1 Introduction

The 2030 Agenda for Sustainable Development Goals (SDGs) and the Paris Agreement, both adopted in 2015, underpin a new and transformational global agenda for sustainable development and climate action. In light of this, developed and developing countries alike have or are expected to establish national targets and plans to implement their Nationally Determined Contributions (NDCs) (UNFCCC 2015) and contribute to 17 SDGs (UN 2015) to help achieve the global goals of sustainable development and limiting global warming to below 1.5–2 °C above pre-industrial levels. These two historical agreements establish a new architecture for a global carbon market that reflects a change from a binary system consisting of compliance and voluntary markets in the Kyoto Protocol towards a more fragmented system of more or less linked regional, national or sub-national emissions trading schemes (Hermwille and Kreibich 2017). The new global agenda reflects a change from a climate-centric approach in the Kyoto Protocol to a more balanced development and climate approach in the Paris Agreement and a shift towards a more decentralised global system, where countries place a greater emphasis on their national priorities and development.

1.1 Principles and features of Article 6 approaches

This new agenda is visible in Article 6 of the Paris Agreement. Article 6 provides a framework for international cooperation with the overall objectives of promoting greater ambition, sustainable development and environmental integrity in the implementation of NDCs by all Parties. Ensuring environmental integrity, transparency and the application of robust accounting, including to avoid double counting, are key principles underpinning Article 6. This reflects the critical role that transparency plays in the governance of the Paris Agreement as a means to create trust among Parties, as they aim to raise the level of ambition. Specifically, Article 6 provides for the international transfer of mitigation outcomes (ITMOs) between Parties (Articles 6.2–6.3), the establishment of a mechanism to contribute to the mitigation of greenhouse gas emissions and support sustainable development (Articles 6.4–6.7), and a framework for non-market approaches (Articles 6.8–6.9). The bottom-up ethos of the Paris Agreement, however, is expected to permeate thinking in decision-making, with the balance between centralisation and decentralisation expected to be different to the Kyoto Protocol (ADB 2018).

1.2 Sustainable development provisions in Article 6

Promoting sustainable development is a key feature of Article 6. The preamble in Article 6.1 indicates that SD is a unitary objective of all three approaches. In Article 6.2, it clearly states that ‘Parties shall […] promote sustainable development and ensure environmental integrity’ when engaging in cooperative approaches that involve ITMOs. Similarly, in Article 6.4 a mechanism is established ‘to contribute to the mitigation of greenhouse gas emissions and support sustainable development’, named the ‘Sustainable Mitigation Mechanism’ by some (Marcu 2016). Articles 6.8 and 6.9 define a ‘framework for non-market approaches to sustainable development’ to enhance links and create synergies between mitigation, adaptation, finance, technology transfers and capacity-building (UNFCCC 2015). Through these provisions, Article 6 sets the intent for SD to be a core feature of cooperative, market and non-market approaches under Article 6. In the Katowice ‘rulebook’, the operational details need to be decided on how to implement the SD provisions of Article 6, particularly with regard to the role of international oversight in determining sustainable development assessment and reporting requirements (Verles et al. 2018).

1.3 Lessons learned from the CDM and the CDM SD tool

The Paris Decision to give effect to the Paris Agreement specifies that the Article 6.4 mechanism shall be based on ‘experience gained with and lessons learned from existing mechanisms’ (§37f), such as the Clean Development Mechanism (CDM), its Sustainable Development Tool and Joint Implementation. The CDM SD tool uses a taxonomy of SD benefits first developed by Olsen and Fenhann (2008). The tool serves to categorise the SD benefits into the three dimensions of SD, that is, the environmental, social and economic aspects.

Defining and assessing SD within the CDM has remained the prerogative of each host country as part of their process of granting a Letter of Approval (LoA). Each country decides on its SD criteria based on its national development priorities. As there is no single, globally accepted definition, nor a set of generic parameters for what constitutes SD, there is wide variation in the way countries define and apply these criteria (Tewari 2012). In addition, the assessment to grant a LoA is usually conducted at the early stages of the project and therefore focuses on the expected contribution to SD. There is little assessment of actual project impacts, as this is not required under the CDM, nor is it usually required by a host country. The issuance of Certified Emission Reductions (CERs) is not dependent on monitoring contributions to SD, which some claim leads to an inherent bias towards cost-effectiveness over SD, as SD has no monetary value (Koakutsu et al. 2012). Furthermore, the level of reporting on SD varies significantly across CDM projects, largely due to the absence of mandatory reporting requirements. Host countries SD assessments are not published like other CDM documentation, and SD is not assessed by the independent verifiers (Designated Operational Entities, DOEs) during validation and verification.

This CDM structure has been heavily criticised by a broad range of stakeholders (Figueres 2005; Olsen 2007; Dialogue 2012), in particular local and non-governmental organisations. Criticisms include the lack of a clear definition of SD, the absence of the need to monitor SD impacts and the lack of SD contribution for certain project types. The lack of clear guidelines for the stakeholder consultation process, the absence of a grievance mechanism and no mandatory ‘do-no-harm’ assessment are also cited as weaknesses in the process of ensuring CDM projects contribution to SD. The CDM Executive Board tried to address the criticism and introduced the voluntary CDM SD Tool in 2012. It provides a framework for how to better communicate the SD benefits of a CDM project or Programme of Activities (PoA).

1.4 Introducing a new tool for sustainability labelling

Building on the CDM SD tool applied to the Component Programme Activities (CPAs) of CDM PoAs, this article proposes a new tool for the sustainability labelling of mitigation actions. This tool is particularly relevant to the implementation of the Katowice ‘rulebook’ for Article 6 approaches to be decided by the Conference of the Parties (COP) at its twenty-fourth session in 2018.

The study aims to show how a sustainability labelling tool can incentivise a ‘race to the top’ for the contribution of Article 6 mitigation actions to SD. Lessons learned from the CDM SD tool and other sustainability assessment tools and approaches (Olsen et al. 2017) can serve as an inspiration for development of the Article 6 work programme and how to overcome weaknesses of the CDM structure. In particular, the CDM is similar in its objectives and governance arrangements to the new mechanism established under Article 6.4 (Greiner and Howard 2017; Michaelowa and Hoch 2016). Considering the principles and key features of Article 6 and building on lessons learned and experience from the CDM and its SD Tool, sustainability labelling is proposed as a reporting tool relevant to the Katowice ‘rulebook’ particularly with regard to implementation of the SD provisions under Article 6.

1.5 Structure and limitations of the analysis

This article draws on the CDM SD Tool and is applied to the analysis of CDM PoAs that had entered the CDM Pipeline by January 2017. First, the article describes a method for the sustainability labelling of mitigation actions, drawing on analysis of the UNEP DTU Partnership PoA pipeline data set (Fenhann 2016). Second, results of the analysis are presented with regard to a description of how the mitigation actions contribute to SD. Third, the strengths and weaknesses of sustainability labelling as a tool for reporting relevant to Article 6 approaches are discussed in the context of lessons learned from applying the CDM SD tool, including the barriers identified to promoting SD through market mechanisms. To conclude we offer suggestions for how sustainability labelling can be used as a structured reporting tool to promote SD through Article 6 approaches. As such, the study is limited in scope by only addressing the need for transparency through sustainability reporting. It does not provide a solution to broader, related issues such as ensuring environmental integrity, demonstrating additionality or avoiding double counting.

2 Data and methods

2.1 UNEP DTU partnership PoA pipeline data set

The PoA SD pipeline data set was created in 2013 at the UNEP DTU Partnership and is updated monthly. Updates include knowledge of how PoAs contribute to SD. A PoA is the framework that defines broad parameters for project activities (CPAs) that qualify for inclusion in the PoA. All CPAs follow the same stated goal of the PoA, and new CPAs can be added to a PoA at any point in time, as shown in Fig. 1.

Fig. 1
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CDM projects components

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The present study uses the UNEP DTU Partnership pipeline as of January 2017, which includes 382 PoAs and 2097 CPAs. It does not include PoAs or CPAs that have been rejected, terminated or resubmitted. PoAs with fewer than two CPAs have also been excluded from the analysis. This results in a data set of 2095 CPAs. Figures 4 and 5 show the composition of the sample.

To create the SD data set, the Project Design Documents (PDDs)Footnote 1 of registered PoAs were screened against the taxonomy of SD benefits first developed by Olsen and Fenhann (2008), which serves as the basis of the CDM SD Tool.

2.1.1 The CDM SD tool

The CDM SD tool uses the three dimensions of SD: environmental, social and economic. Based on these, the tool uses a taxonomy of SD criteria and indicators. The taxonomy was developed bottom-up from a review of aspects of sustainability, as reported by project developers in the PDDs (Olsen and Fenhann 2008). The taxonomy functions as a menu of generic dimensions, criteria and indicators that project participants may choose from. Criteria and indicators that are not relevant to a project can be left out, and aspects of SD that are not comprised in the taxonomy can be added using an ‘other’ indicator. This allows the adoption of a transparent, complete and objective approach to SD assessment. Earlier versions of the CDM SD Tool also included safeguards and enhanced procedures for stakeholder involvement to avoid or mitigate negative impacts. However, the CDM Executive Board removed these in their final decision on the CDM SD Tool.

In line with the CDM SD Tool’s taxonomy (Fig. 2), the SD benefits have been classified into the three dimensions of ‘Environmental’, ‘Social’ and ‘Economic’. The three dimensions are characterised by criteria and indicators. These are ‘yes/no’ characteristics rather than quantitative indicators. A ‘yes’ refers to the existence of the co-benefit, a ‘no’ to its absence. Since each PoA includes a number of CPAs, for each PoA the result of the analysis has been transferred to the related CPAs.

Fig. 2
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Source: UNFCCC (2012), approved at CDM EB70: https://www.research.net/s/SD_tool_vers7

CDMSD taxonomy.

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2.2 Methods of ranking

Recently, a variety of environmental and sustainability ranking and rating tools have been put forward to help project developers and project funders make decisions that take the three dimensions of sustainability into account (Poveda and Young 2015).

2.2.1 Simple ranking approach

A new ranking approach is developed in this article based on the CDM SD Tool and insights from analysis of PoAs. Through this approach, grades can be used to describe projects that meet certain requirements for contributing to SD criteria (in terms of a score for SD impacts), thus enabling a generic labelling of SD impacts. The current CDM SD Tool only covers the positive benefits. Hence, each SD criterion is given a score of ‘1’ if there is a positive contribution to SD or a score of ‘0’ if there is no such contribution. Since there are four criteria per dimension in the CDM SD taxonomy, each dimension can receive a score of between 0 and 4 (Table 4).

Although the most widely known model of SD is the three-pillar model described above (United Nations World Summit 2005), the model has been met with criticism. The three-pillar model takes the three dimensions of environmental, economic and social aspects of sustainability and labels them as three requirements for SD. Therefore, this approach assumes equal weights for the SD dimensions and no weights for the SD criteria. In this model, SD is achieved when all three pillars work in agreement (Fig. 3).

Fig. 3
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Source: Adapted from Joumard and Nicolas (2010), Griggs et al. (2013) and Salling and Pryn (2015)

Intersected and nested sustainability models.

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There are two basic criticisms of this model. First, there is an assumption that the three pillars are independent. Second, there is the observation that the model does not incorporate a time dimension, a core component of the WCED (1987) definition of SD. Therefore, the three-pillar model does not provide much assistance to planners and policy-makers when choosing between the conflicting and interacting factors that can often emerge. There is another approach, the nested sustainability model, which assumes different weights for SD dimensions. The approach is presented in the following section.

2.2.2 Nested sustainability model

The nested sustainability model depicts the three dimensions of sustainability as three nested spheres, the economic circle being nested within the social circle and the socio-economic circles in turn being nested within the environmental circle. Taking into account the interconnected nature of the three dimensions of sustainability and that different country’s priorities for SD differ, this study builds the analysis on a nested sustainability model (Fig. 2). The argument is that a mitigation action will be sustainable only if its economic and social implications do not exceed the carrying capacity of the environment. The nested model has been used in both practice and the academic literature (Joumard and Nicolas 2010; Griggs et al. 2013; Salling and Pryn 2015).

Inspired by the nested model, this study defines two weights (Wd and Wc), which account for the dimension (Wd) and the criteria (Wc). The weights are multiplied by the SD scores. According to the nested sustainability model, the three dimensions are ranked, i.e. the longest term dimension is ranked as the most important and so on. Rank order distribution (RODFootnote 2) weights (Wd) are assigned through the Simple Multi-Attribute Rating Technique Exploiting Ranks technique (SMARTER) (Edwards and Barron 1994; Roberts and Goodwin 2002). The ROD methodology is used to convert the ordinal ranking into a numerical weight. It should be noted that several different rank-weighting methods exist (Belton and Stewart 2002; Alfares and Duffuaa 2008). This means that the economic dimension is ranked the lowest and receives a weight of 0.15, the social dimension is ranked in the middle and receives a weight of 0.32, and the environmental dimension is ranked the highest and receives a weight of 0.52 (Salling and Pryn 2015).

The present study suggests that stakeholder consultations could be used to estimate and adjust the weights for each criterion. This enables users to adjust the criteria weights depending on SD priorities. Tables 1 and 2 gives an example. There are several ways of estimating weights. Box 1 in the attachment provides more information on estimation processes in order to allocate the weights for ‘dimension’ and ‘criteria’ using the analytic hierarchy process (AHP) approach. In this article, the weight for ‘criteria’ has been set at 1 for the sake of simplicity.

2.3 Graded approach and labelling

The proposed graded approach uses the total SD score, which simply shows the number of SD criteria in each project (using the simple ranking approach), including the weights (using the nested sustainability approach). There are different combinations for the number of criteria per dimension and, consequently, different SD scores. Table 1 gives the possible combinations of SD benefits and the corresponding total SD score. The possible maximum and minimum total SD scores are identified to be used for defining grades and labels (Table 3).

Table 1 Total SD criteria number and SD score
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For each dimension, Tables 1 and 2 gives the total SD score of CPA types according to the number of criteria and the weights from the nested approach. However, in order not to limit the labelling approach to the current data, we expand the result to all possible combinations of criteria for mitigation actions (Table 2).

Table 2 Possible combinations of SD benefits and total SD score for labelling
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For example, for the combination (X1), and according to the data in Tables 1 and 2: total SD score => ∑N ∗ (wd) ∗ (wc), where N refers to the number of criteria, wd refers to the ‘dimension’ weight, and wc refers to the ‘criteria’ weight.

1. ‘Environmental’ SD score for the project = 4 × 0.52 × 1 => 2.08

2. ‘Social’ SD score for the project = 4 × 0.32 × 1 => 1.28

3. ‘Economic’ SD score for the project = 4 × 0.15 × 1 => 0.60

=> Total SD score = SD score for ‘Environmental’ + SD score for ‘Social’ + SD score for ‘Economic’

=> 2.08 + 1.28 + 0.60 = 3.96

An SD score < 0.98 is the minimum score. This refers to CPAs whose SD criteria per dimension are between one and zero. (At least one dimension has zero SD criteria number.) Table 3 shows the grades using total SD scores and taking sustainability weights into account.

Table 3 Grading* the mitigation activities according to SD scores
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3 Results

3.1 Results of the PDD analysis

Table 4 lists all project type and sub-type categorisations that have been used in evaluating SD benefits. To supplement this table, a complete list of sub-types can be found in Annex 1, Table 1.

Table 4 Project type categorisations selected for evaluation.
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Table 5 provides an overview of the frequency with which SD criteria are mentioned in PDDs.

Table 5 Frequency of each SD criterion mentioned in PDDs by project type
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The analysis of PDDs (Fig. 4) reveals that 41% of CPAs make a contribution to the social dimension, 36% of CPAs to the economic dimension, and only 23% to the environment dimension.

Fig. 4
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Share of all CPA types to SD benefits dimensions

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Figure 4 gives the proportions of CPAs with regard to various SD criteria. It shows that Conservation, which refers to the protection and management of natural resources, and Air, which refers to improving air quality, are two prominent environmental benefits, with 56% and 49%, respectively. Job creation and Welfare are prominent social benefits that have been reported for 56% and 54% of CPAs. Economic growth has been reported for 73% of CPAs and has the highest ratio among all the SD criteria.

Figure 5 gives the result of the PDD analysis of the distribution of each SD criterion over each CPA type. The contribution to the benefits to SD varies from project to project. The CPA types Coal mine/bed methane, EE supply and Methane avoidance have reported environmental benefits in their PDDs most often (sum of environmental benefits > 35%). Improving air quality is the criterion that is cited the most. Geothermal and Landfill gas have reported social benefits in their PDDs more than any other project types (sum of social benefits > 50%). The indicators cited most often are Job (by Landfill gas, 20%) and Welfare (by Geothermal, 29%). CPA types such as Hydro, Wind and Fossil fuel switching have reported economic benefits in their PDDs more often than other projects (sum of social benefits > 45%), with Growth being the main economic criterion (Fig. 6).

Fig. 5
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Share of the various sustainable development criteria for CPA types

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Fig. 6
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Distribution of each SD category over CPA types

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3.2 Simple ranking approach when the weight is set to one

Table 6 ranks project types based on the total SD score for each project type. Each SD criterion receives a code of ‘1’ for positive and a code of ‘0’ for no contribution to SD co-benefits. Since there are four criteria per dimension, the overall score range is between 0 and 12.

Table 6 Total SD score for each project type
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The results in Table 6 and Fig. 7 show that EE household, EE service, Hydro, Methane avoidance and Solar are the CPA types that have mentioned all the SD criteria in their PDD documents. CPA types such as Fossil fuel switching have the lowest number of mentions of SD criteria in their PDDs.

Fig. 7
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Simple ranking of project types based on the presence of SD benefits

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3.3 Nested sustainability model

Table 7 gives the SD ranks for each project type when the weights for each dimension (Wd) are taken from the nested sustainability model. For the sake of simplicity, and because project developers do not provide data related to weight for each criteria (Wc), that weight is assumed to be 1.

Table 7 Estimation of average SD scores per dimension
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3.4 Labelling approach

The present study grades each CPA type using a labelling approach. Table 8 gives the results of the study. As can be seen, there are four grades. EE household, EE service, Hydro and Solar are the CPA types that have the best grade, which means that they have four criteria for each dimension. CPAs such as Landfill, Biomass energy, EE industry and Wind have the high grade, and EE distribution and Transport the medium grade, respectively, which means they have between two and four criteria per dimension, categorised according to the intervals introduced in Table 3. Some CPA types have received grade ‘1’ and have accordingly been categorised as low grade or minimum acceptable for labelling. These CPA types are Fossil fuel, Fugitive, Coal bed/mine methane and Geothermal. According to Table 8, they have one to two criteria for each dimension. (At least one dimension number of SD is equal to ‘one’.) One category of CPA type receives grade ‘0’ and refers to the situation in which the mitigation action (CPA type here) has 0 to 1 criteria per dimension. (At least one dimension has zero SD criteria.) Therefore, in order to achieve a better sustainability label, these CPAs need to have more contributions to SD benefits.

Table 8 Total SD score and graded score for each CPA type
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Table 9 compares the number of CERs/y generated by each project type and the SD scores estimated by the present study. As can be seen, projects with a large number of CERs do not necessarily have high SD grades. For instance, projects like Biomass energy, Wind, Solar and Methane avoidance have fewer CERs, even though they have a large SD score. On the other hand, projects like Coal bed/mine methane and Geothermal have lower SD rankings, even though they generate large number of CERs. Stated differently, the number of CERs does not reflect the extent of the benefits delivered by the underlying mitigation actions.

Table 9 Number of projects and expected or issued CERs by type and category.
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4 Discussion

The results of applying a sustainability labelling approach to analysis of the CDM PoA Pipeline of mitigation activities demonstrates that the contribution of a project to SD can be reported in a structured, simple way based on ex-ante qualitative data available in Project Design Documents (PDDs). Against the background of lessons learned from the CDM, this section discusses the strengths and weaknesses of sustainability labelling as a reporting tool for transparency in promoting SD through Article 6 approaches. It also provides recommendations in response to its limitations.

4.1 A unitary SDG framework

One of the identified barriers to promoting SD under the CDM structure was the lack of a globally agreed definition of SD, meaning it was a broad concept with a wide variance in the way it was defined and assessed between countries. To overcome this, the CDM SD Tool taxonomy provides a flexible framework with clear-cut criteria and indicators. In an evaluation by the UNFCCC Secretariat, the tool was found to meet its objective while respecting Parties’ prerogatives to decide on their own national priorities for SD (UNFCCC 2014). However, the tool is voluntary to use and has a number of shortcomings when it comes to delivering a comprehensive, robust approach to the sustainability assessment of climate actions. Shortcomings include the lack of safeguards and ensuring compliance with human rights, the non-availability of monitoring and reporting guidance, independent validation and verification not being required, guidelines for stakeholder consultations not being linked to SD assessment, methods for quantifying SD benefits not being available and the lack of an option for certifying SD benefits (Arens et al. 2015). Sustainability labelling is not a solution to all the shortcomings. What it does provide is a tool for reporting information about expected SD outcomes in a format that enables results-based finance to identify and reward mitigation actions with the highest potential contribution to SD benefits. Pay for Performance is another kind of results-based payment to reward co-benefits of mitigation actions based on ex-post assessment. The labelling tool may be used together with valuations methods (depending of data availability) in order to define a shadow price for co-benefits during the ex-post phase.

4.2 Sustainability labelling enables a price signal

As a reporting tool, sustainability labelling provides information to the Parties and the carbon market, whereby the priorities for and benefits of SD can be assessed transparently. The results of applying sustainability ranking are that mitigation actions can be labelled as either ‘best’, ‘high’, ‘medium’, ‘low’ or ‘not acceptable’ to qualify for a sustainability label. The rationale for a price signal is for the market to provide the solution to promoting high-quality SD benefits of mitigation actions. A price incentive to promote mitigation actions with SD benefits is well known from voluntary sustainability labels in carbon markets. In the early days of the CDM, Sutter (2003) hypothesised that CDM sustainability labels could differentiate the market for Certified Emission Reductions (CERs) into normal CERs and premium CERs. Typically, the premium market has been characterised by government buyers and non-profit or private-sector buyers, who believe there is a need for the Gold Standard or similar voluntary sustainability labels to certify that SD benefits are delivered. The market demand for labelled credits has been related directly to evidence suggesting that host countries are failing to ensure the SD benefits of CDM projects in the compliance market (Parnphumeesup and Kerr 2011). However, voluntary sustainability labels have never developed beyond a small niche in the compliance market and attract only a small share of the carbon finance available (Wood 2011). A complementary solution to alleviating the perceived weaknesses in host countries’ approvals of the contribution of CDM projects to SD is to introduce voluntary SD assessment such as sustainability labelling at the global level.

4.3 A sustainability reporting tool can reduce complexity and transaction costs

Sustainability labelling provides a simple, qualitative and low-cost reporting tool to distinguish mitigation activities based on their SD profiles. Information on the sustainability ranking of mitigation actions may serve as a starting point to incentivise a ‘race to the top’ for mitigation actions with the highest grade. The grade is a proxy measure of the potential magnitude of the contribution and can serve to incentivise investments for different types of SD benefits. To ensure that the claimed SD benefits are actually realised, the underlying mitigation activities would have to be monitored, verified and reported (MRV’ed). However, due to the fact that quantifying and measuring SD is difficult and costly, sustainability ranking represents a simpler approach to reporting qualitatively on the expected and achieved SD benefits, provided that reliable ex-post data exist on implementation.

4.4 Limitations, challenges and recommendations to apply the sustainability labelling tool

Due to the lack of available information on the SD impacts of implemented CDM projects, the analysis used data from PDDs, which only provide an ex-ante assessment. Ex-ante benefits are expected benefits, as opposed to benefits actually delivered (ex-post benefits). In other words, the data taken from the PDDs are not verified. Clearly, to enhance the credibility of claims in SD assessments, there is a need also for monitoring and verification of benefits for SD over the activity cycle of mitigation actions.

Another limitation of the current approach is that it uses weights only for the dimension level according to the nested sustainability approach. Due to the lack of implementation data of projects on the ground, the present study does not provide weights for the SD criteria, such as health and jobs. However, the tool has the capacity to provide that. Stakeholder consultation is recommended in future use of the tool in order to estimate and adjust the weights for each criterion. This would enable users to adjust the weights depending on their national or local conditions. It can also provide the flexibility to accommodate bottom-up, nationally determined priorities for SD and avoid that the tool being seen as a top-down approach.

Transitioning from the Kyoto Protocol’s flexible mechanisms to the Paris Agreement’s cooperative approaches, there is a growing awareness that Article 6 approaches can benefit from alignment with the SDG indicator framework (Dransfeld et al. 2017; Horstmann and Hein 2017; Olsen and Soezer 2016). A limitation of the current sustainability labelling tool is that it builds on the CDM SD taxonomy developed before the global SDGs were agreed in 2015. This creates a challenge to align sustainability labelling with the new SDG indicator framework (SDSN 2015). Already, voluntary sustainability standards such as the Gold Standard for the global goals and other initiatives including the Asian Development Bank (ADB) study (2017) of SD co-benefits delivered by the Future Carbon Fund (FCF) and the Initiative for Climate Action Transparency (ICAT) have developed methodologies, tools and approaches to assess the impacts of climate actions towards the SDGs (ICAT 2018).

The ADB (2017) study illustrates several of the challenges of applying a labelling tool. One aspect is how qualitative and quantitative methodologies may complement one another, i.e. by using simple, qualitative tools for ex-ante assessment followed by more data-demanding, quantitative ex-post assessment. The FCF portfolio of projects were assessed using a methodology based on elements of both the CDM SD Tool, the Gold Standard tool, and the Social Carbon Standard tool. A selection of indicators from these tools was used as the basis of data collection to define the social, environmental and economic impacts of projects. The co-benefits delivered by individual projects were then mapped against the 17 SDGs. The lessons learned from the FCF study include the challenge to report ex-post, when there is no initial situation, a baseline, for SD to compare performance against. Another key lesson is that information on SD is difficult to collect and reconstruct ex-post, meaning indicators for SD impacts should be included in the monitoring and reporting plan, to provide ongoing reporting. Given that the data forming the basis for labelling would be collected through project documentation, a recommendation is to include requirements to describe a baseline for SD for key indicators in documentation developed for approaches under Article 6. The SD indicators should then be monitored over time.

5 Conclusion

Research results from applying the CDM SD Tool to the analysis of a sample of 2095 Component Programme Activities (CPAs) from 382 Programmes of Activities (PoAs) that had entered the UNEP DTU CDM Pipeline by January 2017 demonstrate that mitigation activities can be scored and graded according to their contribution to sustainable development based on a proposed sustainability labelling tool. The sustainability labelling tool uses a nested approach to assessing sustainability in order to reflect a view that the economic sphere is nested within the social sphere, which is itself nested within the environmental sphere. The three dimensions are interlinked in the way that, in the long term, economic and social developments depend on the carrying capacity of the environment. In practice, the study suggests that stakeholder consultations and/or nationally determined sustainable development priorities are used to determine the importance of SD criteria. In this study, for the sake of simplicity and due to the lack of data, all SD criteria are assumed to be equally important. Based on the total SD score from an analysis of a sample of CPAs, mitigation actions have been graded as ‘best’, ‘high’, ‘medium’, ‘low’ or ‘not acceptable’ (very low) in qualifying or not qualifying for a sustainability label. The study finds that the types of mitigation actions with the best grades are Energy efficiency households, Energy efficiency service, Solar and Hydro, while mitigation actions with the grade ‘low’ but still acceptable are Fossil fuel, Fugitive, Coal bed/mine methane and Geothermal.

The sustainability labelling of mitigation actions is relevant to the Paris Agreement Article 6 cooperative approaches as a new reporting tool to promote sustainable development. Specifically, it provides a qualitative approach to assessing, labelling and ranking the expected SD benefits. Learning from experience with the Kyoto Protocol, barriers to promote sustainable development through mitigation actions are known to be strongly related to the diverse interests of the Parties and stakeholder groups. By building on the CDM SD Tool and, in the future, aligning it with the SDG global indicator framework, sustainability labelling offers a simple, qualitative approach to Article 6 reporting and transparency that enables a price signal to be given incentivising a ‘race to the top’ for mitigation actions with the highest contributions to sustainable development.