Thursday, 21 November 2024.
Today’s post is about the 21 Good Practices for the voluntary carbon markets (VCMs) published last November 14 by IOSCO, International Organization of Securities Commissions, “to support the financial integrity of carbon credits and with the aim that carbon markets should be fair and orderly, economically sound as to pricing and information flow, and structurally resilient.”
IOSCO, as the international association of securities regulators representing 95% of the world's securities markets, directs these final Good Practices at:
(i) relevant regulators and authorities interested in carbon credit markets in their jurisdictions that function with integrity;
(ii) trading venues interested in listing and trading high-quality spot carbon credits or carbon credit derivative products; and
(iii) relevant market participants.
The Good Practices address transparency, liquidity, and price discovery, as well as potential fraud or greenwashing, based on IOSCO’s objectives of investor protection, fair, efficient, and transparent markets, and reducing systemic risk.
The primary issuance of carbon credits is still a topic that IOSCO invites other relevant regulators and authorities to help enhancing the transparency, accuracy of information and disclosures.
Here are the Good Practices.
Regulatory Frameworks
1 – Regulatory treatment
2 – Regulatory approach and scope
3 – Domestic and international consistency and cooperation
4 – Participants’ skill and competence
Primary Market Issuance
5 – Standardization
6 – Transparency
7 – Disclosure
8 – Soundness and accuracy of registries
9 – Due diligence
Secondary Market Trading
10 – Access to VCMs
11 – Integrity of trading
12 – Public reports
13 – Pre-and post-trade disclosure
14 – Derivatives standards
15 – Governance framework
16 – Risk management
17 – Conflicts of interest rules
18 – Enforcement actions
19 – Market surveillance and monitoring of trading
20 – Trading venue resources
Use, Disclosure of Use and Retirement of Carbon Credits
21 – Disclosure of Carbon Credits Use
As you will see, IOSCO includes “enhanced explanatory text below the Good Practices, drawing from relevant practices in existing regulated markets, IOSCO’s Principles for Securities Regulation, IOSCO’s Principles for the Regulation and Supervision of Commodities Derivatives Markets (Commodity Derivatives Principles) and IOSCO’s Principles for Price Reporting Agencies.”
Click at the image below to read the 52 pages report with the 21 Good Practices for the Voluntary Carbon Markets. There is also an interesting table with an overview of the different market types, mechanisms, and types of products issued, and examples of how these are used domestically and internationally.
Throughout the report, there are numerous references to carbon credit markets’ practices by several countries, with Egypt on the spotlight. In the coming days you will read why.
And concluding, IOSCO also added the need for more clarity related to the legal nature and regulatory classification of carbon credits, another topic to be elaborated tomorrow, in the final post of this finance-focused series.
