The International Sustainability Standards Board (ISSB) has published its first two finalized standards, the first ever set of global reporting standards for ESG investors. The standards pave the way for companies to report on and disclose their climate and sustainability.  

The standards are designed to be the foundation for a uniform and comprehensive global baseline of sustainability disclosures that investors have long desired. They mark the culmination of an 18-months long work. 

The New Era of ESG Reporting

The standards consist of two separate frameworks for climate and sustainability reporting. The framework for disclosing sustainability-related financial information is known as IFRS S1 while IFRS S2 is for climate information. 

Together, they usher in a new era of ESG – environmental, social and governance – reporting and disclosures in capital markets.

ESG became the banner for investors and served as their measuring tool in comparing companies. The term became the household name in the capital markets around the world, until a huge number of financial products and assets were labeled with ESG. 

Bloomberg estimated that global ESG will surpass $41 trillion assets in 2022 and $50 trillion by 2025. 

Apparently, ESG turned into a multi-trillion dollar business. But it was plagued with the issue of greenwashing or the mislabeling of ESG products. It’s the biggest concern, both for companies and more so for the investors.   

And so, the ISSB aims to address this issue and finally publish the long-awaited ESG reporting standards.

The ISSB frameworks will affect what information companies include in their financial reports, prompting them to reflect ESG risks. Also, they’re not new but build on the previous works of existing standards and frameworks, including the following:

Climate Disclosure Standards Board (CDSB), 
Task Force on Climate-related Financial Disclosures (TCFD), 
Value Reporting Foundation’s Integrated Reporting Framework, and 
Industry-based guidance from the Sustainability Accounting Standards Board (SASB). 

More importantly, the ISSB Standards will ensure that companies provide ESG information alongside their financial statements, within the same reporting documents.

And for the first time, they created a common language for companies to disclose the climate-related risks and opportunities of their prospects. 

ISSB Global Baseline for Sustainability Reporting 

The lack of a global baseline ESG reporting framework made ESG investing confusing to investors. But with the new standards, ISSB’s vice-chair, Sue Lloyd, said that:

“Investors can be confident that, when they compare companies, they’re doing that on a like-by-like basis when they’re making their investment decisions.”

Under the ISSB climate standards (IFRS S2), companies need to: 

Determine their GHG emissions, which include all sources – Scopes 1, 2, and 3 – according to the Greenhouse Gas Protocol unless called to use other measures.
Disclose the amount and percent of assets or activities prone to climate-related transition and risks.
Report on how much capital expenditure they spend on climate-related risks and opportunities.
Disclose whether or not they use internal carbon pricing and explain how.
Report on climate-related targets.

Under the ISSB sustainability standards (IFRS S1), companies have to: 

Report information significant to financial prospects that may affect their investment decisions.
Discuss how they will identify and monitor sustainability-related risks.
Explain governance processes to track sustainability risks.

The new ISSB Standards are also based on the concepts that underpin the IFRS Accounting Standards, which 140 jurisdictions require. The standards are applicable worldwide, establishing a truly global baseline. 

While the European Union has started their own standard-setting activities, the US Securities and Exchange Commission is still working on getting businesses to disclose their carbon emissions. The SEC requires companies to report on their absolute carbon emissions, including scope 3.

The Next Steps: Scope 3 Emissions

In finalizing the ESG reporting standards, over 1,400 comment letters were considered. And one major feedback on climate reporting is on Scope 3, which is challenging for most companies. 

Corporations need to map their entire value chain to report on their emissions. To address this concern, the ISSB gave companies one more year to report on their Scope 3 information. They also provided other support and guidance in measuring and reporting Scope 3.

Companies can start applying the final version of the ISSB reporting standards next year. That means the first reports using the frameworks will be available to investors in 2025. 

Companies can also focus on climate reporting first and disclose sustainability in the next year while countries can decide if they’ll make ISSB standards mandatory. 

Ultimately, the global standards will help improve trust and confidence in companies’ climate and sustainability disclosures to inform investment decisions.

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Energy major TotalEnergies has partnered with Petronas and Mitsui to develop a Carbon Capture and Storage (CCS) hub in Southeast Asia.

The partners will assess several carbon storage sites in the Malay basin, including both saline aquifers and depleted offshore fields. 

Tri-Party Deal to Decarbonize Asian Customers

The deal aims to develop a carbon merchant storage service to decarbonize industrial customers in Southeast Asia, one of the fastest growing regions of the world. 

Estimates of carbon storage capacity in the region are uncertain. But analysis shows that the theoretical capacity to store CO2 may surpass the region’s needs. Most of this capacity is in deep saline formations. 

CCS can help the fast-growing economies of Southeast Asia be on track to net zero emissions. According to the International Energy Agency, about 90% of energy demand growth of the region since 2000 has been met by fossil fuels. It is also home to large coal and liquefied natural gas exporters. 

Thus, CCS technology can be significant in helping Southeast Asia transition to an energy mix that aligns with climate goals. 

Carbon capture in the region needs to reach at least 35 Mt CO2 in 2030 to be in line with the 2015 Paris Agreement goals. By 2050, that capacity must exceed 200 Mt, with CCS deployed at scale across the fuel, industry and power sectors. 

However, developing a CCS value chain for hard-to-abate emissions in the region needs a specific regulatory framework and considerable investment. 

Achieving the level of CCS deployment shown in the chart above will need about $1 billion each year by 2030. This financial requirement needs international support, more debt financing, and substantial private-sector investment. 

First-of-its-Kind CCS Solution

The tri-party agreement among TotalEnergies, Mitsui, and Petronas will establish a “first-of-its-kind integrated CCS solution for industries in the Asia-Pacific region”, according to Petronas. 

Malaysia’s state-owned firm further noted that the deal shows Petronas’ commitment to turn the country into a regional CCS hub.

The strategic partnership involves all aspects of CCS development in the region, including:

Studying potential CO2 storage sites, 
Assessing maturing depleted fields and saline aquifiers for storage, 
Identifying potential customers, 
Determining the best technical means to transport captured CO2 from regional industrial hubs to Malaysia, and 
Creating the most appropriate legal and business structure for CCS commercialization in Malaysia. 

Remarking on the agreement, TotalEnergies CEO Patrick Pouyanné said that: 

“We will bring to the partnership our strong CCS expertise, anchored in Europe with a first integrated project in Norway due to start next year and several other projects that will contribute to meeting our carbon storage capacity target of ten million tonnes per year by 2030.”

For the Japanese oil firm, Mitsui will use its “expertise in the oil and gas upstream activities and extensive business networks” to contribute to the CCS hub project in Southeast Asia. 

TotalEnergies also entered into a separate deal with Petronas’ renewable energy subsidiary Gentari. They will develop renewable energy projects in the Asia-Pacific region. 

Their goal is to jointly create the 100 MW Pleasant Hills solar project in Australia and generate low-carbon electricity from it to deliver to Roma field’s gas production and processing facilities. This project will help cut the emissions of Gladstone LNG, in which both energy majors hold a stake.

The planned volumes and dates of the Malaysian CCS hub project weren’t revealed.

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In the world of climate action, the primary challenge lies not only in formulating innovative solutions, but also in ensuring they provide robust, scalable, and cost-effective mechanisms for reducing global carbon emissions. Onyx Transition, a voluntary carbon crediting program, aims to do exactly that, offering a novel approach to tackle climate change – eliminating oil supply.

Onyx Transition has introduced a new credit type into the voluntary carbon market, known as the “elimination credit”. This credit has been developed based on the concept of “supply-side crediting”. It is a mechanism Onyx uses to tackle two of the most significant barriers to climate action: negative spillover effects and political opposition.

Meet the New Credit in Carbon Market: EOS Credits

The idea behind supply-side crediting and by extension, elimination credits, is to incentivize oil and gas companies to shut down economically nonviable fields and keep the fossil fuels in the ground permanently. 

Onyx offers these companies an alternative revenue stream in the form of credits that they can sell on carbon markets. The emissions that would have been generated by the extraction and combustion of these fossil fuels are thus eliminated.

The credits are also known as Eliminate Oil Supply (EOS) credits. The credits’ ultimate goal is to accelerate oil decline to prevent the worst effects of climate change.

Though oil markets are showing a decline, it’s too slow and is trivial under the IEA’s central “Announced Pledges Scenario” (APS). A sharp contraction in oil demand is crucial to reach the 1.5°C scenario. That means 20% reduction by 2030 and 60% by 2040 as shown in the chart (in grey). 

Oil Demand Outlook Across Scenarios

Source: Onyx Transition

Eliminating the ‘Whack a Mole’ Effect 

Onyx’s novel approach stands in stark contrast to most climate policies that make emissions more expensive and mandate emission reductions. Most often, such strategies run the risk of triggering ’emissions leakage’. This refers to the phenomenon where cutting down emissions in one economy leads to those emissions popping up in another less ambitious country. 

Such a ‘Whack a Mole’ effect can undermine global climate action efforts.

Onyx’s solution of supply-side crediting can interrupt this emissions leakage, creating a more globally coordinated response to climate change. Simultaneously, this method generates revenue, which can be channeled into investments in low carbon technologies, accelerating the transition to a greener economy.

Another crucial aspect of Onyx’s approach lies in its ability to tackle political opposition, which is one of the most significant barriers to ambitious climate action. 

Fossil fuel producers, who stand to lose the most from decarbonization efforts, can become supportive stakeholders under the Onyx model. The prospect of receiving revenue from decommissioning fossil reserves offers a powerful incentive for their participation.

Highlighting the unique stance of elimination credits, Camila Stark noted:

“Onyx offers a compelling solution: incentivize fossil fuel producers to voluntarily shut in their uneconomic oil and gas fields, keep the oil and gas in the ground, and offer an alternative revenue stream through the sale of high-quality carbon credits.”

More notably, EOS credits target the most carbon-intensive assets (in blue). 

2040 Oil Supply Cost Curve, Demand Volumes Under Oil Scenarios 

Without intervention, those assets will continue to produce and grow profitably for the next 10-15 years. And that period is a critical window for climate action.

This is where a market mechanism such as the EOS carbon credits create an immediate, tangible impact at gigaton scale. Phasing out the full high carbon-intensive oil market will reduce 0.2 – 1.1 gigatons of CO2e annually. The actual reduction depends on leakage rates.  

Onyx’s emergence comes at a time when the voluntary carbon market is undergoing scrutiny for the quality and reliability of carbon offsets. Amidst this turmoil, the introduction of the elimination credit represents a beacon of innovation and hope. 

Racing Against Time

EOS credits offer a unique proposition to carbon markets and warrant robust pricing. In comparison to the existing high-quality credits available in the market, the exhibit shows how the elimination credit stands out.

Time value of carbon refers to actions that impact emissions today and can reduce the risk of climate tipping points. These actions have more value than actions done later. 

Unlike other credits such as DACCS, eliminating oil supply doesn’t require any technological advancement or have any supply chain limitations. 

In fact, it can ramp up now and deliver gigaton-scale impact this decade to help avoid triggering catastrophic climate effects. As Spencer Dale pointed out, “we are in a race against time and if the VCM is to address the climate crisis, so it’s important that we acknowledge the criticality of the time value of carbon.”

As for the question of permanence—which has been plaguing carbon credits credibility—Onyx addresses this via a three-pronged approach. They use legal, financial, and economic mechanisms to ensure that once a field is shut down, it stays shut down permanently.

As the market matures and buyers become more discerning, mechanisms that offer permanence, immediate impact, and robust protection against reversion risk, such as the elimination credits, are likely to become increasingly valuable.

Onyx Transition represents a paradigm shift in the carbon credits market. By focusing on supply-side crediting and offering an attractive alternative to fossil fuel producers, Onyx provides a compelling solution that aligns economic incentives with ambitious climate action. 

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Nature-based solutions are among the go-to options in fighting climate change and REDD+ always comes on top of the list. Individuals and organizations alike tend to prefer this solution while critics continue to doubt its credibility in reducing carbon emissions. 

So, to help you clarify confusions surrounding REDD+ and its corresponding emissions reduction claims, or popularly known as carbon credits, we’re going to talk about the essence of this program. 

From its origin to its current role in protecting our world’s forests as well as the challenges it faces, this article will explain REDD+ and everything that comes along with its successful implementation. 

Let’s start with the current state of the forests. 

How are Our Forests Right Now?

The state of forests worldwide varies depending on the region and certain factors such as deforestation rates, forest management practices, and natural disturbances like wildfires. 

The world’s forests account for 92% of all terrestrial biomass globally and store about 400 gigatons (Gt) of CO2. They take up carbon via photosynthesis and store it below- and above-ground. Different forest types store varied amounts of carbon, depending on the climate present in the particular location of the forest.  

Source: U.S. Department of Agriculture, Forest Service, Climate Change Resource Center

These forests are one of our great allies in preventing global temperatures from going up. Unfortunately, forest trees are cut down or burned drastically around the world. 

Deforestation is the biggest culprit of forest loss. 

Forests are cleared mainly for agriculture, urbanization, and logging, collectively called land use change. This causes not only deforestation but rising carbon emissions, biodiversity loss, and decline in wildlife species.

Deforestation is responsible for releasing as much as 5 GtCO2 a year, which is equal to about 10% of the global GHG emissions.

The worse-case scenario? Deforestation and degradation cause some forests to release more carbon than they sequester. 

Alarming wildfires are burning millions of hectares of forests in the U.S., Canada, and other parts of the globe. The record-breaking wildfires that engulfed boreal forests in North America and Eurasia emitted almost 2 billion tons of CO2.

The worst-case scenario? Forest loss will continue at the scale that will make the 1.5°C climate goal an impossible dream. This will happen if people find forest land conversion more profitable than keeping the trees standing.  

If deforestation in tropical forests were a country, it would rank third in CO2 emissions. 

All this means that if we don’t end deforestation as early as this decade, we won’t be able to stop climate change from wreaking havoc on our planet. 

Climate experts said that curbing deforestation is humanity’s biggest chance to immediately reduce carbon emissions. Many agree but others don’t. 

Still, governments devised various policies to bring financial incentives to conserve forests and avoid forest loss. They’re formally referred to as REDD – Reducing Emissions from Deforestation and Degradation. 

How REDD+ Evolve to Protect Forests  

The history of REDD can be traced back to the international efforts to fight climate change and preserve forests.

Two tropical countries brought the concept of REDD to global climate summits known as COP – Conference of Parties. Costa Rica and Papua New Guinea formally placed this topic on the table during the COP11 in 2005. 

Their idea received huge interest from other countries as a way to conserve forests by prompting performance-based incentives at scale. Why won’t it be if the initiative will promote sustainable forest management practices while making trees more valuable standing than logged.  

So, monetizing the carbon stored in forests through carbon credits provides local communities revenue for sustainably managing their forests. The income from the credits will deter them away from livelihood that causes deforestation such as illegal logging, crop cultivation, and livestock raising.

Here’s the timeline, and some dates to remember, of how REDD came about and expanded to REDD+. 

Global climate talks began in the ‘90s. The United Nations Framework Convention on Climate Change (UNFCCC), formed in 1992, gave birth to several international and national strategies to reduce GHG emissions. 
First REDD discussions in early ‘20s. Pilot discussions and projects exploring means to cut emissions from deforestation started to emerge in the early 2000s. Costa Rica and PNG were responsible for these first initiatives, calling for the need to develop a comprehensive framework. 
Bali Action Plan in 2007 (COP13): The UN COP13 in Bali, Indonesia, in 2007 was a significant milestone in the development of REDD. The conference put forward the importance of REDD in developing countries and emphasized the need for financial support to implement it. 

The COP13 parties added the “+”, expanding the term to REDD+. The plus simply refers to the co-benefits of protecting forests from destruction. It means the role of “conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries”.

The Warsaw Framework for REDD+ in 2013 (COP19). The 19th session of the COP in Warsaw, Poland in 2013 formally adopted the framework for REDD+. It laid out key principles, guidelines, and safeguards that REDD+ projects and activities should follow. The framework also rang the bell for financial and technical support needed by developing nations to implement REDD+.

Following the Warsaw Framework, many countries have established and developed their national REDD+ strategies and implemented projects on the ground.

What’s even better is that several organizations have shown support to REDD+ initiatives through financing and capacity development programs. 

REDD+ in the Carbon Credit Markets

At the end of 2022, there are over 620 individual REDD+ projects and programs implemented. Most of them are funded by international donor organizations, such as the UN-REDD and the World Bank. 

REDD+ countries are now focusing on operationalizing both their REDD+ strategies and proposals for bigger forestry programs. Their ultimate goal is to build investment packages that will result in carbon emissions reductions through results-based finance.

Though they only represent a smaller chunk of REDD+ financing, the voluntary carbon markets (VCMs) have been recognized as a good source of investments with REDD+ carbon credits. 

As of 2022, over 400 million REDD+ credits have been issued on the VCM, representing a quarter of total credits issued in the market. 

The majority of REDD+ projects are in South America, where forested regions are found, including the Amazon. Other forest projects are also in Sub Saharan Africa, Asia-Pacific, and Central America. 

By country, Indonesia has by far issued the most REDD+ carbon credits in 2022 with 76 million, according to Sylvera. That issuance is only from four REDD+ projects operating in the Asian country. 

What makes REDD+ carbon credits, also categorized as nature-based credits, desirable is that most of them deliver co-benefits. These are other societal and environmental benefits that forest projects provide apart from carbon reductions. 

In context, only less than a quarter of credits in the VCM have co-benefits while REDD+ projects have over 60%.

It’s no surprise, therefore, that REDD+ is always at the forefront of international climate change talks as a solution to avoid global temperatures shooting up. 

However, it is not immune to critics and skeptics. So, let’s take an inventory of the major issues surrounding the initiative. 

What is Shaking up REDD+? 

Accounting for the carbon reduced or removed by a REDD+ project is not that easy. And one of the most important things that affect how effective the project is baseline setting. 

Simply put, the baseline scenario is the condition of the forest without implementing the project. It’s often determined by observing deforestation activity in the adjacent areas and using it as a reference point.

Getting this proxy correctly, or as accurate as possible, is critical. It dictates how much carbon reduction the REDD+ project achieves. 

In a sense, projects must have baseline emissions that are conservative and not too aggressive so as not to overstate their climate benefit. It is for this very reason that REDD+ projects are criticized for underperforming, ineffective, and so generate worthless carbon credits. 

And then came the market’s biggest blow – The Guardian publication. The media’s article put a study questioning the forest projects certified by Verra, accusing them of using inaccurate baselines. 

The published article claimed that over 90% of the REDD+ carbon credits are “largely worthless” and are “phantom credits”. In other words, they likely don’t represent real emission reductions. 

The main point of the study’s contention is the overstated baseline emissions used in calculating the projects’ net climate impact. And that’s by a factor of 400%.

But of course, despite it being an academic investigation, it’s crucial to also note that the way the researchers take the “baselining” method doesn’t match Verra’s crediting program for REDD+ projects. 

Verra was quick to respond to such a big accusation…

The world’s largest carbon standard worked closely with the publication to explain why their findings are not true. Verra responded that the article is “incorrectly claiming that REDD+ projects are consistently and substantively over-issuing carbon credits.”

Verra also noted that the studies were using “synthetic controls” that don’t account for project-specific factors that cause deforestation. Thus, they largely miscalculated the impact of the projects that Verra certified.

Other key market players and stakeholders also responded. 

For instance, a carbon rating agency, Sylvera, fired back by citing their own research on the subject matter. Their findings showed that the publication’s claim on worthless credits didn’t consider the biggest factor in baseline setting – the proximity to the active front of deforestation.

The rater asserted that forests need protection to help achieve the world’s climate goals. They said that we “must not sabotage the financing of projects that are delivering sound climate, social, and biodiversity benefits”. 

Likewise, a climate tech startup Pachama that has been evaluating over 150+ deforestation projects commented. The company is using artificial intelligence (AI) in determining baseline scenarios of the projects they support. 

This brings us to the next section – the solutions to these major issues:

Inflated baselines,
Underreporting of deforestation, and 
Forest loss causing permanence risk

Addressing the Issues with Technologies and Innovations

At the onset of REDD+ projects, advanced technologies like AI, satellite data, remote sensing, and algorithms weren’t yet around. That means companies rely on manual tools and systems in establishing baseline scenarios.

But now that digital technologies and even AI are publicly available, improvements are being made in setting baselines.

For example, Pachama’s technology called “Dynamic Control Area Baseline” ensures that carbon credits accurately represent real emission reductions. They observe forest loss in the control area using remote sensing data and then compare it with what they’ve observed with the project reported. 

The following image shows the project area in white and the control area in blue. 

Carbon rating agencies that focus on nature-based projects like REDD+ are also using innovative technologies to provide more quality assurance. 

Another unpopular solution is the application of blockchain in monitoring, reporting, and verification (MRV) of forest projects. Blockchain-based MRV can help improve verifiability of REDD+ carbon credits and ensure their permanence. Yet, further research is necessary in this field. 

Additionally, the current trend in the REDD+ sector is transitioning initiatives from project-level to jurisdictional or “nested” approach. This approach follows the same concept of REDD+ but covers national forests. 

The case of the Amazon in Brazil is an example. This jurisdictional REDD+ has a single reference baseline for deforestation.  

Plus, this new approach has not been used to issue voluntary carbon credits. Rather, it generates a new asset in the carbon market – sovereign carbon credits. The only concern with this solution is enforcement by political leaders.

When it comes to financing, carbon credits help fund REDD+, be it on a project-level or jurisdictional basis. 

Everland’s Forest Plan, in particular, will help the development and long-term financing for 75 REDD+ projects in threatened forests. Here’s the plan’s outlook for REDD+ from 2022 to 2030.

Everland’s forest projects will cover around 23 million hectares. The Forest Plan’s aims may be ambitious but they’re a part of a bigger, collective effort to end deforestation. 

What Comes Next for REDD+? 

While no one can predict or calculate 100% accurate baseline scenarios, improvements in practices will bring better results. This will enhance the accuracy of calculating how much carbon credits are due for REDD+ projects. 

Advanced technologies and new innovations will enable the market to correct itself. 

Following the bad press coverage for REDD+ earlier this year, misconceptions about them and their associated carbon credits continue to bring the market down. 

But as what major industry experts pointed out, not all forestry projects are the same. Some may have poor quality but many others still deliver significant positive climate benefits and sustainable development goals. 

Ultimately, there’s no single silver bullet for ending deforestation but carbon markets do have a crucial role to play here. They direct major investments and support toward REDD+ projects and programs worldwide. With that, REDD+ remains a vital tool in fighting climate change. 

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