US regulator homes in on malpractice in voluntary carbon markets

LONDON, –

The Commodity Futures Trading Commission is investigating greenwashing as part of its crackdown on fraud and misconduct in the voluntary carbon markets, a commissioner at the U.S. regulator said on Monday.

The probe into false claims about the environmental benefits of carbon credits, as well as the green credentials of financial products, comes as CFTC homes in on its first set of federal guidelines for voluntary carbon credits derivatives.

Regulators are looking to introduce standards and curb manipulation in a market that has operated without federal oversight.

The CFTC is investigating the activities under its Environmental Fraud Task Force which it introduced in June 2023 to tackle fraud and manipulation in carbon credit markets and other forms of greenwashing, such as misrepresentations about environmental, social and corporate governance investment strategies.

“The idea is to weed out the bad actors that could impact the derivatives market, we would do that with any commodity,” said CFTC commissioner Christy Goldsmith Romero told Reuters on the sidelines of a conference in London.

Goldsmith Romero said the watchdog had not yet brought a case but said that several activities were under “active investigation.”

In June, the CFTC said it was seeking tips from whistleblowers on potential violations of Commodity Exchange Act connected to fraud in carbon markets.

The Securities and Exchange Commission, often seen as the CFTC’s sister agency, has also been cracking down on funds greenwashing.

Having closed its public consultation in February, the CFTC aims to have these guidelines finalised by the end of 2024, Goldsmith Romero said.

The U.S. watchdog has taken guidance from the Integrity Council for Voluntary Carbon’s markets Core Carbon Principles, an industry initiative tasked with raising standards in the voluntary carbon markets.

The CFTC has regulatory authority over carbon credit derivatives traded on its exchanges, as well as anti-fraud authority over the underlying credit which gives it an interest in spot voluntary carbon markets.

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