The Board of the International Organization of Securities Commissions (IOSCO) today has launched a 90-day public consultation on recommendations for establishing sound Compliance Carbon Markets (CCMs) and on key considerations for enhancing the resilience and integrity of Voluntary Carbon Markets (VCMs).
IOSCO calls on market participants to provide feedback on how to foster fair and functional markets and increase structural resilience to ensure these markets achieve their raise d’être, i.e., the environmental objectives upon which their existence is based.
Announcing the publication of the reports at COP27, Jean-Paul Servais, IOSCO Board Chair, IFRS Foundation Monitoring Board Chair and Chairman of the Belgium FSMA, said “In recent years, carbon markets have gained significant importance as a mechanism for corporates, and society in general, to facilitate their transition towards net zero. However, they have so far fallen short of their objectives. No market can function without appropriate levels of integrity and, transparency, and liquidity so IOSCO today hopes to lend its international, market expertise to help develop appropriate frameworks for sound and well-functioning carbon markets, focusing on promoting integrity and liquidity and increasing transparency to facilitate price discovery.”
Rodrigo Buenaventura, Chair of the Spanish CNMV and Vice Chair of the IOSCO Sustainable Finance Taskforce, (SFT) said “Financial market regulators and IOSCO are eager to see well-functioning carbon markets, which means liquid markets that investors can trust and where there are strong disclosure practices. That has not yet been consistently achieved. There are good practices we have now set out which will make that achievable.”
The report on CCMs sets out a series of recommendations for jurisdictions seeking to establish compliance markets as a way to meet their obligations under Article 6 of the Paris Agreement. Building on the lessons learned from the experiences of existing markets, it offers insights into appropriate regulatory and oversight frameworks to allow for the development of sound, efficient and liquid compliance markets.
Verena Ross, Chair of the European Securities and Markets Authority (ESMA) and co-Chair of the STF Carbon Markets Workstream said: “IOSCO´s recommendations for establishing sound compliance markets are addressed to all authorities involved in the development of a compliance market in their jurisdiction. Our recommendations build upon lessons learned from existing compliance markets, but more fundamentally draws on the experience of financial markets regulators in overseeing well-functioning securities, derivatives, and commodities markets. In setting out recommendations that could similarly apply to compliance carbon markets, IOSCO aims to support the successful development of compliance carbon markets globally.”
The report on VCMs explores an array of attributes that can foster sound carbon credit markets, as well as vulnerabilities that prevent these carbon credit markets from upscaling. Conscious of the evolving framework associated with Article 6.4 of the Paris Agreement, the report offers for discussion a series of key considerations for the development of resilient carbon credit markets, and it asks respondents to consider the role of financial markets regulators in the oversight of these markets.
Rostin Behnam, US Commodity Futures Trading Commission Chairman and IOSCO Board Vice Chair who co-chaired the STF Carbon Markets Workstream, said: “With appropriate guardrails, the Voluntary Carbon Markets have great potential to serve as a mechanism to offset remaining GHG emissions as cutting emissions overnight across all sectors as firms work to significantly reduce emissions from their supply chains.
The consultation is an opportunity to consider a framework that promotes market integrity and drives investor capital to high integrity carbon credits in the VCMs. We are seeking feedback on the role of financial markets regulators in increasing the resilience of these markets and leveraging experience and insights from regulatory frameworks applicable to existing financial markets. We look forward to engaging with private initiatives and the United Nations Framework Convention on Climate Change to facilitate society’s transition towards net zero.”
How to respond
Responses to the discussion questions within the reports on Compliance and Voluntary Carbon Markets should be sent to k.nathanail@iosco.org on or before Friday, 10 February 2023.
