The City Week event organized by City & Financial was held at London’s Guildhall last week. The discussion centered on how effective national regulators are in coordinating their climate policy initiatives.

Regulatory collaboration

“We work with many regulators across the world. It’s an area where everyone is trying to struggle with the same problems at the same time,” said Sacha Sadan, director of ESG, FCA. The international regulators work very closely together, he said. “A lot of this is not actual regulation, it’s convergence.”

The UK government was instrumental in the establishment of ISSB at COP26. “It’s the fastest international accounting standard in the history of the world,” said Sadan. Along with the FCA and CFTC, international regulators in China, Brazil, Hong Kong, India, Nigeria and Japan are looking at embedding the standard, he added.

CFTC Commissioner Christy Goldsmith Romero agreed with Sadan. “We’re all facing the same challenges, right? So Climate change, does not know borders. We might have different remits, we might have different authorities but we are all working together. It’s not like I just met Sacha today. We talk and we try to figure out together.”

The US is just getting started in these first couple of years, said Goldsmith Romero. “I think President Biden has been a real leader”, she said and listed recent climate change policies:

• Inflation Reduction Act (IRA): The Act contains a number of measures, including measures that aim to promote decarbonisation.
• Bipartisan Infrastructure Law: This makes a historic investment in drinking water and wastewater infrastructure, to deliver clean drinking water to all American families and help to eliminate the nation’s lead service lines.
• CHIPS and Science Act: The new act will boost efforts to manufacture more zero-carbon technology in the US, establish a new federal office to organize clean-energy innovation, and direct billions of dollars toward disaster-resilience research.

Goldsmith Romero said that the US is now moving very quickly on climate change – as the commodities regulator, the CFTC regulates agriculture and energy markets, “it is those markets that are absolutely impacted by climate events,” she said.

“And so when I’m talking to my counterparts, including Sacha, we are talking about opportunities that are there and we are trying to figure out where we can all work together, and we’re comparing and contrasting about what we can do on greenwashing. There is much collaboration and I’m very hopeful.”

Integrity of carbon markets

The integrity of carbon markets is an area of contention for financial institutions and corporates. There have been many reports of them simply not working, more than 90% of rainforest carbon offsets by biggest certifier are worthless according to a report in the Guardian.

Goldsmith Romero discussed how regulators are collaborating with each other and the industry to weed out bad actors and make sure that there is confidence in this market.

Financial institutions or other regulated entities want to make investments that have their Net Zero commitments or their Paris alignment strategies in place, said Goldsmith Romero. “Everyone is looking at how do we use these carbon credits? And then there’s this question of additional risk as there was no real way to determine what’s a high quality credit versus a low quality credit,” she said. Also, the market is fragmented with lots of different registries, standard Setters and also no transparency of price.

“I’ve been a regulator in the United States for 21 years and this is the first time that industry has come in and asked for more regulation [on carbon markets],” said Goldsmith Romero.

Therefore, in March 2023, she proposed that the CFTC issue listing standards guidance for exchanges regarding the listing for trading of voluntary carbon credit derivative contracts. The proposed guidance was approved in December 2023 with a view to setting an international standard.

She said the CFTC was considering comments on its proposals but that the initiative showed that the US government had an interest in trying to ensure the market integrity of carbon derivatives.

“I proposed that that the CFTC basically put out exchange listing standards on voluntary carbon credits that would adapt the core carbon principles that the Integrity Council on Voluntary Carbon Markets are proposing. And that’s hopefully going to be a global standard, a global way of determining what’s a high-quality credit,” said Goldsmith Romero.