In a recent address to the International Organisation of Securities Commissions’ (IOSCO) Sustainable Finance Task Force, Scott O’Malia, CEO of the International Swaps and Derivatives Association (ISDA), highlighted the key opportunities and challenges facing the voluntary carbon market. He underscored the need for consistent standards, legal certainty, and transparency to build a trustworthy and efficient market that can support the global transition to net zero.
For those of us working at the intersection of finance, technology, and ESG, Mr. O’Malia’s insights couldn’t be more timely. With the clock ticking to meet the net-zero commitments made by 196 countries in the 2015 Paris Agreement, we must tackle these challenges to build a market capable of financing carbon reduction projects and making a meaningful impact in limiting global temperature rise to well below 2°C.
At Tokenovate, we fully embrace ISDA’s vision of building a transparent, standardised, and legally robust carbon market. By integrating blockchain and tokenisation technology with ISDA’s established standards, we believe we can create a more efficient and accessible market that not only supports carbon trading but also plays a pivotal role in the global shift toward a sustainable, net-zero future.
Let’s explore how:
Globally Consistent Standards
First, we need a globally consistent definition of what a carbon credit actually is. While straightforward in theory, achieving this has proven elusive in practice. Mr. O’Malia is right – without global standards, we cannot build an effective market. Without a shared understanding of what a ton of carbon represents, establishing a credible and trustworthy market will be impossible.
We agree that Article 6 of the Paris Agreement should be the starting point. However, what’s missing is a universal data schema capable of harmonising project descriptions across all registries and standards, ensuring that every carbon credit is consistently defined, verified, and tracked.
At Tokenovate, we believe that this universal data schema – or ‘meta-registry’ – should be blockchain-based. Blockchain technology offers a decentralised, immutable, and transparent record of all carbon credits, ensuring that data is standardised, secure, and accessible across different carbon registries, venues and markets.
A Strong Legal Framework
Mr. O’Malia also highlighted the critical need for a robust legal framework to create greater certainty and confidence in carbon assets. If the rights, obligations, and enforceability of carbon credits remain unclear, market participants will struggle to engage with these assets confidently, which in turn hinders investment, limits liquidity, and ultimately undermines the market’s credibility. A strong legal foundation is therefore essential to ensure that carbon credits can be traded, used as collateral, and integrated into the global financial ecosystem with the assurance that they are recognised predictably across different jurisdictions.
Tokenovate’s platform and technology have been developed with a ‘legal-first’ approach at its core. This means that when someone creates, transfers, or settles a tokenised VCC (or any other asset) on our platform, they can be confident that their rights are enforceable and that the transaction is backed by a solid legal foundation.
ISDA has a long history of bringing consistency and legal certainty to derivatives markets. We are pleased to see this experience being applied to the emerging carbon markets. By introducing standardised definitions, legal documentation, legal opinions and market practices, ISDA is playing a foundational role in laying the groundwork for a mature and liquid carbon derivatives market.
Indeed, we were delighted to play a key role in creating the world’s first smart legal contract for VCC derivatives trades, which references the 2022 ISDA Verified Carbon Credit Transactions Definitions. Building on this achievement, we are now using our composable lifecycle engine to apply ISDA’s contractual and data standards, creating smart contracts that can automate the full lifecycle of VCC derivatives – from trade execution and settlement to risk management and reporting.
Transparency
Another theme Mr. O’Malia emphasised was transparency. He’s right – transparency and auditability are non-negotiable if the carbon market is going to succeed. Market participants need confidence in the environmental value of the credits they’re buying and selling. This kind of transparency is crucial for preventing greenwashing and directing investments toward genuinely impactful carbon reduction projects.
We believe that Tokenovate’s UTXO-based architecture offers the ideal solution. With a UTXO-based blockchain, every transaction involving the tokenised VCC is recorded immutably and can be easily verified. In practice, this means every step of a carbon credit’s journey – from issuance to retirement – can be fully traced, with its geographic location, underlying project descriptions, and performance recorded within the token’s metadata. This level of transparency is essential for building a market that is both credible and effective, ultimately driving investment into genuine carbon reduction projects and accelerating progress toward global net-zero targets.
Conclusion
Tokenovate is dedicated to supporting the development of the global carbon markets. Mr. O’Malia’s important and influential remarks provide a clear vision for the path ahead.
By integrating ISDA’s established standards with our advanced technology, we want to play a collaborative and facilitative role in directing capital more effectively toward impactful carbon projects, accelerating progress toward the commitments made under the Paris Agreement, and supporting the transition to a sustainable, net-zero future.
Read more blog posts:
Facilitating smart climate action
Harmonising methodologies and standards
Achieving net zero through tokenisation
Photo by Freepik.
