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Friday, September 29, 2023

London Stock Exchange aims to bring firms’ carbon claims ‘out into daylight’

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The London Stock Exchange is aiming to make funding for carbon reduction projects more transparent, introducing a new market that it says will help the industry to scale.

Currently, so-called voluntary carbon markets allow companies to buy and sell carbon credits. Carbon credits are created by projects that help reduce or avoid emissions and can be bought by firms as a way to offset the greenhouse gases they release.

But the LSE said the system “remains small and fragmented and as such it lacks the market infrastructure and access to institutional investment that will truly enable it to scale,” in an online statement last week.

Speaking to CNBC’s “Squawk Box Europe” Tuesday, LSE CEO Julia Hoggett said: “One of the challenges we’ve had in this market is that it has been … less transparent and less visible to everybody in terms of participants and how the [climate change mitigation] projects are managed. By raising the profile of the public listed fund market, we can enhance the disclosures and the visibility of that market and also direct capital into it.”

“By moving all of these activities into the public markets, by having a voluntary carbon market that is much more visible, ultimately moves to exchange-traded contracts … And in addition, after the announcement last week from Rishi Sunak, about the mandatory requirements for the publication of transition plans for 2023, we’re seeking to bring all of this out into daylight, and sunlight is the best disinfectant,” Hoggett added.

British Finance Minister Sunak said the U.K. government would expect financial firms to publish their climate change mitigation plans by 2023 at the COP26 climate summit last week.

The LSE said it hoped firms that needed to buy carbon credits would invest. “We anticipate that corporates and other organisations with long-term needs for carbon credits will become investors, using the carbon credits delivered by these vehicles — which may be issued as an alternative or additional dividend — to meet a portion of their offset needs,” it said in an online statement. 

Part of the 2015 Paris Agreement, where countries agreed to pursue efforts to limit global warming to 1.5 degrees Celsius above pre-industrial levels, are rules around how governments can use carbon offsetting to meet their goals, known as Article 6. Negotiators are currently discussing how to move forward on carbon offsetting at the ongoing COP26 climate summit, as issues such as how emissions are accounted for have yet to be agreed.

CNBC’s Saheli Roy Choudhury and Kristina Partsinevelos contributed to this report.

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