16 August 2022
VCM frameworks and carbon ratings
Louisa O'Connell
Co-Head of Net Zero Research
7 min
A range of new carbon market frameworks are taking aim at helping companies understand how to integrate carbon credits into their net zero roadmaps. Their goal is to scale the Voluntary Carbon Market and help enshrine best practices to make it an efficient market for capital, and effective market for climate action. Ratings play a complementary role in these welcome developments.
In this article, Louisa O’Connell, Co-Head of Net Zero Research at BeZero Carbon discusses how frameworks can help with carbon credit disclosures and reporting.
There are currently a number of consultations open to gather feedback on frameworks aimed at supporting companies. BeZero Carbon is actively engaging with these consultations with the aim of helping the VCM scale with integrity.
These frameworks need to provide relevant and flexible guidance, be consistent in their definitions, address the issue of how to report on corresponding adjustment credits and consider the range of quality rather than a binary view of “good/bad” credits.
Ratings have a role to play in helping companies to assess the quality of their carbon credit purchases.
Carbon credits and net zero transition
When effective, carbon credits can be used alongside a company’s credible decarbonisation strategy. They can help accelerate the transition to net zero.
A large number of companies are however reluctant to use carbon credits. They are considered a peripheral part of a number of net zero roadmaps and frameworks. This is typically driven by concerns over the quality of these credits and fears that making claims about carbon neutrality based on them could be seen as greenwashing.
Similar concerns are being raised about the disclosure requirements for those that do buy and retire credits. Particular attention is being paid to the lack of consistency or transparency surrounding the types and amounts of credits retired.
A recent report by Bloomberg NEF suggests that only one-fifth of Voluntary Carbon Market (VCM) buyers self-reported credit purchases in 2021. This makes it hard for external stakeholders to assess the quality of the company’s net zero strategies. Most disclosure is coming from buyers that allow their customers to offset their products such as crypto currencies, travel and fashion.
New frameworks to address VCM issues
Establishing frameworks that the VCM abides by is an important step to ensuring carbon credits can be trusted and utilised to their full potential. Companies rely on such guidance to have confidence in what they are purchasing and a playbook for how to report. It also standardises the information to enable other stakeholders to assess their performance.
A host of new, consultative initiatives have sprung up to try and provide clear guidance on issues such as carbon credit quality, and reporting best-practice. They can be used by companies in one of three ways:
Making informed decisions around the credits they purchase
Demonstrating performance against their transition plans and credit purchases
Reporting transition plans with integrity and transparency
These are welcome developments. Their goal is to scale the Voluntary Carbon Market and help enshrine best practices to make it an efficient market for capital, and effective market for climate action.
The BeZero team, like many other industry participants, are busy responding. We believe that the terms of reference and nature of these frameworks only goes so far. Other market mechanisms, like independent ratings, are also a vital part of the industry’s development.
Making informed decisions around the credits they purchase
The Integrity Council for the Voluntary Carbon Market’s (ICVCM) Core Carbon Principles (CCPs) provides a framework for accredited carbon projects. The purpose of their framework is to improve the integrity of carbon credits by setting a higher threshold for credits than what is current common practice. The principles aim to bring integrity to the VCM by signposting buyers to credits that have been assessed as CCP-eligible. In other words, the CCPs should provide a standardised measure of carbon credit quality with the goal of bringing additional confidence to corporates to use them for their net zero transition.
Demonstrating performance against their transition plans and credit purchases
The Voluntary Carbon Market Integrity initiative (VCMI) is a multi stakeholder platform, co-funded by the UK Department for Business, Energy and Industrial Strategy (BEIS), to drive credible, net zero-aligned participation in the Voluntary Carbon Market for companies.
The VCMI’s Claims Code-of-Practice aims to communicate guidance on how voluntary carbon credits can be used and claimed by businesses and others as part of credible net zero strategies. They prioritise decarbonisation with credit claims allowed only on residual emissions. Claims are rated (Gold, Silver & Bronze) based on the progress against a company’s net zero strategy.
Reporting transition plans with integrity and transparency
Sustainability and emissions reporting frameworks at the regulatory or investor level have been part of most companies’ annual process for a while now. Companies are increasingly expected to report on their climate-related risks and opportunities and long-term scenario planning, through frameworks such as the Taskforce for Climate-related Financial Disclosure (TCFD). This puts them under greater scrutiny from their stakeholders to demonstrate they have credible transition plans.
The International Sustainability Standards Board’s (ISSB) IFRS Exposure draft for climate-related disclosures and the U.S. Securities and Exchange Commission’s (SEC) draft rules on climate-related data disclosure both request information on carbon credit purchase as part of a transition plan. They ask for information on the amount of credits, credit type and source of credits used.
All of these frameworks could complement each other, and together provide a holistic approach, ensuring that carbon credit purchases are transparently reported.
How could the frameworks fit together?

What makes a good framework?
BeZero Carbon is actively engaging with these recent consultations with the aim of helping the VCM scale with integrity. In light of these consultations, we have considered what makes a good framework, and whether these frameworks go far enough to inspire trust in the VCM.
Clear guidance
The challenge in creating a framework is that it must allow flexibility, while also providing guidelines that are simple to understand and act on. Many of the frameworks rely on other guidelines and frameworks to give consistency to the already crowded arena.
For example, the VCMI looks to the Science Based Targets initiative (SBTi) for guidance on how to set 1.5°C aligned corporate decarbonisation targets.
This could have the unintended consequence of excluding some of the highest emitting and hardest to abate sectors, such as oil and gas and shipping, for which target methodologies haven’t yet been developed or approved.
Consistency of definitions
In an area that is still very new to many companies, and has been hindered by scepticism, frameworks need to be consistent when talking about how to use carbon credits.
For example, the IFRS definition of a certified carbon offset is confusing, specifically around the role of using avoidance and/ or removal credits.
Certified carbon offset credits are carbon offsets that take the form of transferable or tradable instruments, certified by governments or independent certification bodies, representing a removal of emissions of one metric tonne of CO₂, or an equivalent amount of other greenhouse gases.
This links to the Kyoto Protocol, which included three market-based mechanisms (Article 6, 12, 17)—emissions trading, the clean development mechanism and joint implementation giving the parties a degree of flexibility in meeting their emission-reduction targets. (ISSB - Exposure Draft IFRS S2 Climate-related Disclosures).
On the one hand, their definition here speaks only about credits that remove carbon emissions, and not avoidance. Credits certified by the main certification bodies within the voluntary carbon market can be both avoidance and removal credits and therefore both should be included within this definition. A clearer definition would be:
Certified carbon offset credits are carbon offsets that take the form of transferable or tradable instruments, certified by governments or independent certification bodies, representing an avoidance or removal of emissions of one metric tonne of CO₂, or an equivalent amount of other greenhouse gases.
Why both avoidance and removals matter
Avoidance credits reduce emissions by preventing their release into the atmosphere, while removal credits represent the extraction and sequestration of carbon from the atmosphere. Some credits simultaneously exhibit avoidance and removal properties.
Both avoidance and removal credits have a role to play in a corporate transition roadmap.
Both forms of carbon credits can be used by companies to demonstrate commitment to climate change mitigation beyond their own operations, and counterbalance their own residual emissions as they progress towards their carbon reduction targets.
The evidence on discriminating quality purely based on project type is unclear. For instance, the IFRS guidance states that reporting on avoidance or removal can be used as a good proxy for a carbon credit project’s additionality.
However, our analysis shows that across the 250+ projects we have rated, 81% of avoidance credits have a notable to significant additionality risk level, while 50% of removal credits also have notable to significant additionality risk. This, and many other arguments demonstrated by our research, suggests that it’s not simply a matter of project type. Additionality, like other risk factors, are highly variable from project to project - see chart below.
