Industry

Tech, Frameworks Key to Support Carbon Market Investors 

As investment in carbon credits continues to surge, introducing the right tools and initiatives is essential to maximise impact. 

Industry experts have stressed the importance of existing and upcoming technology and frameworks in making carbon market and credit investments transparent and viable. 

“Tools and frameworks are all about ensuring credibility and effectiveness for institutional investors,” said Asad Khan, Sustainability Coordinator at FG Capital Advisors, an investment fund focused on climate tech, battery metals and voluntary carbon markets (VCMs). “They offer transparent and accessible information, which is crucial for making informed investment decisions, as well as guidance and best practices to help investors integrate carbon markets and credits into their investment strategies, portfolios, and reporting.” 

Last year, a study conducted by MSCI Carbon Markets revealed a surge of investments in carbon credit projects, with US$18 billion invested between 2019 and 2022 alone. A further US$3 billion in future investments has also been pledged, and should yield over a 1000 new carbon reduction projects, spanning from forest conservation to carbon capture and storage.  

A key issue, Khan noted, is the lack of transparency and credibility around verifying, validating, and monitoring carbon removal and negative emission outcomes. “If we’re not careful, this could undermine the environmental integrity and social acceptability of these solutions,” he said. 

Tech at your service 

However, technology has been helpful to avoid this. Satellite-based monitoring and remote sensing, for example, have been used to measure and verify emissions across sectors including land use, forestry, agriculture.  

Environmental intelligence company Kayrros, which Khan described as a “key player” in the space, partnered last year with global carbon ratings agency BeZero Carbon to use its satellite-based mapping of the Amazon basin. The partnership would help Kayrros to enhance the assessment of its VCM projects.  

In August 2023, third-party carbon credit verification organisation Verra introduced a tracking tool aiming to boost the transparency of carbon capture and sequestration products. And last month, Singapore-based non-profit platform Climate Action Data Trust launched its Public Data Dashboard, which seeks to bolster data access for carbon markets participants.

“Investors should ensure they have a clear understanding of the detail of the projects they are investing in,” said Guy Turner, Head of Carbon Markets at MSCI. “This includes analysing what the technology is, what it costs, whether the sequestration is permanent, and with what efficiency.” 

Although last year saw a proliferation of innovative technologies and tools being developed and entering the market, the challenge is how to scale up these solutions to make them commercially viable, Turner explained. 

“Investment in carbon removal technologies will likely continue to rise, driven by the growing demand for carbon removal and negative emission credits,” Khan noted. “Decreasing costs and increasing the scalability of carbon removal and negative emission technologies will be key.”  

Enhanced incentives and supportive policies for carbon removal and negative emission projects should also play their part, he added. 

Other recently developed tools include Carbon Capture, Utilisation and Storage  technologies, which can capture and make effective use of high concentrations of CO2 emitted by industrial activities. An example of this is Direct Air Capture with Carbon Storage. 

“Nature-based solutions for carbon removal face physical phenomenon risks such as wildfires, floods and storms,” said Jess Roberts, VP of Ratings at carbon data provider Sylvera. “These threaten the physical storage of carbon and are not shared by technological-based alternatives.”   

Strengthening frameworks 

In January last year, the Taskforce on Scaling Voluntary Carbon Markets published its final report, and the Carbon Offsetting and Reduction Scheme for International Aviation became effective. 

In addition, the Voluntary Carbon Markets Integrity Initiative introduced demand-side rules for entities using carbon credits as part of their decarbonisation strategies and net zero pledges. Meanwhile, the Integrity Council for Voluntary Carbon Markets developed guidance on supply-side carbon credit generation.   

“Establishing a strong policy framework is the foundation to achieving the long-term growth that market participants aspire to,” Turner commented. 

More regulatory updates are in the pipeline this year, with the International Maritime Organization due to adopt the Carbon Offsetting and Reduction Scheme for International Maritime Transport, which aims to establish a global standard to measure emissions emanating from international shipping.  

The International Organiszation for Standardization will also launch its Global Carbon Accounting Standard, providing a framework to measure, report, and verify greenhouse gas emissions and removals globally.  

“I see wider market initiatives as being the ones that tech-based solutions should keep up with,” said Roberts. “We want these nascent, quickly emerging, highly exciting project types with loads of potential not to make the same mistakes as the market has in the past.”  

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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