A matter of integrity

‘Integrity’ is the word of the moment when it comes to carbon markets and the definition is evolving. But broadly speaking, it means involving all the people on the ground who have a stake in a particular project, and it means putting money into the highest quality environmental and social projects.

Carbon credits do not always have the best of reputations. The voluntary carbon market is seen as an unregulated space, with poor transparency, where companies can buy credits of questionable quality as a pain-free way of meeting their carbon targets¹.

With many more companies announcing net-zero commitments, the space is certainly heating-up. In 2021, the size of the market grew three-fold to exceed US$1 billion. By the end of the decade, it is forecast to reach US$50 billion a year².

As the scale escalates, so too does the scrutiny. It is predicted that buyers and sellers of carbon credits will come under increasing pressure from investors, regulators, campaigners, and consumers to demonstrate veracity of their claims and to counter accusations of greenwashing.

Against this context, a watchword in the world of REDD+ and forest conservation is ‘integrity’.

To protect the world’s tropical forests, and enable these forests to fight climate change more effectively, significant funds are necessary. Cost estimates range from US$390 billion³ to US$700 billion⁴ a year. And the voluntary carbon market represents a vital source of finance.

On the supply side, schemes that sell forest conservatio credits need to convince buyers that their initiatives do deliver genuine emissions reductions and/or removals.

Meanwhile, on the demand side, the companies that buy these credits need to reassure themselves – as well as their stakeholders – that they have done their due diligence, and their credits are credible. And, to avoid charges of greenwashing, they also need to show that the credits are being used to complement a broader programme of decarbonisation initiatives (such as efficiency improvements, renewable energy investments, materials reductions, and other carbon emission elimination strategies).

Clearly, all these considerations were top-of-mind when the latest generation of jurisdictional REDD+ programmes were envisaged, and the standards that govern them were formulated. And, drawing on decades of experience in forest conservation, the advocates seem certain that every eventuality has been thought through – meaning that these are high-integrity initiatives, delivering bona fide benefits, backed by robust reporting and verification.

REDD+ is the UN's scheme for protecting tropical forests in order to protect the climate (the acronym stands for reduced emissions from deforestation and forest degradation – while the ‘plus’ refers to the added benefits of conservation and sustainable management of forests, and enhancement of forest carbon stocks).

REDD+ puts an economic value on tropical forests, and provides developing countries with the opportunity to receive payments from donor countries in return for protecting their forests and/or managing them more sustainably.

The acronym has also been adopted in the voluntary carbon market for carbon credits resulting from forest protection or restoration.

Until recently, the only type of REDD+ activity able to get financing through the voluntary carbon market were individual projects (for example, a community-based tree-planting scheme or efforts to protect a natural forest area threatened by encroachment).

Now that is changing. Governments, International Organisations and players in the voluntary carbon market have set up frameworks to help national and subnational governments in forest-rich countries to access market-based payments for successful forest management initiatives that take place across entire landscapes. The key examples are Verra’s Jurisdictional and Nested REDD+ framework, the Lowering Emissions by Accelerating Forest finance (LEAF) Coalition, and the Architecture for REDD+ Transactions (ART) group, which has developed The REDD+ Environmental Excellence Standard (TREES)¹.

1 Note that a precursor to the Vera and ART TREES standard was the Methodological Frame behind the Forest Carbon Partnership Facility’s (FCPF) Carbon Fund. While this was mostly donor-financed, a small portion of the credits generated under FCPF Emissions Reduction Payment Agreements (ERPAs) are now finding their way to the voluntary carbon market.

An article from the Financial Times¹ explains it with simplicity: as corporate boards raced to announce their net zero carbon emission targets, it argues, carbon credits have risen from relative obscurity to become a widely used, and cheap, tool for enabling successes to be claimed.

Typically, carbon credits – in the form of projects that reduce emissions, such as newly planted trees, or avoided emissions for forest conservation – are bought and then ‘retired’ on an independent registry, so that no one else can claim the carbon reduction from them.

They come in two varieties: regulated (or compliance) and unregulated (or voluntary). The EU’s emissions trading scheme is the largest and raised $34bn in 2021. This so-called cap-and-trade programme measures greenhouse gas emissions and requires companies to buy additional allowances when their emissions exceed statutory levels.

But, with the price for regulated EU carbon credits hitting record highs, and companies committing to targets which go well beyond their statutory obligations, many of them are turning to the voluntary, unregulated, offset market.

REDD+ credits from forest protection projects account for around a quarter of all carbon credits that have been issued to date – so already represent a large subset of the voluntary carbon market². With the emergence of REDD+ credits from jurisdictional programmes, this proportion is likely to increase.

Some critics maintain that the use of carbon credits to offset their emissions gives companies a license to pollute. All too often, the critics say, companies buy carbon credits in an attempt to compensate for a poor environmental performance – claiming to have reduced their emissions, while doing little to limit the size of their actual carbon footprint.

Research suggests that this is rarely the case. Companies that do buy carbon credits tend to be more engaged in direct emissions reductions activities than those that don’t offset¹. Meanwhile, best practice dictates that the use of credits should be confined to counterbalancing unabated emissions on the pathway to net zero (that is, those emissions that a company cannot eliminate through currently feasible decarbonisation initiatives) and any residual emissions at the endpoint of net zero ². And new high profile corporate sustainability initiatives, such as the Voluntary Carbon Markets Integrity Initiative and The Climate Pledge, impose strict criteria on the way companies use and report on offsetting, and the role that the purchase of carbon credits should play in their wider decarbonisation programmes.

Meanwhile, with regards to jurisdictional REDD+, the LEAF Coalition (see box) has imposed certain obligations on companies that want to participate in the scheme and purchase emissions reductions credits. This means that companies must already have a clear and demonstrable commitment to climate action – and the credits must be used in addition to, and not as a substitute for, deep cuts in their own emissions performance, and the emissions performance of their respective suppliers.

More specifically, in order to participate, companies must have publicly committed to independently verified, science-based decarbonization targets, which achieve Net-Zero emissions by 2050 at the latest. These targets must cover all emissions from their own operations, from the energy they purchase, and also from their supply chains and investments (so called Scope 1, Scope 2, and Scope 3 emissions). And companies must publicly report their emissions performance against strict standards (using a methodology called the Greenhouse Gas Protocol or GHGP).

As anyone from the world of corporate sustainability and reporting would tell you, the bar for participation is therefore set high. Looking at the jurisdictional REDD+ programmes themselves, the types of risks that need to be understood and managed include:

How best to manage these risks has been debated over many years. They are relevant, not just to forest conservation programmes, but to all manner of emissions reduction initiatives (including renewable energy projects, and carbon capture technologies)¹. In the face of public and regulatory scrutiny, and with the benefit of more than a decade of experience, REDD+ environmental and social safeguards have evolved. And the latest generation of jurisdictional REDD+ standards have been specifically designed to overcome risks to environmental and social integrity.

“The risks have not gone away,” explains Frances Seymour, Distinguished Senior Fellow at the World Resources Institute and Chair of the Architecture for REDD+ Transactions (ART) Board. “What has changed is our ability to measure forest carbon stocks, understand the risks inherent in any emissions reduction activity, and mitigate against them.”

So, how is integrity safeguarded in jurisdictional REDD+ programmes? You could probably sum it up in two words: scale and circumspection.

As Frances Seymour argues, larger scale jurisdictional REDD+ programmes, by their very nature, bring higher levels of integrity – partly because large scale programmes translate to at-scale emissions reductions, partly because they require the active involvement of governments, and partly because of their all-encompassing nature.

“With these programmes, you are working directly with governments, and offering them financial incentives to bring about meaningful change. Governments have the power to make policy changes, regulate land-use, enforce the law, and do all the other things that are needed to prevent deforestation and degradation. And, because you are working at large scale, across entire jurisdictions, many of the risks – like leakage, permanence, and additionality – are inherently easier to manage,” she explains.

Meanwhile, one of the things that has attracted private sector players to the LEAF Coalition has been the level of rigour behind the ART TREES standard. Global companies such as Airbnb, Salesforce and Unilever have rallied behind the initiative, and contributed to the US$1 billion of funding the LEAF Coalition has so far amassed. But a prime mover has been Amazon, and Jamey Mulligan, a Senior Scientist at the company explains the attraction: “We see it as a game-changer. The standard takes a very conservative approach to measuring carbon stocks. That means you can treat it with a very high level of confidence. But, perhaps more important, it promises to be the fastest path to real impact, at significant scale.”

None of this is to say that success is guaranteed, nor that jurisdictional REDD+ programmes are without risk.

They may have real potential, they may draw on decades of experience, they may follow a compelling logic, and they may be backed by rigorous standards. But, until the ball is rolling, the emissions reductions are verified, and the finance begins to flow, the benefits do remain theoretical.

As Frances Seymour explains, “With ART TREES, the aim is to strike the appropriate balance. We want the highest integrity possible. But we don’t want the standard to be so rigorous that it becomes impossible to meet. Until momentum builds, we won’t know for sure whether we have got that balance right. And, based on what more we see and learn, we are committed to updating the standard accordingly.”

Meanwhile, companies that do want to participate are advised to make themselves aware of the potential pitfalls, and urged to do their due diligence when purchasing any type of carbon credits, including emissions reductions from jurisdictional REDD+. For example, a coalition of NGOs, including the World Wildlife Fund, the Nature Conservancy, and the World Resources Institute recently published a Tropical Forest Credit Integrity Guide for Companies which provides context and recommendations, including guidance on investing in jurisdictional-scale credits.

For example, beyond the question of environmental integrity, there are some lingering concerns over the role of and benefits for Indigenous Peoples and local communities in jurisdictional REDD+ programmes. Although related safeguards and protections are included in the TREES standard, scrutiny continues as its innovative approach is being tested for the first time.

While acknowledging the uncertainties, advocates of jurisdictional REDD+ programmes are genuinely optimistic, and seem convinced that momentum will gather, and the benefits will escalate.

“I think we can reasonably expect to see a virtuous circle, both on the demand side and the supply side,” says Frances Seymour. “Governments will see that the standards can be met, they will be incentivised to stay in the scheme, and their peers from other countries will be persuaded to participate. Meanwhile, early-mover buyers of emissions reductions will be vindicated, their contributions to climate action will be recognised, and more companies will come to regard these as high-integrity credits that make a demonstrable difference.”

Jamey Mulligan is similarly enthusiastic: “Today, the carbon markets are a bit of a minefield. It can be very hard to understand the quality of some credits, so a lot of time and money needs to be spent with consultants, and the transaction costs are very high. We want the LEAF Coalition to be, and to be seen to be, a high-integrity solution – which reduces transaction costs, brings confidence to investors, mobilises capital at scale and, ultimately, plays a pivotal role in halting deforestation.”