In 2023, I co-authored an article examining fraud risks in the voluntary carbon markets (VCMs) and exploring whether emerging tools—particularly blockchain-based solutions—might help improve transparency and trust. That article was written at a moment when ESG commitments were accelerating, corporate net-zero targets were proliferating, and carbon credits were often treated as interchangeable instruments capable of offsetting a wide range of emissions with limited scrutiny.
Two years later, the market context has changed—but the core concerns raised in that earlier piece have not faded. They have hardened.
ESG initiatives have encountered political, regulatory, and economic headwinds. At the same time, voluntary carbon credits have moved from being evaluated primarily as reputational or sustainability signaling tools to being treated—by regulators, prosecutors, and private litigants—as economic instruments with measurable value. As carbon credits are embedded more directly into commercial contracts, financial reporting, and public ESG disclosures, weaknesses in project integrity or verification no longer remain abstract concerns. What was once framed largely as an ESG credibility issue is now, increasingly, a compliance and enforcement problem grounded in material accuracy, substantiation, and disclosure.
From Conceptual Fraud Risk to Real Exposure
The original article warned that voluntary markets—by definition lacking a centralized regulator—were vulnerable to inconsistent standards, opaque verification, and bad actors exploiting information asymmetries. Since then, those vulnerabilities have been tested in public.
Investigative reporting and third-party analyses have challenged the integrity of certain forestry and land-use projects, alleging over-crediting, weak additionality, and questionable permanence. Other projects have faced criticism for double-counting or for methodologies that overstated climate benefits. In parallel, enforcement actions in the United States have increasingly treated carbon credits as things of value whose misrepresentation can support traditional fraud and false-statement theories.
For U.S. companies, the message has been unmistakable: labeling a transaction “voluntary” or “ESG-aligned” does not insulate it from regulatory scrutiny.
ISDA’s VCC Definitions: Contractual Clarity Where It Was Missing
One of the most consequential developments since 2023 has been the publication of the Voluntary Carbon Credit Definitions by the International Swaps and Derivatives Association. Rather than attempting to resolve debates about environmental merit, the VCC Definitions address a more fundamental issue: the absence of a shared contractual understanding of what is actually being bought, sold, or promised in voluntary carbon transactions.
In markets where credits are traded forward, referenced in structured transactions, or incorporated into commercial agreements, ambiguity itself becomes a source of risk. The VCC Definitions respond to that reality by forcing specificity—around registry, methodology, project type, vintage, delivery mechanics, and settlement terms—so that parties are not relying on generalized ESG narratives to define their rights and obligations.
Equally important from a compliance standpoint, the Definitions address what happens when things go wrong. They allow parties to allocate risk explicitly in the event a credit is invalidated, suspended, or otherwise fails to meet agreed criteria. That risk allocation does not prevent disputes, but it makes them legible. Undefined products create undefined exposure; defined products can be diligenced, audited, and defended.
For U.S. market participants accustomed to trading power, gas, or environmental attributes, this shift should feel familiar. The VCC Definitions do not purport to guarantee environmental quality. What they do is impose contractual discipline in a market that previously relied too heavily on assumptions.
The ICVCM and Core Carbon Principles: A Screening Tool, Not a Safe Harbor
At the supply side, the Integrity Council for the Voluntary Carbon Market has sought to address integrity concerns through its Core Carbon Principles (CCPs). The CCPs articulate baseline attributes for high-quality credits, including additionality, permanence, robust quantification, governance, and transparency. Credits that meet these criteria may be designated as CCP-eligible.
For compliance and legal teams, the CCPs are best understood as a diligence filter, not a safe harbor. CCP eligibility can inform internal review and disclosure controls, but it does not replace project-level diligence, contractual protections, or careful consideration of how credits are described externally. Nor does it prevent post-issuance challenges, particularly where marketing or ESG claims overstate climate impact.
That distinction matters as ESG statements increasingly intersect with securities disclosure obligations, state unfair-competition statutes, and federal fraud theories.
Blockchain, Revisited—With Narrower Expectations
In 2023, blockchain was discussed as a potential tool to improve transparency and prevent double-counting. That observation remains valid, but experience has clarified its limits. Distributed ledger technology can improve traceability, enhance audit trails, and reduce certain forms of transactional opacity. It cannot determine whether a project actually achieved the emissions reductions it claims.
U.S. Enforcement Risk: Old Theories, New Instruments
What is notable about recent scrutiny of voluntary carbon markets is not the novelty of the legal theories involved, but their familiarity. In the United States, regulators and prosecutors have not needed ESG-specific statutes to engage. Existing frameworks—wire fraud, commodities fraud, false statements, and state consumer-protection laws—are already capable of addressing misrepresentations involving carbon credits.
When a company represents that it has achieved carbon neutrality or offset a defined quantity of emissions, those statements increasingly rest on the assumed validity of underlying credits. If those credits are later shown to be overstated, double-counted, or inconsistent with how they were described, the issue is rarely framed as a failure of climate policy. Instead, it becomes a question of whether statements were materially accurate and adequately substantiated at the time they were made.
In that context, carbon credits are not treated as abstract ESG concepts, but as economic instruments whose perceived value influences investors, counterparties, and consumers. Where credits are embedded in contracts, financial reporting, or public disclosures, deficiencies in project integrity can translate directly into exposure under enforcement regimes administered by entities such as the U.S. Department of Justice and the U.S. Securities and Exchange Commission, as well as state attorneys general.
From a compliance perspective, the critical point is this: legal risk does not turn on whether participation in voluntary markets is optional. It turns on how carbon credits are described, relied upon, and incorporated into representations that fall squarely within existing U.S. enforcement jurisdiction.
Where This Leaves U.S. Market Participants
For U.S. companies still engaging in voluntary carbon markets, the path forward is not abandonment, but recalibration. Carbon credits should be treated as economic instruments with real legal risk, not as symbolic ESG artifacts. That means disciplined diligence, careful contracting, and restraint in public claims.
The voluntary carbon market has not failed—but it has matured. The tools now exist to impose structure and accountability. Whether companies use them will determine whether carbon credits remain a viable component of emissions strategy or become a recurring source of regulatory and reputational exposure.