The Securities and Exchange Commission (SEC) has introduced a transformative climate disclosure rule aimed at revolutionizing the reporting landscape for public companies. 

This proposed rule seeks to mandate detailed disclosure of emissions, climate risks, and strategies for achieving net zero emissions, marking a significant leap towards corporate transparency and sustainability. 

Key Aspects of the Proposed Rule

At the core of the SEC’s proposed rule lies a call for comprehensive reporting, compelling companies to provide detailed insights into their climate-related facets. This includes the delineation of risks associated with climate impact, emissions data, and robust plans for achieving net zero emissions.

One of the primary objectives of the SEC’s proposal is to arm investors with consistent, comparable, and meaningful climate-related information. This will enable investors to make more informed decisions, considering a company’s environmental impact and climate risk profile in their investment strategies.

Moreover, standardizing reporting obligations across companies issuing securities is another key aspect of the proposal. This seeks to establish uniformity in disclosures, potentially reducing discrepancies and enhancing the overall quality of information provided by companies.

Most notably, SEC’s proposed rule will significantly impact the practices of accounting, auditing, and assurance for public companies and their service providers. It involves adapting existing frameworks to accommodate the new reporting requirements. 

It may also call for developing new methods and standards for evaluating and reporting climate-related information. 

Overall, the proposed climate disclosure rule cover two major aspects:

Climate-Related Financial Impacts: The regulation tackles how climate-related impacts should be included in financial statements (e.g. balance sheet, income statement, cash flow).
Narrative Disclosures: The rule also involves narrative disclosures in form SK. It will likely include discussions on risks, business strategy impacts, and metrics like greenhouse gas inventory.

Implications and Challenges for Companies

The SEC’s disclosure rule also poses a number of implications and challenges. 

The first one is increased reporting obligations for companies. They will face additional reporting demands that may require thorough data gathering, accurate presentation, and strengthened internal controls to comply with the new regulations. 

RELATED: SEC New Climate Disclosure Rule Turns into a Battleground

Companies also have to go along the transition from voluntary to regulated disclosure. This represents a significant change, requiring gradual efforts until they become accustomed to the new reporting requirements. 

However, for companies that are already complying with similar disclosure rules, it would be easier for them to embrace the proposed changes. Given the overlap with other existing regulations, determining the costs of the SEC’s rule alone would be hard. 

But according to the SEC, the required reporting will cost a small publicly listed firm about $420,000 a year on average. For a larger company, it will be $530,000 a year.

Source: U.S. SEC

Role of Carbon Credits and RECs

The SEC’s proposed rule acknowledges the relevance of carbon offsets and renewable energy credits (RECs), underlining their importance in climate-related reporting. Companies increasingly leverage these instruments for decarbonization, establishing  market-based mechanisms to advance sustainability goals.

However, discussions have emerged regarding the adequacy of the SEC’s requirements, raising concerns about the need for more comprehensive disclosures. It’s crucial for investors and stakeholders to understand how the use of these credits impacts a company’s risk profile, business strategy, and long-term financial implications. 

In particular, the proposed rule outlines the following key areas for disclosure:

Climate-Related Risk: Companies’ use of voluntary carbon markets in their transition risk strategy.
Business Strategy Alignment: How the use of carbon credits or offsets aligns with a company’s business model, strategy, and future outlook.
Targets and Goal Disclosure: Requirements for companies to disclose if their sustainability targets involve the utilization of RECs and offsets.

While the proposed rule has been in existence for about 18 months, awaiting finalization, stakeholders have actively engaged in the process, submitting over 20,000 comments during a consultation period. 

However, the final timeline for its completion remains uncertain, leaving companies in a state of anticipation regarding the impending changes.

How to Prepare for SEC’s Proposed Climate Disclosure Rule: A Roadmap for Companies

Despite the uncertain timeline, companies are advised to prepare by focusing on “no regret” actions, according to Matt Handford, Principal, Climate Change and Sustainability at Ernst & Young. He further shared insights on how companies can better prepare for the new disclosure requirements. 

Key areas to focus on per Handford’s advice include the following:

Emissions Understanding and Accounting: 

Companies need to treat emissions data with the same rigor as financial data, ensuring completeness, accuracy, and reasonableness of their emissions inventory.

Data Hygiene and Quality Assurance: 

Emphasis should be on the quality of data and the reliability of sources, underpinning robust documentation and validation processes.

Reassessment of Climate-Related Claims: 

Companies are reassessing their public claims related to carbon neutrality and net zero targets, ensuring robust strategies and execution plans to meet these objectives.

Engaging Internal Stakeholders: 

Collaboration across various internal departments, including finance and legal, is pivotal to comprehensively address climate-related disclosures and strategies.

The SEC’s proposed climate disclosure rule represents a transformative era in corporate reporting, mandating transparency and accountability regarding climate-related information. As businesses gear up for these regulatory changes, thorough preparation and collaborative approach will be crucial in meeting the evolving disclosure obligations and steering towards a more sustainable future.

The post A Deep Dive into SEC’s Proposed Climate Disclosure Rule for Sustainability appeared first on Carbon Credits.

The year 2023 marks a pivotal moment in the volatile journey of the carbon credit market. Once hailed as a cornerstone of corporate climate action, voluntary carbon markets are now grappling with a crisis of confidence and a significant downturn in price and demand.

A Rapid Rise and Troubling Slowdown

Voluntary carbon markets (VCMs), a key tool in the global fight against climate change, experienced exponential growth from 2019 to 2021. 

As seen above, VCM credits jumped by 86% in 2021 compared to 2019 level. This surge was fueled by escalating corporate net-zero commitments and optimistic forecasts about the market’s potential size.

For instance, Citibank committed to reach net zero emissions by 2050, while using carbon credits to tackle unavoidable emissions. One of the world’s largest biopharmaceutical companies, Pfizer, also pledged to achieve net zero emissions by 2040. The US’ biggest utility, Pacific Gas and Electric (PG&E), also aimed at hitting net zero by 2040 while reducing Scope 1 and 2 emissions by 50% from 2015 levels by 2030. 

However, 2022 witnessed a stark slowdown in the VCM’s growth, a trend that continued into 2023. Various factors, including the increasing complexity of market mechanisms and the role of carbon credits in broader sustainability strategies, have contributed to this decline​​.

The Offset Decline: An Erosion of Confidence

Several high-profile corporations, such as Shell, Nestlé, EasyJet, and Fortescue Metals Group, have recently retreated from carbon offset schemes. This withdrawal stems partly from growing skepticism about the effectiveness of these projects, with concerns about their actual climate benefits and accusations of greenwashing. 

Shell: The MIT Technology Review reported that corporations, including Shell, announced they were backing away from offsets or the claims of carbon neutrality that relied upon them. This shift reflects a broader trend of companies moving away from credits that simply claim to prevent emissions, particularly in light of increasing awareness about the challenges in proving the actual environmental impact of these projects​​.
Nestlé: Reuters detailed Nestlé’s decision to move away from investing in carbon offsets for its brands, such as KitKat, to focus more on programs and practices that help reduce greenhouse gas emissions within their own supply chain and operations. This change is part of their strategy to reach their net-zero ambitions, indicating a shift from offsetting to direct emission reductions​​.
EasyJet: According to the MIT Technology Review, EasyJet was mentioned as another corporation that had decided to wind down its offsetting program. Instead, EasyJet is now focusing on cutting emissions from its operations, signaling a shift in strategy towards more direct measures of reducing environmental impact​​.

A significant decrease in demand for offsets was observed, with estimates suggesting a 25% decline from 2021 levels by the end of 2023​​.

Carbon Price Collapse

The downturn in demand has had a dramatic effect on prices. The Xpansiv market CBL, the world’s largest spot carbon exchange, saw prices of carbon offsets fall by over 80% in an 18-20 month period.

Note: You can view the daily price changes and charts of carbon prices right here.

This price decline reflects the broader challenges facing the voluntary carbon market, including questions about the actual environmental impact of the credits and the integrity of projects claiming to offset emissions​​.

While the VCM prices have been hit, the decline in NGEO (Nature-Based Global Emissions Offsets) prices stands out due to the premium they were trading at over the other offsets last year. With increasing scrutiny on forestry projects, NGEO prices sharply dropped from around $15 in June 2022 to $1 in June this year.

It even declined to below $1 at the time of writing. 

One major reason for the downward trend of NGEOs was the tough macroeconomic environment, causing stagnation in demand in 2022. Moreover, the poor outcome for the VCM at COP27, which carries over at the recent COP28, further casted doubts on how carbon offsets fit in corporate net zero plans.

Mark Kenber, VCMI’s Executive Director, commented that though there are many encouraging developments on carbon markets at COP28, agreements “fell short of the mark”. He further stated that:

“For the market to fully develop in the next two years, policymakers can draw on the foundational work of the VCMI and IC-VCM, developing high-integrity VCM and Article 6 markets that deliver the finance that makes ambitious global action possible.”

Over in compliance markets, the EU carbon prices have broken records in February this year, surging past 100 euros. But the EU allowance prices also dipped back to its low levels this month at 78 euros, close to its November 2022 average price. 

The region, which has the largest carbon market EU ETS, plans to phase out its free carbon allowances while gradually phasing in its newly introduced carbon tax, known as the Carbon Border Adjustment Mechanism. CBAM will ensure that companies operating inside and outside the bloc remain on the same page in terms of carbon pricing and environmental impact. 

RELATED: CBAM Carbon Pricing (EU’s 1st Cross-Border Carbon Policy)

Following the EU footsteps, the UK is also set to launch its own CBAM version. It aims to ensure that imported goods from carbon-intensive industries like iron, steel, and cement face fair carbon prices. 

A couple of African nations are also gearing up to participate in the carbon arena. New carbon credit exchanges are created in Zimbabwe and Tanzania while Zambia and Kenya have plans to do the same. 

Several countries in Asia are also joining the carbon market bandwagon. Indonesia had launched a carbon credit trading market through IDX as part of its 2060 net zero goal. Japan’s first exchange-based carbon market opened in October this year.

Amid all these, the future of carbon markets now stands at a critical juncture. They face the challenge of regaining credibility and functionality amidst growing scrutiny and regulatory changes. How these markets evolve in response to these challenges will significantly impact their role in global climate strategies.

The Inflection Point: What’s Next for Carbon Prices and Trading?

Not all carbon news is grim here in 2023.

On Dec 13th, 2023, Xpansiv’s CBL spot exchange hit a daily trading volume record of 2.13 million tons of carbon credits, signalling robust corporate engagement in carbon offset markets. This surge aligns with the final day of COP28, reflecting an uptick in year-end corporate purchases for sustainability goals. 

New transparency requirements in the U.S., Europe, Australia, and California are driving this demand, pushing companies to disclose more about their carbon offset activities.

Allister Furey, CEO and co-founder of Sylvera, noted the fact that regulators are now seeing the critical role of carbon credits in financing the net zero transition. He further said that:

“Disclosures at every step of the carbon journey and for all involved stakeholders will become increasingly important. From the SEC’s coming climate disclosure rules to California’s AB1305, there are significant incoming regulations which should dramatically improve data availability in net zero–and we will begin to see the price of carbon ripple throughout value chains, slowly but surely.”  

Since 2020, CBL has traded over 300 million tons, dominating over 95% of the global spot exchange-traded carbon offsets. The record day underscores a heightened market activity during the UN’s COP event.

READ MORE: The Big News from COP28: Nuclear Energy’s Triumph

Meanwhile, the Compliance Credits market has not only attracted immense investment dollars – especially in carbon capture projects – but countries like Canada and the UK are setting higher and higher compliance prices.

NASDAQ Enters the Carbon Credit Market Arena

The NASDAQ Exchange, recognizing the growing importance and potential of the carbon credits market, has recently launched an innovative technology to revolutionize the industry. This new system, aimed at digitizing the issuance, settlement, and custody of carbon credits, is set to enhance the scalability of this nascent market. 

Nasdaq’s approach uses smart contracts for secure transactions and promises to bring much-needed standardization and liquidity to attract diverse investors​​​​.

Moreover, Nasdaq’s collaboration with Climate Impact X (CIX) marks a significant stride towards developing the global carbon market. This partnership will power CIX’s spot exchange for quality carbon credits, intending to improve price transparency and liquidity in the voluntary carbon credit market. 

Addressing the inefficiencies and inconsistencies in the market, this move by Nasdaq and CIX is poised to create a more resilient and scalable trading environment, demonstrating Nasdaq’s commitment to pioneering market transformations in the carbon credit sector​​.

It’s clear that change is in the air. Companies are not just looking to buy credits; they’re looking to buy credibility and real impact. And as the market matures, it’s becoming more about quality than quantity.

The post Carbon Prices and Voluntary Carbon Markets Faced Major Declines in 2023, What’s Next for 2024? appeared first on Carbon Credits.

Sylvera, a prominent carbon data provider, is collaborating with the Singapore Government to facilitate high-quality carbon credits for meeting its commitments under the Paris Agreement. Alongside this initiative, the company opened an office in Singapore to bolster its presence in Singapore’s thriving carbon trading ecosystem.

The London-based company builds software that independently and accurately assesses carbon projects aimed at capturing, removing, or preventing emissions. This technology aids organizations in making impactful investments toward achieving net zero emissions. 

With the company’s suite of data and tools, businesses and governments alike gain the confidence to invest in, measure, deliver, and report genuine climate impact. 

Empowering Climate Action

Despite the Paris Agreement’s inception in 2015, many signatory countries are currently falling short of their climate goals. Purchasing carbon credits stands out as a well-established and scalable approach to channel funding towards impactful climate outcomes. These credits support projects worldwide such as safeguarding rainforests from deforestation and clean energy initiatives. 

Article 6.2 of the Paris Agreement lays the groundwork for countries to exchange carbon credits through a market mechanism. This approach helps nations in their climate goals post-emission reduction efforts.

Singapore, the leading Southeast Asia in instituting a carbon pricing system, actively seeks partnerships for carbon credit projects. These initiatives offer host countries various benefits, including investments, job creation, and progress towards sustainable development goals.

Benedict Chia, Director General for Climate Change at the National Climate Change Secretariat in Singapore, highlighted the nation’s commitment to fostering a high-integrity carbon market. To achieve that, the official particularly noted that:

“…we need to leverage data and innovative technologies to monitor emissions reductions and removals in carbon credit projects. We welcome the launch of Sylvera’s regional office in Singapore to provide solutions on this front.”

Sylvera will aid Singapore in identifying top-notch carbon credits (referred to as ITMOs under Article 6.2) from other nations. This collaboration aims to swiftly allocate climate finance to areas making tangible climate impacts and use these credits in alignment with Singapore’s Paris Agreement objectives. 

In October, the Asian country set a criteria for international carbon credits to ensure that they are of high quality. 

READ MORE: Singapore Sets Higher Standards for International Carbon Credits

By marrying cutting-edge technology with premier carbon measurement methodologies, Sylvera offers ratings that evaluate climate action investments, like carbon credits. This empowers organizations and pioneering nations like Singapore to confidently execute their climate strategies and progress towards achieving net zero.

Singapore Raises the Bar for High-Integrity Carbon Credits

Singapore has recognized the advantages that carbon markets offer in achieving net zero targets with its ambitious goals. It’s crucial for global leaders to embrace the benefits of high-quality credits to make substantial progress on their climate commitments. 

Thus, governments are increasingly emphasizing the need for independent assurance to ensure the credits they purchase are “driving real climate action and societal net zero progress,” said Samuel Gill, Co-founder and President of Sylvera.

Last July, the carbon rating company raised $57 million to incentivize businesses to confidently invest in carbon credits.

READ MORE: Sylvera Raises $57M to Help Companies Invest in Carbon Credits with Confidence

According to Trove Research, a total of $36 billion was invested in voluntary carbon credit projects within 10 years, 2012-2022. Of that, $7.5 billion was raised in 2022 alone.

In terms of share, the East Asia and Pacific region bagged the largest investment, amounting to $2.7 billion.

Source: Trove Research

Still, global efforts remain short of about $90 billion to meet the 2030 carbon reduction targets. 

Sylvera’s advanced software will contribute to strengthening Singapore’s position as a key emissions trading hub in Asia. Through this collaboration, the country may set a benchmark for environmental integrity, setting an example for the global community.

The announcement coincides with Sylvera’s expansion into the region, establishing a local presence and office in the country. This development is backed by support from the Singapore Economic Development Board (EDB). 

Sylvera’s new office will serve clients not just in Singapore but also in the broader APAC region.

Investments in developing carbon credit projects are an essential market signal indicating levels of corporate climate action. Sylvera’s collaboration with the Singapore Government marks a crucial step toward ensuring high-quality carbon credits for meeting climate commitments. 

The post Sylvera and Singapore Forge Path Towards High-Quality Carbon Credits appeared first on Carbon Credits.

As 2023 comes to an end, the Biden administration is highlighting the significant announcements made regarding clean energy manufacturing and clean power since President Joe Biden took office. These announcements have been supported by new laws focused on tackling climate change.

Despite the current high levels of oil production and strong exports of liquefied natural gas, the officials emphasize their commitment to reducing carbon emissions and transitioning away from fossil fuels.

An official particularly highlighted the need to globally shift towards cleaner energy sources. This is the agreement among nations that participated in the COP28 climate summit. 

Unleashing the Power of Clean Energy

Since President Biden assumed office in January 2021, private companies have announced investments exceeding $500 billion in “21st century” industries such as semiconductors and electronics. 

The figure includes about $360 billion invested in clean energy manufacturing, batteries, electric vehicles, among other sectors. Of this, around $132 billion is for new clean power projects, as stated in the official White House release. 

Moreover, the forecasted total for clean power announcements this year, $58 billion, rose by 152% compared to 2021, $23 billion. 

The Inflation Reduction Act (IRA) of 2022 largely spurred these investments. The regulation provides tax incentives for clean energy resources and electric vehicles over a decade. 

In particular, clean energy manufacturing investments have jumped by over 170% in the past year because of these initiatives, according to the National Economic Council Director Lael Brainard.

The administration’s approach to investing in America’s clean energy future led to this significant surge in investments and job creation. 

A separate report mirrored the same trend. Per data from the Clean Investment Monitor database, developed by Rhodium Group and MIT’s Center for Energy and Environmental Policy Research (CEEPR), clean energy is increasingly becoming one of the biggest industries in the U.S. 

The CIM data reveals that from July 2022 to June 2023, clean investments amounted to $213 billion. Putting that in perspective, the figure is more than the annual GDPs of 18 U.S. states combined.

The database also found that retail got the most funding, with $113 billion where EVs received the biggest share. Specifically, ZEVs has the fastest growth, with an estimated $70 billion investment over the past year.

RELATED: BMW and Toyota Leading The ZEV Revolution

Renewables Surge with Expanding Capacities

Since the IRA took effect in August 2022, there have been significant advancements in solar module manufacturing. 

The White House presentation also reported announcements of >100 gigawatts (GW) of solar module manufacturing capacity. This capacity could potentially produce enough solar panels to power approximately 10% of homes in the country. The investment represents over $13 billion. 

The growth trend extends to wind power production and related manufacturing. The combined onshore and offshore wind energy capacity is anticipated to reach 300 GW in 2030, marking a 43% rise from the EIA’s 2021 projection.

Since the IRA’s enactment, plans have been announced both for onshore wind and offshore wind projects. They include opening of new facilities, reopening of idle ones, or expansion of existing manufacturing facilities.

Same with other industry trends and reports, the White House also touted massive investments made in EV and battery production. The amount has reached a staggering $150 billion since 2021, with additional $39 billion for new energy storage projects. 

It does make sense that ZEVs and batteries are getting the spotlight in clean energy investments. The IRA tax incentives promote the manufacture of EV batteries (48C) and clean energy storage (45X). 

Apart from IRA, there are two other laws advancing investments in this emerging sector: Infrastructure Investment and Jobs Act 2021 and CHIPS and Science Act 2022.

The effectiveness of these climate-related policies in ramping up the transition to a clean economy will be crucial in achieving the country’s net zero goals. The nation aims to reduce carbon emissions by 50% to 52% below 2005 levels in 2030. 

Paving the Way for Sustainable Growth

According to Brainard, the US is on track to reaching its 2030 emissions target. 

Industry experts also believe that the legislation helps in scaling up the pace of clean investments in America. 

READ MORE: US Saw $213B Investment in Clean Technologies

While the current administration officials acknowledge challenges, they affirm their commitment to ensuring the certainty of IRA tax credits. Biden’s senior clean energy adviser, John Podesta, particularly said that:

“We’re obviously committed to ensuring that 10-year certainty [of IRA tax credits] comes through.”

Amidst a monumental year for clean energy investments and manufacturing advancements, the Biden administration underscores its commitment to transitioning the U.S. away from fossil fuels. With over $500 billion investments in clean energy sources, the nation is making substantial strides toward its climate goals.

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