Standard Chartered has announced an agreement to sell Brazilian forest carbon credits, using a methodology that has in the past attracted criticism for over-crediting projects on which those credits would be based.
The bank, which focuses on African and Asian markets, is partnering with the Brazilian state of Acre to sell credits in the Amazon rainforest over the next five years. Indigenous and local communities are expected to receive 72 per cent of the funds.
The credits sold by Standard Chartered will be registered with the Architecture for REDD+ Transactions registry as seeking to reduce emissions from deforestation and forest degradation. Rather than being project based, the credits will cover an entire jurisdiction and be overseen by the government.
Margaux Le Gallou, senior programme manager at international non-profit the Environmental Coalition on Standards, told The Banker’s sister publication Sustainable Views that seeing large banks such as Standard Chartered move into the voluntary carbon market suggests that any impacts of previous controversies over carbon credits has passed.
“We saw a backlash, but the backlash didn’t last very long,” she said.
Two years ago, the VCM “crashed” after a series of controversies revealed that many carbon crediting projects were not leading to the carbon removals that they claimed, Le Gallou added.
REDD+ projects specifically have attracted extensive criticism about their climate and social impacts. Academic research has found that many REDD+ projects are over-crediting, selling credits for forest conservation that would have happened anyway.
Further, carbon removals from REDD+ projects may also not be permanent, as forests may be protected in the short term but be chopped down in the future.
High-integrity credits
Standard Chartered is using the REDD+ Environmental Excellence Standard, which has been approved by the Integrity Council for the Voluntary Carbon Market and which the bank says assures the credits will be “high integrity”.
However, given past controversies, Le Gallou remains “sceptical” and said that integrity will depend on implementation and auditing of the projects.
“You can call it high integrity [but] that doesn’t mean it will be,” she said.
Benja Faecks, an expert at non-profit Carbon Market Watch, agrees there can be “massive discrepancy” between projects, even when they are working to shared standards or methodologies.
She calls for thorough project documentation that can be reviewed by independent auditors and due diligence by buyers, sellers and developers.
A number of experts have warned of shortcomings in the TREES methodology, including two who stepped down from the ICVCM after the body approved the standard along with two other REDD+ methodologies in 2024.
Under TREES, a jurisdiction can terminate its REDD+ programme without a penalty after one baseline period, even if deforestation levels increase again in subsequent periods, and they are not required to monitor and compensate for project reversals beyond the crediting period.
A Standard Chartered spokesperson told Sustainable Views that the project is being assessed by UK-based carbon rating agency Sylvera and that the ART TREES methodology was selected by the state of Acre.
Contribution credits
One solution to the disparity in how much carbon is removed by various REDD+ projects and the claims made about them, is to not sell the credits for offsetting.
Carbon offsetting, when corporate buyers purchase credits in order to “cancel out” their emissions, requires carbon removal.
On the other hand, contribution credits cannot be used by buyers to make carbon claims but are a way of financially contributing to nature restoration.
“The market can increase in volume, but that doesn’t necessarily mean it will translate into environmental gains.”
Both Le Gallou and Faecks told Sustainable Views they would like to see Standard Chartered sell the credits in Brazil purely as contribution credits, not offsets.
Selling credits for offsetting also incentivises developers to sell as many credits for as low a price as possible, but without necessarily improving environmental outcomes, said Le Gallou. “The market can increase in volume, but that doesn’t necessarily mean it will translate into environmental gains,” she said.
However, as others have argued in relation to the nature markets, selling contribution credits could reduce their demand as businesses see fewer reasons to buy them.
A Standard Chartered spokesperson said the credits will not be limited to contribution credits and buyers will be able to use them for offsetting.
Social risks
Buyers and sellers of REDD+ carbon credits also face significant social risks due to previous controversies surrounding the development of carbon projects on Indigenous land or the restriction of local people’s access to forests, said Le Gallou.
Faecks added that Standard Chartered should disclose these potential social risks to buyers.
She is, however, pleased that the bank has committed to ensuring that the majority of the funding from the sale of credits goes to local communities.
This article first appeared in Sustainable Views, a sister publication of The Banker
