ISDA, IIF Respond to IOSCO Consultations on Compliance and Voluntary Carbon Markets

On February 10, ISDA and the Institute of International Finance (IIF) submitted a joint response to the International Organization of Securities Commissions’ (IOSCO) consultation report on compliance carbon markets (CCMs) and discussion paper on voluntary carbon markets (VCMs).

The response focuses on several themes that leverage the IIF and ISDA’s engagement on issues relating to the environmental integrity of carbon credits and the integrity of carbon markets to date. The two organizations welcome IOSCO’s holistic approach to fostering the development of sound and well-functioning compliance and voluntary carbon markets, and they strongly believe carbon markets are a critical component of the global response to climate change and the transition to net zero.

The response makes a number of specific suggestions, including:

  • Encouraging IOSCO to leverage the work of key VCM governance bodies, such as the Integrity Council for the Voluntary Carbon Market, to support greater standardization and strengthen supply- and demand-side integrity;
  • Providing guidance on how securities and financial regulators can and should use their expertise, authority, and scope of influence to enhance market integrity, recognizing the limits of such regulators with respect to dimensions of environmental integrity concerns per se;
  • Requesting clarification of the legal classification and regulatory treatment of carbon credits, also distinguishing between the legal nature and regulatory status of VCMs themselves and the nature of transactions in VCMs (eg, derivatives transactions with an underlying VCC, such as listed futures or over-the-counter forwards or options);
  • Requesting continuous monitoring of the development and linkages between CCMs and VCMs to ensure that, as these markets develop, any regulation remains appropriate and fit for purpose.

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