Voluntary carbon credits: a regulatory gray zone in the EU?

The financial industry has long discovered the benefits of a global carbon market, sometimes described as the economist's solution to greenhouse gas emissions. Although the EU legislator in his review of the CRR agreed on further stimulus measures, such as a lower risk weight of exposures to the regulated EU Emissions Trading System (40 %), especially the VCM, which is used for exponential growth, driven by companies' desire to become sustainable and environmentally friendly. McKinsey predicts that VCM could grow 100-fold by 2050. However, regulatory approaches to VCM are still in their infancy. While IOSCO is currently considering a broader regulatory approach through consultations on initial voluntary best practices for the integrity and proper functioning of VCMs, the EU is focusing on increasing transparency with disclosure and reporting requirements. In this part of the blog series, we explain (I) what carbon credits are and analyze the legal requirements that currently apply to them from (II) a regulatory perspective; and from (III) the transparency angle. (Ján Struckmann, Elisabeth Schemmerová, Hendrik Wessling, more at lexology.com)