The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets. IOSCO expects that both disclosures and assurance standards should be ready for use by corporates for their end-2024 accounts, with the International Sustainability Standards Board (ISSB) expected to issue, in 2023, its standard for climate disclosures and general requirements.
With respect to the other two regulatory priorities, IOSCO also published
- consultation paper setting its recommendations on how to establish sound and well-functioning compliance carbon markets. The comment period ends on February 10, 2023.
- discussion paper seeking industry views, until February 10, 2023, on the role of financial markets regulators in voluntary carbon markets.
- call for action asking all voluntary standard-setting bodies and industry associations operating in financial markets to promote good practices among their members to counter the risk of greenwashing related to asset managers and ESG rating and data providers.
The consultation paper on Compliance Carbon Markets sets out twelve recommendations for jurisdictions seeking to establish compliance markets as a way to meet their obligations under Article 6 of the Paris Agreement. The recommendations are addressed to all authorities involved in the development of a compliance market in their jurisdiction. Compliance Carbon Markets, or CCMs, are also called “cap-and-trade” or “Emission Trading Schemes (ETS)” markets and are set by “cap-and-trade” regulations. The consultation paper explores the functioning of existing and well-established compliance markets to gain an understanding of potential vulnerabilities in the functioning of these markets and how to mitigate these. Building on the lessons learned from existing compliance carbon markets and good practices in commodity derivatives markets, the document delves into both primary markets and secondary markets considerations as well as spot and derivatives trading. It also offers insights into appropriate regulatory and oversight frameworks to allow for the development of sound, efficient, and liquid compliance markets. The report also includes a section on international carbon markets and a unique carbon price, to consider mechanisms that would, over time, lead to a consistent price for carbon globally.
The discussion paper on Voluntary Carbon Markets explores an array of attributes that can foster sound carbon credit markets as well as vulnerabilities that prevent these carbon credit markets from upscaling. Conscious of the evolving framework associated with Article 6.4 of the Paris Agreement, the report offers, for discussion, a series of key considerations for the development of resilient carbon credit markets; it asks respondents to consider the role of financial markets regulators in the oversight of these markets. In the report, IOSCO has put forward key considerations related to open access, market integrity, publicly available data to promote transparency, price discovery, product standardization/environmental integrity, interoperability, financial integrity of transactions including settlement and delivery certainty, legal certainty, governance, conflicts of interest, and enterprise risk management. Underpinning these key considerations are toolkits with suggested ways to address each of the key considerations through the development and implementation of supervisory and regulatory policies and measures.
- Regulatory Priorities (PDF)
- Discussion Papers on Carbon Market
- Call for Action on Good Practices (PDF)
Keywords: International, Banking, Securities, Insurance, ESG, Climate Change Risk, Reporting, Disclosures, Carbon Markets, Greenwashing, Emission Trading, Paris Agreement, COP27, ISSB, IOSCO
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
ESG and climate expert for P&C insurance; IFRS 17 specialist and chartered accountant; extensive experience in both life and non-life insurance, with focus on capital management, financial performance, and financial reporting.
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