NEW F4B PAPER: Governing Carbon Markets
Rapidly growing nature markets require well-designed standards and a comprehensive governance system to ensure that public purpose is not subsumed by private interests.
This paper from Finance for Biodiversity calls for the development of a governance system that enables constant, systemic oversight and assessment, and meaningfully involves the local communities and other stakeholders directly affected by projects and trading.
Three design principles are put forward for adoption by governors of nature markets, such as the Paris Agreement’s Article 6.4 Supervisory Body and the IC-VCM Governance Body:
1. Whole-system governance: The governance system must connect with every level of the value chain, as well as with the broader market ecosystem outside of its institutional domain. This means prioritising the market’s public purpose, establishing systemic oversight, and conducting regular impact assessments.
2. Complete transparency: All information pertaining to the market and its procedures must be open and publicly available, ensuring the integrity of projects, transactions, and market outcomes.
3. Inclusive participation: All key market stakeholders— especially Indigenous Peoples and other frontline community members — must have the opportunity to participate fully in the governance of the market. That means they are meaningfully represented in governing bodies, have power to contribute to the design and oversight of both the market and individual projects, and have effective channels for their grievances to be addressed.
The feasibility of implementing these principles is attributed to changing attitudes among investors, employees, governments, and citizens, and new technologies such as satellite-based geospatial imaging, blockchain and distributed ledger technology that reduce the costs of large-scale information collection and stakeholder participation.
The paper says a governance model built around these principles is not only crucial for the success of the new voluntary carbon market but applies to all future nature markets, especially potential biodiversity offset markets which will require similar intensive oversight and stakeholder engagement to carbon markets.
To ‘help fill in the map’, the paper recommends additional governance design work for nature markets.
All recommendations are framed as a starting point to building open, transparent, adaptive governance systems for nature markets, that can deal with unpredictable events and behaviours.
