For carbon markets to work as intended, they must operate with the same kinds of rules and investor protections as traditional financial markets, global securities regulators suggest.
The International Organization of Securities Commissions (IOSCO) has launched a public consultation on proposed good practices for voluntary carbon markets — venues where polluters and investors can trade carbon credits and offsets to meet emission-reduction commitments and generate financial returns.
The paper, which has been published for a 90-day comment period, is seeking feedback on IOSCO’s proposed set of practices for ensuring market integrity, and orderly operations in the markets for trading carbon credits and offsets.
The proposed practices are built on existing principles for sound trading in traditional financial markets, along with the results of a previous IOSCO consultation on the evolution of voluntary carbon markets.
“As we delved into [voluntary carbon markets], we realized that in addition to environmental integrity vulnerabilities, these markets also lacked some characteristics of fair, efficient and transparent markets that protect investors,” said Verena Ross, chair of the European Securities and Markets Authority and co-chair of IOSCO’s work stream on carbon markets for its sustainable finance taskforce, in a release.
Among other things, the proposals cover the initial issuance and distribution of credits/offsets, secondary market trading practices, the use and disclosure of use of carbon credits, and regulatory oversight in these markets.
“The proposed good practices aim to provide a strong foundation on which [voluntary carbon markets] may continue to grow by supporting sound market structures, well-reasoned transparency objectives, and common-sense market conduct practices,” said Rostin Behnam, chair of the U.S. Commodity Futures Trading Commission, vice-chair of IOSCO, and co-chair of the carbon markets workstream.
The consultation runs until March 3, 2024.