31 May 2023

Accreditors and carbon ratings agencies: a symbiotic relationship

Ronan Carr

Chief Research Officer

4 min
  • We are in a period of transition for carbon market accreditation bodies, with unprecedented media scrutiny and a host of new entrants and initiatives.

  • Much like in financial markets - where accounting standards setters and bond analysts are distinct but interdependent - the relationship between carbon ratings agencies and accreditors is symbiotic.

  • Accreditors create and enforce the rules that form the bedrock of voluntary carbon markets. Ratings agencies focus on carbon efficacy and provide the tools to describe the distribution in credit quality in the market.

Carbon market accreditation bodies are in a period of transition. The departure of Verra’s CEO after 15 years has coincided with a range of new entrants. A flurry of industry initiatives focusing on integrity, standards and claims are also ongoing. 

At the same time, we are seeing unprecedented media scrutiny relating to the integrity of carbon credits. 

The standard creation, enforcement and registry-hosting functions traditionally performed by accreditors face disruption. Their role as umpires of the voluntary carbon market is being questioned. 

One such disruptor is the Climate Action Data Trust, which aims to use blockchain technology to provide an integrated platform to host the data of disparate carbon market registries. At a market level, the creation of the Core Carbon Principles aims to deliver a meta standard for the industry. 

Standard bodies are responding via a slew of market consultations on everything from buffer pools to carbon crypto bridging to digital MRV.

As a carbon rating agency, we welcome all market innovations that boost transparency and the provision of project data, or that reinforce the rigour of the accreditation process. 

However the market shakes out, we continue to view accreditors as occupying a key position in the carbon credit ecosystem. One that is complementary to and reinforces that of ratings agencies.

The carbon rating agency and accreditor relationship is ultimately symbiotic. Accreditors set, enforce, and adapt the rules that form the foundation of carbon credit issuance. They are best placed to ensure higher standards of disclosure, adopt best practices, and leverage technological advances to boost minimum standards of quality.

By comparison, ratings agencies focus on carbon efficacy. Compliance with accreditation rules is a prerequisite for a BeZero Carbon Rating. The rating assesses what risks, imperfections, or information gaps may have become evident since a standard was created or a credit was issued. 

While accreditors are there to ensure compliance with rules and a level of reporting, they cannot guarantee quality; the accreditation process is necessarily binary. 

Carbon ratings assess risk and express the distribution of credit quality in the market that a pass/fail mechanism cannot. Our holistic rating process considers information (scientific, financial, legal etc) from a wide range of sources.

These distinct but related roles mirror what we see in financial markets, where accounting standards bodies design the requirements for financial reporting, while the accountants and auditors provide the independent oversight and approval required to sign off on company accounts. 

Meanwhile it is the role of ratings agencies and research analysts to assess the strengths and weaknesses indicated in those accounts. Their findings inform the debate on default risk, quality, and asset value in debt and equity markets.

The voluntary carbon market is poised to scale rapidly. Accreditors are not the only constituency that is crucial to those ambitions being realised. But they are a key cog in the chain, facilitating the work done by developers, intermediaries, risk allocators and of course carbon ratings agencies.

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