Publication
Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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Australia | Publication | June 2022
This article was co-authored with Edward McCombe.
7 June 2022 saw a major development for voluntary carbon markets (VCMs) globally, with the Voluntary Carbon Markets Integrity Initiative (VCMI) releasing its Provisional Claims Code of Practice (the Code of Practice) for public consultation and corporate road testing.1 The release of the Code of Practice starts a formal public consultation period, with VCMI seeking public input until 12 August 2022. This public consultation phase follows a targeted technical feedback period during which VCMI sought comments from carbon market industry experts from across the globe.
VCMI, which commenced operations in March 2021, is a “multi-stakeholder platform” that aims to “ensure that [VCMs] make a significant, measurable, and positive contribution to the transition of the global economy to a 1.5°C future”.2 VCMI also simultaneously seeks to promote “inclusive, sustainable development” in accordance with the United Nation’s Sustainable Development Goals.3
Since its inception, VCMI has undertaken extensive and wide ranging consultation with governments, private industry, Indigenous Peoples and other key stakeholders to determine key integrity issues and challenges facing VCMs worldwide. This consultation informed the preparation of VCMI’s Global Consultation Report, released in July 2021, and subsequently its Roadmap: Ensuring High Integrity Voluntary Carbon Markets publication, which was released in October 2021. Both of these publications were aimed at establishing and refining an international framework for ensuring carbon market integrity internationally by identifying and addressing key challenges, including those involved in maintaining:
Figure 1: Proposed Role of the VCMI in Supporting Global Efforts to Achieve the Paris Agreement
The Code of Practice is primarily designed to provide “clear guidance” for companies and non-state actors on the ways in which they can “credibly make voluntary use of carbon credits as part of their net zero strategy” and “ensure the credibility” of their claims.5
However, the Code of Practice is also intended to be used by:
Importantly, the Code of Practice explicitly builds upon other frameworks for carbon market regulation, including the Science Based Target initiative’s (SBTi) Net Zero Standard, The Oxford Principles for Net Zero Aligned Carbon Offsetting and the Carbon Pricing Leadership Coalition’s (CPLC) Report of the Task Force on Net Zero Goals. Drawing upon these existing frameworks, VCMI has stated that the Code of Practice follows several key design principles:
At the core of the Code of Practice is a framework through which claims about the use of carbon offsets can be credibly made by companies in compliance with the Code’s requirements. The Code seeks to achieve this objective by establishing a “schedule of claims” which aims to ensure that claims:
The Code also seeks to provide clear differentiation between levels of accomplishment, so that companies are incentivised to strive towards increasingly significant and substantial climate action.8
The Code of Practice’s structure is broken down into four components, each of which must be adhered to by companies seeking to make credible claims under the Code:
The Code of Practice establishes key threshold requirements that companies must satisfy before they can make a valid VCMI Claim, being that:
Claims under the Code of Practice are divided into two main categories:
In order to make an Enterprise-Wide Claim, a company must fulfil the further requirements in addition to the above-mentioned pre-requisites:
In the context of Enterprise-Wide Claims, companies can make claims that will fit into one of three levels, ‘Gold’, ‘Silver’ or ‘Bronze’. Importantly, interim targets at all levels must be verified by a “credible, independent third party”.12
Figure 3: Example – Achieving VCMI Silver
Figure 4 : Example – Achieving VCMI Bronze
As noted above, Brand-, Product- & Service-Level Claims are those involving the value chains of specific brands, products or services. The Code of Practice provides the following key requirements for valid VCMI Brand-, Product- Service Level Claims:
The Code of Practice requires that “all credits used as the basis for credible claims must be high quality” and meet basic criteria, namely credits must:
The Code of Practice does not prescribe that carbon credits must be the subject of a corresponding adjustment, but does require transparency about whether this is the case.
The final key component of the Code of Practice is its ongoing reporting and transparency obligations. Under the Code, companies are required provide:
As noted above, VCMI has invited stakeholders to participate in the public consultation period through to 12 August 2022. Input regarding the Code of Practice can be provided via VCMI’s online form.
Once the public consultation period is concluded, VCMI has stated that it intends to publish the finalised Code of Practice in “late 2022 / early 2023”.
VCMI has indicated that it is planning to conduct a full review of the Code of Practice in 2025, in light of the “anticipated significant strengthening of the tools and data sources” that will underpin the Code of Practice in the coming years.
If you require further information on the implications of the Code of Practice, or what steps need to be taken in accordance with its requirements, please contact a member of our Climate Change Team.See VCMI, ‘Global Consultation Report’ (https://vcmintegrity.org/wp-content/uploads/2021/07/VCMI-Consultation-Report.pdf).
VCMI Provisional Code of Practice 13 (‘Provisional Code of Practice’).
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Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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