Reports of the VCM’s Ill Health Are Greatly Exaggerated

Reports of the VCM’s Ill Health Are Greatly Exaggerated

Mark Twain’s response in 1897 to a journalist enquiring about his health could equally apply to rumours circulating today about the health of the voluntary carbon market. In recent months there have been a number of announcements and news articles sending negative signals on voluntary corporate climate action.

As a result of record profits from fossil operations and pressure from shareholders, some oil majors have slowed down their climate transition plans. In February, BP said it now intended to cut its emissions by just 20-30% by the end of the decade, instead of the previously stated 35-40%. In March, Shell decided to exclude emissions from customers’ use of its products in its climate targets, which account for over 90% of its total carbon footprint.

In the insurance sector, two major re-insurers – Munich Re and Zurich Group – have pulled out of the UN-backed Net Zero Insurance Alliance. Some politicians in the US, notably Republican candidate Ron DeSantis, have gone on the attack against ESG investing, claiming fund managers should focus purely on financial performance.

The voluntary carbon market has also been under the spotlight. Media outlets such as The Guardian and Bloomberg have published critical articles on the quality of certain voluntary carbon projects, arguing they have substantially over-issued credits.

At face value therefore, one might have the impression that voluntary corporate climate action is in poor health. However, it always pays to look at the evidence rather than the odd anecdote…

Corporate climate commitments  – on the increase

Even though a few companies have downgraded their climate commitments, overall the number of corporations setting net zero targets has continued to climb. In March, a record of 132 companies set new net zero targets under the Science-Based Targets Initiative, bringing the total emissions covered by SBTi net zero targets to nearly 1 GtCO2e. A further 131 companies committed in March to set a net zero target in the future. Total emissions covered by SBTi companies now totals 4.7 GtCO2e including scopes 1, 2 and 3 and all forms of commitments – nearly 10% of world greenhouse gas emissions. In contrast, the EU emissions trading scheme covers 1.5 GtCO2e of emissions.

Number of companies setting SBTI targets by month








Source: Trove Research analysis of SBTI data


The stream of new targets flowed on in April, with such names as US car racing company Nascar, Taiwanese computer maker Acer, Japanese computer memory supplier Kioxia, Malaysian conglomerate IJM, Hawaiian Airlines and Australia-based TPG Telecom among the additions.

The Acer commitment is particularly multi-faceted, with the company pledging to hit net zero emissions by 2050, using “carbon removal and offsets” as one of its nine strategies to get there, and it also signed a power purchase agreement for wind power as part of an effort to reach 100% renewable electricity use by 2035.

Apple said in April it would double its investment in its nature-based carbon removal Restore Fund, adding an extra $200 million. It declared its aim to become “carbon neutral in the supply chain and product lifecycle by 2030, with 75% of emissions cut and the rest balanced by carbon removal”. Autodesk, H&M Group, JPMorgan Chase, and Workday all joined Frontier – a collective aiming to raise $1bn of forward commitments to buy high quality removal credits by 2030.  These new additions have collectively committed to spend $100m on these credits. Last week, Rio Tinto ‘s boss Jakob Stausholm, admitted that it would likely fall short of its 2025 emissions target and would therefore need more carbon credits to bridge the gap.

Engie, the France-based energy giant, said in March that it is “accelerating its strategy towards net zero by 2045”, including via the “industrial development of renewable gases”. More generally, companies are making increasingly climate-friendly decisions when buying energy. According to BNEF, in 2022 private companies and public institutions bought a record 37GW of renewable power, up 18% on 2021 – more than the total generating capacity of France.

Demand for carbon credits  – steady as she goes

Companies with science-based targets are not always the ones buying and retiring carbon credits today, as their emphasis tends to be on longer-term emissions abatement. However, many other companies are still using carbon credits to improve the climate reputation and contribute to climate efforts in the shorter term.

Trove’s analysis of retirement activity – removing carbon credits from the registries so they cannot be used by other firms  – shows that total demand held steady in the first quarter of this year at 48 MtCO2e. This is the third highest level of quarterly retirement on record, and the highest ever quarter if the late 2021 / early 2022 bubble in crypto-related retirements is excluded.

So far this year, Shell has retired over 3 MtCO2e of credits, Highland Fairview (a US real estate development company) over 2 MtCO2e and Volkswagen 1.3 MtCO2e. Australian companies Telstra (telecomms) and Woodside Energy (oil and gas) retired 1 MtCO2e and 0.75 MtCO2e respectively.

And let’s not forget these voluntary actions are being made in a generally tough economic environment. The S&P500 is down more than 10% on its peak of at the end of 2021 and the Stoxx Europe 600 is down 5%. Interest rates in nearly all developed countries are their highest levels since the financial crisis in 2008. That many firms continue to deliver on their climate commitments at this time, is testament to their conviction.

Carbon credit retirements by quarter (MtCO2e)








Source: Trove Research analysis of the top ten registries recording credit retirements

Carbon prices  – a mixed picture

As in most markets, prices reveal a lot about the patterns of demand and supply, particularly in the short term. Again, reading the headlines one would think the market is in a downward spiral. The reality is more nuanced.

While the standard contracts on the exchanges have suffered significant prices falls, our data show that trading in individual credits (both OtC and on-exchange) has held up. Exchange-traded contracts on the Xpansiv CBL and AirCarbon Exchange platforms representing bundles of credits eligible for CORSIA (the international aviation offsetting scheme) have come down around 40% since the start of the year, and those representing nature-based credits have come off about 50%. In contrast, Trove’s index of market-wide voluntary carbon prices,which includes both OtC and exchange volumes, has increased steadily since mid-March climbing 50% to $8.8/t. Xpansiv CBL also reported the highest ever level of spot trading activity on its platform in the last week of April, recording over 2.5 MtCO2e of transactions.

Part of the driver of the uptick in prices on the Trove index is greater interest from both investors and buyers in higher-quality projects. Corporate buyers are asking ever more specific questions about the provenance of the carbon credits, and in several cases willing to pay for that extra reassurance.

The road to recovery

That the oil companies have focussed on short-term profit is hardly a surprise given the current energy squeeze caused by Russia’s invasion of Ukraine and the money on the fossil-fuel table. These decisions, however, are likely to be temporary. Their transition plans are not being removed, just delayed. In the longer-term, higher fossil fuel prices will accelerate the transition to cleaner energy rather than hold it back. Greater profits from oil and gas operations also provide more capital to invest in low-carbon projects – both inside and outside the companies’ operations. Shell has already ear-marked $450m to invest in carbon offsetting projects.

Other ‘negative’ news developments are also likely to be double-edged. Bad publicity over the integrity of a slice of voluntary credits is spurring rapid efforts to improve standards in the carbon market, through the likes of the Integrity Council for the Voluntary Carbon Market (ICVCM), the Carbon Credit Quality Initiative (CCQI) and Trove’s integrity assessment tool.

Insurers quitting their industry’s Net Zero Alliance are more a desire to avoid anti-trust action rather than any weakening in its quest to reduce the fossil fuel exposure of its investment portfolios. The Alliance still has some of the world’s largest insurers, including Allianz, Axa, Swiss Re, Lloyds and Aviva. Even the assault by US Republicans on ESG investing will not prevent funds anticipating what an energy transition could do to the profitability of their investee companies in the decade ahead.

Meanwhile the deteriorating news on the state of the climate continues to flow. In recent weeks, both Vietnam and the Iberian peninsula have set record temperatures for the time of year. Pressure on governments and corporates to tackle climate change will not relent.

Mark Twain penned many a memorable quote, but perhaps the most apt for the current climate is “the secret of getting ahead is getting started”. Voluntary corporate action on tackling carbon emissions and the use of carbon credits has got started. Now it needs to get ahead.

2560 1700 Trove Research
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