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December 5, 2023

VCMI Scope 3 ‘flexibility claim’ raises concerns

Trees in forest.
The VCMI’s new flexibility claim allows companies to use carbon credits to close the gap between their Scope 3 emissions reductions targets and their existing emissions (Photo: Fahroni/Envato)

The Voluntary Carbon Markets Initiative has updated its ‘claims code of practice’, allowing companies to begin making claims about how they use carbon credits

The Voluntary Carbon Markets Initiative’s plans to help businesses use carbon credits to close the gap between their current emissions and their emissions reduction targets have triggered concerns at non-profit Carbon Market Watch. 

In November, the VCMI, which focuses on improving standards for the demand side of voluntary carbon markets, updated its “claims code of practice”. The code, which was introduced in June, sets out a hierarchy of claims that companies can receive to validate their use of credible carbon credits.

The requirements have been updated to include guidance on branding for these “carbon integrity claims” — ranked silver, gold and platinum — and its monitoring, reporting and assurance framework, which aims to help companies understand how to make a claim. Businesses must report metrics set out within the framework in their first year of making a claim under the code.

The VCMI has also come up with a claim for companies that are struggling to meet their short-term Scope 3 emissions reductions targets. 

Under a “beta” format initiative that is intended to be available to companies next year, businesses will be able to bridge the gap with carbon credits, provided that they are also taking other measures to slash their emissions. The flexibility claim caps the use of carbon credits to 50 per cent of companies Scope 3 emissions, while their use of credits must fall until they are completely phased out, no later than 2035. 

The flexibility claim has unsettled Carbon Market Watch. In a statement to Sustainable Views, policy lead Gilles Dufrasne described it as “worrying”. He said: “It opens the door for using carbon credits to address a large share of a company’s Scope 3 emissions, which for many companies represents a very significant portion – sometimes close to 100 per cent – of their total emissions.” 

Thresholds changed

According to the updated code, new carbon integrity claims will show that by using carbon credits, businesses are “accelerating global net zero” by moving ahead of the pace of science-aligned emissions reductions, the VCMI said. It has changed the thresholds required to achieve two of these claims.

In order to make a “silver” claim, companies must buy and retire high-quality credits equal to at least 10 per cent and less than half of their remaining emissions, once they have shown how they have made progress towards their short-term emissions goals. A silver rating previously denoted coverage of 20 per cent to 60 per cent of a company’s remaining emissions.

For a “gold” claim, credits must be bought and retired equivalent to at least 50 per cent and less than all of their remaining emissions. A gold rating previously covered 60 per cent to 99 per cent of remaining emissions.

A “platinum” claim must cover at least all of a company’s remaining emissions, which remains unchanged. 

VCMI technical director for markets and standards Ana Carolina Avzaradel Szklo told Sustainable Views that the thresholds were moved after her organisation was advised that “we were not providing enough accessibility” to claims.

“Companies would not be able to afford purchasing high-quality carbon credits as a minimum of 20 per cent of their remaining emissions,” she said, hence the move of the silver claim’s minimum threshold to 10 per cent. The minimum threshold for gold was moved “so that we could have a smooth curve” across the three claims, Szklo added. “The main driver was to bring silver to a point on which companies can actually make that claim.”

The updated code received the backing of carbon market experts.

“The ability for buyers to make claims about their climate impact is a critical step towards incentivising investment into action that would otherwise go unfunded,” said Sam Gill, president of carbon ratings agency Sylvera.

Dufrasne also welcomed the updated code. “It manages to both incentivise internal decarbonisation of companies, while at the same time promoting investments in mitigation via the purchase of carbon credits,” he said. “One thing it does well in particular is to avoid equating the purchase of carbon credits with meeting internal decarbonisation targets.”

Credits use

In an August interview with Sustainable Views, VCMI executive director Mark Kenber said that the code could be revised to make carbon credits more accessible for certain sectors. On November 28, the VCMI launched its “Scope 3 flexibility claim” in a beta format, with the intention of encouraging companies to participate in the shift to net zero.

The claim allows companies to use carbon credits to close the gap between their Scope 3 emissions reductions targets and their existing emissions, provided that they are already enacting other measures to cut their emissions. The VCMI acknowledged that many companies are having difficulty in achieving short-term Scope 3 reduction targets.

“The claim provides a mechanism to incentivise corporates back to making progress towards meeting their targets, while also helping to mobilise urgently needed climate finance,” the VCMI said in its report. It has launched the claim in a beta version “because further fine-tuning is needed”, it said.

The VCMI has invited other standard-setters to work with it on this claim, with a view to allowing companies to start using it next year. 

“One major risk is that it ends up allowing companies to use carbon credits to meet their internal decarbonisation target,” Dufrasne said. “This would be highly unhelpful, and would go against SBTI guidance.” The SBTi is an initiative that offers guidance for setting science-based targets.

“Requiring companies to meet SBTs while contributing finance to external projects is very different from requiring companies to meet SBTs by contributing finance to external projects,” Dufrasne said. 

“If the Scope 3 flexibility is to be adopted by VCMI and made available to companies in the future, it must be very clear that the purchase of credits is not a way of meeting Scope 3 reduction targets, and that therefore this is a claim available for companies that are failing to reach their decarbonisation goals.”

In response, Szklo said: “We understand that these companies face challenges in meeting Scope 3 emissions reduction targets. That means right now they’re not where they are supposed to be. So that’s why the language that we’re using is that they’re bridging a gap.”

“It’s not to meet the target,” she continued. “They have missed the target.” Szklo rejected the view that the flexibility claim contradicts SBTi guidance.

The VCMI has not yet settled on the final branding of the flexibility claim. “The name should play an important role in terms of incentivising a company to be more ambitious,” she said. 

“It is different from carbon integrity claims because those are set for companies going above and beyond the emission cuts. But at the same time, it’s important to recognise that for this additional claim, companies are also leading the way,” Szklo said, emphasising the effort required in areas including governance and strategy to achieve a flexibility claim.

A service from the Financial Times