MSCI Nature-Based Carbon Integrity Forum: Quality, Standards, and Market Evolution
By Ana Bertazzo Lemos, Center for Sustainable Finance at CATÓLICA-LISBON
São Paulo, November 5, 2024 - The MSCI Nature-Based Carbon Integrity Forum brought together carbon market stakeholders in São Paulo to address critical questions about the integrity and quality of nature-based carbon credits. Held alongside pre-COP discussions, the event provided valuable insights as Brazil prepares to host COP30 in Belém.
The Shift Toward High Quality
The market is moving decisively toward high-quality carbon credits, driven by regulatory pressure and buyer demand. MSCI has rated 466 nature-based projects to date, applying rigorous methodologies to assess integrity. By 2027, disclosure will be mandatory in Europe, requiring companies to disclose every project and its characteristics. This regulatory shift is accelerating the end of opaque, low-quality carbon credits.
Scale and Jurisdictional Approaches
Project-by-project approaches alone cannot deliver the scale needed to address the climate crisis. Jurisdictional REDD+ programs offer a solution by working at the government level to address deforestation across entire regions. The LEAF Coalition, backed by the World Bank and Climate Investment Funds, serves as a platform for jurisdictional transactions, bringing necessary scale and credibility to the market while addressing leakage concerns.
Latin America’s Strategic Position
Latin America's vast forest resources position the region as a key player in nature-based carbon markets. The forum highlighted both opportunities and challenges: the distinction between offsetting and insetting approaches, the need for long-term financing, meaningful community engagement, and navigating complex regulatory environments. Investors like Equinor, with over 25 years in the region, are seeking high-integrity solutions with robust verification and clear co-benefits.
Project Quality vs. Credit Quality
A critical insight emerged: project quality does not automatically translate to credit quality. Well-designed forestry projects can still generate credits that face verification, additionality, or permanence challenges. The market infrastructure - registries, methodologies, verification processes - plays a crucial role in determining credit trustworthiness. This distinction underscores the urgency of standardization.
The Standardization Imperative
The carbon market remains fragmented across multiple registries, methodologies, and certification schemes. While frameworks from 2010 provided a foundation, they now require evolution. Emerging tools like Nature Asset Evaluation frameworks and IFRS developments show progress, but gaps remain. Mandatory disclosure requirements will force harmonization, separating serious market participants from opportunistic actors.
Looking Ahead to COP30
As COP30 approaches, the forum demonstrated the private sector's commitment to building robust carbon markets. However, significant work remains: harmonizing standards, ensuring equitable benefit-sharing with communities, addressing permanence risks, and scaling finance. The dialogue between pre-COP discussions and private sector innovation will be essential in determining whether nature-based carbon markets can channel significant finance toward forest protection when it's needed most.
