Integrity Requires Scrutiny and Careful Consideration: Verra’s Response to Carbon Market Watch

Carbon Market Watch’s recent report, Verified but not trusted: Do audits ensure carbon credit quality?, raises a question central to the credibility of carbon markets: Can the independent auditing system that underpins the validity of carbon credits be relied upon?

Third-party validation and verification are core parts of a high-integrity market. Questions about how these auditing processes work, as well as how they are funded and are overseen deserve clear and open answers.

Constructive scrutiny strengthens the entire market, and in that spirit, we welcome new insights into market processes, but also carefully examine them. Below we set out where we agree with the report, where we believe its conclusions are not supported by the evidence, and how we are continuing to strengthen the system.

1. The meaning of “verified” must be better understood.

A positive validation or verification report means that an accredited, independent validation/verification body (VVB) has assessed a defined claim—about a project or its emission reductions—against specified requirements, for a particular scope and period, based on sufficient and appropriate evidence. It is a professional statement, not a blanket guarantee that every record has been examined or that a project will never face future challenges.

2. Assurance records should be more accessible.

Verra already publishes a level of project and audit documentation that exceeds that of most carbon crediting programs in the market. However, as the information about audits is spread across many documents and can be difficult for non-specialists to locate and interpret, we are undertaking measures to making auditing outcomes more readily accessible.

3. Perceived conflicts of interest warrant robust safeguards.

Under Verra’s programs, as in other auditing approaches worldwide, the audited party engages and pays the auditors directly. This arrangement does not compromise the independence of this type of engagement as auditors are bound to adhere to professional standards, ethical principles, and regulatory requirements. When a company requires its finances to be audited, it also pays for an auditor to carry out the work. This is common practice.

However, it is true that such an approach does create a perceived impartiality risk. While formal requirements regarding the independence of audits are necessary, on their own they may not be enough to sustain public confidence. It’s therefore critical to ensure there are credible and clear controls that ensure objectivity in these audits.

4. As with everything in the carbon markets, continuous improvement is key.

Verra is continually reviewing its VVB processes and expectations, many of which are in line with the priorities identified by the Integrity Council for the Voluntary Carbon Market (ICVCM) through its Continuous Improvement Work Program on VVB oversight. Verra took part in that work and is directionally aligned with its objectives.

VVBs must also continue to expand the multidisciplinary expertise needed to assess safeguards and community outcomes. In parallel, standard setters, like Verra, must implement appropriate controls and procedures, and address any shortcomings in VVB quality assurance processes.

Many of these priorities match those identified by Verra.

1. Validation and verification are not box-checking exercises.

The report portrays project auditing largely as a mechanical conformity check. In practice, this entails much more: VVBs must comply with International Standards Organization (ISO) standards and Verra’s applicable program and methodology requirements. VVBs are also required to test key assumptions, review data, methods, and calculations, and assess uncertainty and conservativeness, targeting their effort where the risk of material error is greatest.

Where evidence is insufficient or inconsistent, VVBs must extend their testing, raise findings, or withhold a positive opinion. Because the report largely excludes ISO standards and the other requirements from its analysis, it understates the substance of the assessment processes in the carbon markets.

2. The great majority of audits are not conducted remotely.

Verra’s review of the projects and their audits covered by the report found that approximately three quarters of all audits were conducted on site. Many involved multi-day field visits by audit teams, technical specialists, and local experts.

In one forestry project, three auditors completed 18 days of fieldwork. Remote assessments were concentrated in a small number of renewable energy projects during the COVID-19 pandemic.

3. Findings show assurance working as intended.

The report considers a high number of findings raised by a VVB as a sign of weak VVB performance. However, raising findings and declining to close them until a project has shown it conforms with the respective program and methodology requirements is precisely what a rigorous assessment requires. The audit record also shows that some VVBs identify emerging risks for future follow-up, including potential double counting, pressures on land and communities, and permanence. This is a forward-looking perspective that improves the chance of future quality assurance.

4. VVB rotation is not evidence of weak performance.

Over a multi-year project lifecycle, it is normal for any proponent to engage a number of different VVBs. This reflects Verra’s own rotation requirements, which are designed to reduce familiarity risk. A project changing VVBs does not, on its own, indicate weak assurance or “opinion shopping,” as the report claims. It is an important cautionary measure, based on longstanding experience, dating as far back as the Clean Development Mechanism (CDM).

5. Later ratings and allegations do not, by themselves, invalidate earlier assessments.

In recent years, ratings agencies have become part of the carbon market environment. Oftentimes, ratings agencies publish their assessments of projects years after the relevant audits were completed, applying their own methods and assumptions. These ratings results do not necessarily invalidate previous audit outcomes, if they existed. They simply show a different outcome of a different assessment process.

In some cases, allegations about developer conduct are raised that can be serious and merit investigation. However, they must be tied to the specific project, period, and requirements in question before it can be established that a past assessment was inadequately supported. Such instances are valuable signals for further reviews, but allegations of this nature are not substitutes for evidence.

6. VVBs do not issue credits.

A VVB provides a professional, independent, engagement-specific assessment. Verra separately reviews all registration, verification, and issuance requests and makes the final decision on each. Verra is also the entity that issues credits.

7. A sample of 15 projects cannot support market-wide conclusions.

The report’s sample is limited in scope. It sampled only 15 of 2,889 registered VCS projects, so really just 0.5% of these projects.

It highlights cases that may warrant closer examination, but it cannot establish with statistical certainty how often auditors have underperformed across Verra’s programs or the wider market.

Carbon standards and their processes have evolved significantly in recent years, and where weaknesses in the underlying infrastructure have been detected, we are committed to identifying root causes and addressing them if they fall under our purview. Verra does not claim that every historical engagement of VVBs was beyond improvement. We do ask that past auditing instances be assessed against the requirements and information that applied at the time. Only then is it possible to evaluate if the auditing was conducted in line with the applicable requirements and standards.

Looking ahead, Verra is developing strengthened requirements for how validation and verification are planned and performed, and how VVBs are overseen. These requirements will address aspects such as VVB competencies, evidence sufficiency, and assurance of impartiality and consistency.

This work remains under development, and any specific programmatic changes will be subject to public consultation before they are finalized.