to work with these three bodies, and the market, to help tackle these difficult questions. Our data on credit quality, and our insights into the buy-side of the market, can make a useful contribution. And we remain hopeful and cautiously optimistic that these efforts can succeed. After all, we all ultimately want the same thing: to fight climate change.
Please let us know what you think about these issues by emailing email@example.com - we’d love to hear your perspectives.
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