New York – October 5, 2023 – The World Economic Forum (the Forum) and Bain & Company are calling on corporates and policy makers to urgently realize the potential of the Voluntary Carbon Market (VCM) to preserve biodiversity, protect vital carbon sinks, and mitigate hard-to-abate emissions.
In a new report titled Scaling Voluntary Carbon Markets: A Playbook for Corporate Action, Bain and the Forum show that many companies recognize the valuable role of the VCM in climate action and often want to do more to actively participate in carbon finance to help it reach its full potential. However, several barriers persist. The research outlines the roadblocks currently preventing carbon markets from scaling, including: a lack of clarity over the quality and effectiveness of carbon credits, the complexity of the dynamically evolving market itself, and a lack of clear economic incentives.
The imperative for action is increasingly well understood. Between 2018 and June 2023, the number of companies with committed SBTi net zero targets has increased by more than 55 times, from 100 to 5,580. Meanwhile, the number of retired carbon credits—carbon credits purchased and taken out of the market by corporate buyers to negate emissions—has increased only threefold1.
Properly scaled, the VCM has the potential to help bridge the gap between the estimated $4.3 trillion in transition finance required by 2030 and current finance levels, which are only around 20% of this2. A robust and high-integrity carbon market could rapidly provide billions of dollars to fund the preservation of natural carbon sinks and scale key technologies, such as novel Carbon Dioxide Removals.
“The climate crisis is too urgent for this essential source of transition finance to remain underused,” said Dale Hardcastle, global head of carbon markets at Bain & Company. “When adopted as a complement —not an alternative—to decarbonization and abatement, carbon markets can deliver critical climate investment where it is most needed, accelerating the transition to net zero.”
At a recent New York Climate Week event hosted by Bain & Company, representatives from more than 40 climate leading companies, market initiatives, and standard setters gathered to advocate for an acceleration of corporate investment in the VCM.
“Companies see value in the VCM and want to engage, but often lack sufficient incentive to overcome the risk involved,” said Dr. Jennifer Jenkins, chief science officer of Rubicon Carbon and one of the event’s featured speakers. “We need to mitigate the market risk by developing high-quality credits, managing the risk associated with legacy credits, and recognizing companies that engage with high integrity."
A new vision for carbon markets
The report details findings from a working group of corporate partners, market initiatives, and stakeholders, calling for an integrated, more strategic approach to carbon markets to help steer corporate decision-making and mitigate corporate climate transition risks.
According to Bain and the Forum, carbon markets should act as a supplement, rather than an alternative, to other decarbonization activities; this positions them as an integral cost of doing business instead of a branding exercise or merely philanthropic engagement.
A playbook for corporate action
Bain and the Forum offer a playbook for the next 100 companies to participate in the market while further emphasizing the needed importance of transparent disclosures alongside a set of mature risk management processes, such as regular external audits. Together these measures will minimize the risk of participating in a nascent market, manage carbon liabilities, and feed into the creation of a global market.
“Carbon markets have existed for over 20 years, and yet they have not reached maturity,” said Pedro Gomez, head of climate at the World Economic Forum. “The voluntary carbon market is an important lever in the transition to net zero. Wider adoption can provide a valuable tool for climate finance, potentially funneling billions of dollars into climate action in a short time frame”
The report identifies four tracks of action to help corporations learn from early adopters who have successfully integrated carbon credits into their strategy, providing specific case studies for each step from companies, including Heineken, Salesforce, BBVA, and others.
- Defining a net-zero role for credits: clearly set out the complementary role carbon credits will play within an overall decarbonization program, backed by science-based targets.
- Creating value and recognition: invest in high-quality carbon credits, such as those that comply with the Core Carbon Principles by the Integrity Council for the Voluntary Carbon Market (ICVCM), and communicate the impact of these investments following the guidance by the Voluntary Carbon Markets Integrity Initiative (VCMI) in its Claims Code of Practice.
- Tailoring a portfolio: ensure that the emphasis of purchased carbon credits evolves over time, from initial emissions avoidance to ultimately durable carbon removal.
- Orchestrating the effort: ensure the appropriate level of internal resources are allocated to successfully engaging with the VCM. This will vary by organization, but is likely to include resources from management, finance, procurement, and communications.
“We need to think about the VCM as one critical part of a broader set of solutions that complements, as opposed to replaces, decarbonization,” said Mark Kenber, executive director at VCMI. “If companies don’t first decarbonize and then engage with the VCM at meaningful scale, it will be exceedingly difficult for us to close the financing gap and to meet our global, Paris-aligned climate targets. Companies must be encouraged to act today, and the VCMI Claims Code is a rulebook for them to follow which simply did not exist until this year and should give them confidence to leverage this important climate finance tool.”
- Companies committed to develop science-based targets for decarbonization through Science Based Targets, mutually recognized by CDP, UN Global Compact and We Mean Business. Data on number of participating companies provided by Science Based Targets. Data on number of retired carbon credits provided by Trove Research.
- European Parliament, Background information for the BUDG-CONT joint workshop on ‘The Role of the EU Budget in International Climate Finance’, January 2023
Editor's Note: For more information or interview requests please contact: Katie Ware at email@example.com or +1 646 562 8107
About Bain & Company
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About the World Economic Forum
The World Economic Forum, committed to improving the state of the world, is the International Organization for Public-Private Cooperation.
The Forum engages the foremost political, business and other leaders of society to shape global, regional and industry agendas. (www.weforum.org).