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VCM: evaluating carbon credit rating agencies

© Shutterstock / Inga LinderPost Thumbnail

Independent European think tank Carbon Market Watch (CMW) has published a study assessing how reliable and robust the ratings of carbon credits are, evaluating agencies Sylvera, BeZero Carbon, Calyx Global and Renoster.

  • The role of rating agencies in the voluntary carbon markets (VCM) is to assess the robustness and climate impact of carbon credits.
  • These agencies, however, use different methodologies and were found to give completely different ratings to the same projects, which can be confusing for buyers. That confusion undercuts market development.
  • The CMW concluded that more alignment, oversight and methodological transparency are needed, and made some recommendations to move forward.

Navigating the world of VCMs can be a challenging endeavour, mostly due to the lack of standardisation and, often, transparency. The industry has been subject to controversy, most recently around avoided deforestation credits certified by standard-setting body Verra, which has been rehauling its operations to rebuild its credibility.

In this scenario, the role of carbon credit rating agencies is to assess the legitimacy of carbon credits across different factors, gauge fair pricing and increase transparency to mitigate risk for buyers. The lack of a universal standardised carbon credit quality-assessment methodology, however, makes it difficult for buyers to compare carbon credits and enable appropriate pricing.

There is increasing awareness for the need for oversight and transparency, which has led to initiatives such as the Integrity Council for the Voluntary Carbon Market, which defines minimum quality criteria and carbon credit attributes.

When a ‘tonne is not a tonne’

The basis of the market is that a single carbon credit represents the removal or reduction of one metric tonne of carbon dioxide. Reported carbon offsets, however, may not always match the actual amount. 

The study on ratings agencies, conducted by Perspectives Climate Group, assessed and accounted for five key indicators of the credibility of carbon credits:

  • Additionality: whether the climate benefits are occurring due to the project, or would have occurred anyway due to other factors. 
  • Non-permanence risk: how likely it is that the stored carbon will be released back into the atmosphere, which implies a lack of longevity for the carbon credit. 
  • Leakage risk: whether projects truly reduce emissions, or result in the captured emissions shifting elsewhere. 
  • Co-benefits and safeguards: co-benefits refer to whether a project delivers additional benefits beyond reducing carbon emissions, for example, for the ecosystem. Safeguards include whether the credit protects local communities, indigenous peoples and the environment from harm. 

The report also studied the overall output of the ratings agencies, and they were found to often attribute medium to low scores to projects. Benja Faecks, executive director of the CMW and author of the briefing, commented: “The fact that so few credits receive the highest score from rating agencies proves that the idea that emissions can be offset or compensated for using carbon credits is an illusion. This makes them unsuitable to offset emissions.”

Findings and recommendations for businesses

The analysis shows a general discrepancy between the ratings of these agencies, even for the same projects, which can create confusion for potential credit buyers. For example, the Ecomapua Amazon REDD+ project was rated very differently by all agencies: for Sylvera it was in Tier 1, while BeZero and Calyx gave it a low score.

According to the study, this may be due to various reasons, including differences in handling additionality as a limiting factor.

According to the findings, Calyx has the most stringent cross-sectoral as well as REDD avoided deforestation (AD) approach, while Sylvera and BeZero Carbon display ‘adequate’ ratings for both. Renoster was found to be incomparable to the others due to its unique approach. 

Moreover, Renoster’s scale represents the numeric ratio of actual carbon removals, whereas other agencies score in letters the risk or likelihood of a CO2 mitigation outcome being achieved or not. Finally, BeZero Carbon is the only agency that makes its ratings publicly available. 

Researchers also found that rating agencies lack oversight and regulation and should deliver improvements for foundational areas: transparency, governance, review processes and project-level assessments. 

Key recommendations include: 

    • Leakage must be included in the overall rating and cannot be assumed as zero, although the calculation is challenging.
    • Additionality is to be stipulated as a strictly limiting factor for robustness. 
    • Setting a permanence benchmark and dynamic baselines for deforestation: asset permanence benchmark (including land tenure) of 100 years for monitoring and compensation is another rigorous approach already applied by Calyx and Sylvera.
    • Co-benefits and safeguards: the positive impacts of the project beyond carbon reduction as a separate score (such as in Sylvera and Calyx), or as additional and non-rated information (such as BeZero Carbon and Renoster) means buyers can make more informed decisions on the robust quality of the carbon credits and contribute to fair pricing. 
    • Increase transparency: according to the report, the current frameworks are not enough for the public to make informed decisions after comparing the relevant aspects of the agency frameworks. While full public disclosure is ideal, at the very least should include risks and mitigation measures considered for non-permanence, leakage, and types of leakage sources. 

Researchers also warned that leniency in ratings risks legitimising the use of low-quality credits. At the same time, improving ratings can not only empower buyers with more knowledge about which carbon credits to invest in but also encourage the VCM as an arena for positive climate contributions. 

Limitations to the study

CMW admitted that there were issues with the methodology and scope of the study, contributing to the continued controversy in the VCM.

Firstly, the report mentions that the comparisons were conducted at a macrolevel between agencies and need to be regarded with caution due to strong limitations such as not assessing individual models and the unique interpretation of its results and quantitative assessments.

For example, according to the report, Renoster’s methodology was considered so different from that of the other agencies that it was rated “incomparable” in almost every category. As such, it required a separate “in-depth assessment of multiple overlapping ratings” that was not carried out.

According to Saif Bhatti, chief executive of Renoster, assessing rating agencies based on the number of ratings or coverage is “severely flawed or at least limited” as a methodology. He says: “Quantity of ratings has no bearing on quality or depth of analysis, and rating agencies should optimise to find out what is the truth of a credit and its worth in carbon on a project level – not on having shallow assessments of entire sectors or methodologies that miss vast amounts of nuance.” 

Challenges in the carbon rating industry

In response to the report, the leaders of global carbon ratings agencies opened up on the key challenges the industry faces. According to Donna Lee, co-founder of Calyx Global, high demand is the biggest challenge in assessing carbon credits. This is because carbon credit buyers need up-to-date and detailed information to make purchases, but there are not yet ratings for every credit available on the market. 

Bhatti also highlights the industry challenge of remaining transparent and objective while relying on third-party verification. He says: “Other rating agencies work closely with project developers, registries and accreditors in order to supply information to perform their ratings. They also don’t share how they rate their projects, which calls into question their entire catalogue of ratings.”

He adds that Renoster doesn’t rely on either, and focuses on a subsection of the market that they can independently verify, rather than “taking project developers at their word”.

Ensuring that organisations consider carbon credits a viable part of their net zero strategies is also a key challenge, adds Tommy Rickets, chief executive and co-founder of BeZero Carbon.

He says that BeZero welcomes the report, “which comes to the vital conclusion that ratings agencies like BeZero Carbon play a useful role in the Voluntary Carbon Market, and rightly points out that not all carbon credits are equal”.

Sylvera echoes this sentiment, with a spokesperson commenting: “While the voluntary carbon markets have existed for over thirty years, data and ratings about the credits have only been available for three years. Without data and ratings about projects, buyers had no insight into if their investments were having real climate impact.”

Future trends in carbon rating

According to Lee, one positive future trend in the industry is that carbon crediting programmes such as Verra’s are improving their methodologies faster. Due to the nascent nature of the market and the fact that carbon credits range from reforestation to landfill gas, however, standardising carbon credit rating methodologies could be difficult, she adds. Indeed, Calyx Global provides a separate rating for GHG integrity and SDG impact because our customers look for different attributes when purchasing credits.

Finally, Faecks concludes that the carbon rating agencies can be the catalysts of change in a world shifting away from offset and compensation to positive climate ‘contributions’ for global industry net zero. 


While the VCM is an important tool to achieve global climate goals, transparency is crucial to ensure integrity. While the fragmented world of carbon credit ratings can present a barrier to buyers who need to navigate complex information, there is scope to work on standardisation and deliver improvements.

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