The UK government issued a call for evidence on their updated Green Finance Strategy. Our response focuses on the importance of effective regulation and the role of high integrity voluntary carbon markets in the net zero transition.
2. Do you consider the UK’s green finance regulatory framework to be world-class?
Yes. The UK has been a global leader on many aspects of climate policy and green finance strategy, for example with the early adoption of TCFD recommendations. However, this is a rapidly changing field, and the UK is no longer at the forefront of international green finance regulatory frameworks, as evidenced by the recent draft requirements for the Enhancement and Standardization of Climate-Related Disclosures for Investors from the US Securities and Exchange Commission (SEC). To maintain its position as a global leader the UK must ensure to continue to proactively update regulation on a regular basis, and coordinate with regulators from other jurisdictions to ensure international operability.
15. How can the UK best support the mobilization of private investment to natural capital assets?
One of the best tools currently available to mobilize investment into natural capital are nature-based carbon credits. In 2021 trades in international voluntary carbon markets (VCMs) topped USD 1 billion. 45% of credits on the market are issued by nature-based projects, and these fetch higher average prices than other credits. Supporting the development of a transparent, well regulated VCM in the UK would channel much needed finance into nature-based solutions.
22. How can the UK best support the development of high integrity voluntary markets for carbon and other ecosystem service markets?
While the UK has many strengths as a global hub for carbon markets, in particular in the sophistication of the financial regulators, other centres are progressing faster. The two major inhibitors for the UK’s progress in this area are (1) limited demand, and (2) missed opportunities for innovation.
On (1) one of the most direct ways to inject significant demand for carbon markets in the UK would be to follow other jurisdictions, most recent Singapore, in permitting a small proportion of the emissions captured within the national compliance mechanism (in our case, the UK ETS) to be compensated for by the use of high-quality international carbon credits. Another measure that the UK could take to boost demand would be to emphasize the importance of ‘Beyond Value Chain Mitigation’ within the context of SBTi science-based targets.
On (2) there was early promise in the UK VCM Forum, though it has yet to drive any notable innovation or make a significant impact on the market.
As hinted above, any activity in the carbon markets must be high integrity, and on this the UK has shown real leadership, including through championing the TSVCM, IC-VCM and VCMI. While the global carbon markets have grown significantly in recent years, this growth has been hindered by a residual lack of confidence, due to its complexity and opacity.
Sylvera’s solution is to provide rigorous, independent data to build confidence and encourage the market to scale. We share this goal with the IC-VCM, in which we have been an active participant. Our work is complementary to that of the IC-VCM because while their determinations of Core Carbon Principle alignment will be binary, our ratings are on a scale (AAA-D, as with the traditional credit ratings agencies). Market participants, and members of the IC-VCM, share our view on the importance of this complementarity.
23. How can we ensure that these markets encourage robust action on the UK’s climate and environmental goals, and appropriately scale up finance flows to support these?
One of the best ways to ensure that these markets encourage robust action is to require comprehensive, consistent and transparent disclosures of their activities regarding the use of carbon credits, following the recent proposals put forward by the US SEC.
24. How should the UK harness the economic opportunities associated with high integrity growth in voluntary carbon markets and ecosystem services markets?
By being an early-mover in this space, the UK is well positioned to maximize the opportunities of these markets. However given the highly-strategic, recession-proof nature of the clean tech and climate tech sectors, the UK will face ever stiffer competition to maintain its position, and so must keep pushing the envelope for innovation and champion this sector at senior levels of government.
Sylvera, as the world’s first carbon credit ratings agency, is evidence of the potential for a wide ecosystem around VCMs, promoting UK business and innovation. The UK government should continue to invest in research and development (such as through UKRI grants) to promote these opportunities and ensure British companies continue to compete in this field.
25. How can UK environmental and economic regulators increase demand for high quality, accredited ecosystems services?
The UK’s financial regulators have played a leading role in the global shift towards high-quality climate-related disclosures, and are recognized around the world for their expertise. They could further increase demand for high quality, accredited ecosystems services by continuing to push for higher standards, underpinned by a focus on proportionality and market practicability. Specifically there is scope for more transparency on both the seller’s side, around the quality of credits, and on the buyer’s side, around the claims that can be made from credits. They can also increase confidence with a clear direction of travel for future regulation (underpinned by the Government setting out further steps in a clear and ambitious legislative roadmap in this area).
- S&P Global, 2021
- Sylvera, 2022. Carbon Credit Crunch Report
Ben Rattenbury
Ben Rattenbury is a carbon markets, green finance and climate policy expert with more than a decade of experience in the sector. A former Fulbright Scholar at Columbia University, he has also worked with and for the UK financial sector, UK Government, World Bank, and UN Climate Change Secretariat. As VP Policy at Sylvera he leads the team working on Voluntary Carbon Markets intelligence and intersections with wider climate and markets policy.
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