Sustainable Development

UNIDROIT’S WORK AND INSTRUMENTS IN THE AREA OF SUSTAINABLE DEVELOPMENT

As part of its commitment to sustainable development, UNIDROIT has included a project on verified carbon credits (VCCs) in its 2023-2025 Work Programme. Proposed by the International Swaps and Derivatives Association (ISDA) and supported by the Government of Paraguay, this project was recommended for inclusion by the UNIDROIT Governing Council at its 101st session in 2022. The recommendation was subsequently adopted by the UNIDROIT General Assembly at its 81st session on 15 December 2022.

This project, which has been assigned a high priority, aims to analyse the private law aspects and legal nature of VCCs, given their growing significance as a means to channel financial resources into initiatives combating climate change. It is being carried out by a dedicated working group chaired by Professor Hideki Kanda, member of UNIDROIT’s Governing Council, and made up of experts in carbon credit trading, environmental law, property law, secured transactions and digital technology,. The objective is to provide a comprehensive analysis as well as recommendations to States and market participants to establish a clear private law framework and enhance legal certainty for transactions involving these instruments.

The main objective of the UNIDROIT Project on the Legal Nature of Verified Carbon Credits is to provide guidance on private law issues so as to enhance confidence in VCC transactions and support the development of a well-functioning market.

Despite their importance as tools in the fight against climate change and their increasing global prevalence, the legal nature of VCCs remains uncertain in most jurisdictions. Certainty on the classification of a VCC under private law is crucial to support market participation by private entities including project developers and investors. It informs market mechanics such as how transfers may be completed by sale or as collateral as well as the treatment of VCCs held by an entity in insolvency.

A robust carbon credit market could play a central role in fighting climate change, achieving the goals of the United Nations Framework Convention on Climate Change (“UNFCCC”), in particular the Paris Agreement, and facilitating the fulfilment of the UN Sustainable Development Goals. Given that a significant share of the projects that generate VCCs are located in developing economies, a reliable carbon credit market also provides an opportunity to increase capital flow to emerging markets and provide funding to climate mitigation projects.

More information on the background, scope and composition of the Working Group is provided here.

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