Having a net-zero pledge has become the norm rather than the exception and is something investors are increasingly looking at for their portfolios. In practice, companies will reach their net-zero goals using a variety of measures and approaches, such as buying clean energy, redesigning buildings and plants, optimising supply chains and – last but not least – removing residual carbon emissions.
The Institute of International Finance has recognised the potential of the voluntary carbon market and its task force on scaling voluntary carbon markets is a who’s who of global actors across sectors. Seeing a need for harmonised certification to begin with, the EU is proposing a framework and is looking for input on its plans. These mandatory rules would set out specific criteria across the bloc for identifying, monitoring, reporting, and verifying carbon removal practices. In establishing a framework, the European Commission seeks to ensure high-quality and sustainable carbon removal practices, increasing investor, industry, and consumer confidence.
Currently, there are various public and private certification schemes for carbon removals. One example is voluntary carbon markets, where carbon removal projects can issue ‘carbon credits’, which certify that a certain amount of CO2 has been removed. Buyers, such as companies, can purchase these carbon credits to offset their emissions. Thanks to this interest to date, carbon removal methods have been rapidly evolving, ranging from land management techniques to innovative technological solutions.
By developing binding EU-wide rules on carbon removal certification, the Commission looks to increase confidence in this new asset class and support a growing market. With a harmonised approach to assessments, public and private investors should be more confident that carbon removal schemes bring the environmental benefits they claim while enhancing their public credibility. In turn, this would unlock more funding for business models and technologies designed around carbon removals, ultimately leading to more CO2 being removed from the atmosphere.
Businesses and investors are advised to input into the EU’s plans, as these will likely inspire other jurisdictions and international initiatives. A call for evidence feeding into an impact assessment and a separate public consultation are open until 2 May 2022, with a legislative proposal due in Q4 2022.
If you are curious to learn more about the above or the EU’s approach to ESG, please get in touch. Our experienced sustainability team will be happy to help.
