The London Stock Exchange is developing a new market solution for the voluntary carbon markets
November 5, 2021
- A new market solution would accelerate the availability of financing for projects that will support a just transition to a low carbon economy.
- The goal is to address two major challenges: access to capital at scale for the development of new climate projects worldwide; and primary market access to a long-term supply of high-quality carbon credits for corporates and investors.
- This will enable companies and investors to augment credible net zero transition strategies, by financing additional projects to offset unavoidable carbon emissions during their path to net zero.
- Potential to benefit economies in the Global South, a significant source of high-quality carbon credits
As part of our efforts to drive action on climate change, the London Stock Exchange today announces that it is developing a capital markets solution to enhance investment in carbon mitigation projects worldwide.
A growing consensus has developed regarding the need for a global, scalable Voluntary Carbon Market that can deliver a rigorous, market-based approach for investment in activities that reduce and remove global carbon emissions. We believe that we can address two major barriers that currently restrict this market: access to capital at scale for the development of new climate projects worldwide; and primary market access to a long-term supply of high-quality carbon credits for corporates and investors.
The London Stock Exchange expects to use its existing market infrastructure, supplemented by specific requirements relevant to carbon credit projects. This would enable funds to be listed that will provide capital for projects that reduce greenhouse gas emissions and remove carbon from our atmosphere.
Our intention is to facilitate the public listing of carbon funds through a disciplined, transparent market with a clear price signal and confidence that investors can directly support the development of high-quality climate change mitigation projects worldwide. We anticipate that corporates and other organisations with long-term needs for carbon credits will become investors, using the carbon credits delivered by these vehicles – which may be issued as an alternative or additional dividend - to meet a portion of their offset needs.
We envisage a thriving market that delivers a range of investment alternatives from different types of carbon reduction and removal activities to specific regions of focus. Investors could then gain exposure to multiple funds to spread risk and build a diversified portfolio, which may be supplemented and hedged in the secondary market.
It is envisaged that the process of generating carbon credits will use the current ecosystem of credible standards and verification bodies that is being strengthened by the efforts of the Taskforce for Scaling Voluntary Carbon Markets and other governance initiatives, supported by industry experts and civil society groups. As frameworks such as the Core Carbon Principles develop, we will build upon best practice today, whilst filling vital gaps that are inhibiting climate action at scale.
Ensuring that the voluntary carbon market scales globally, whilst retaining rigour and transparency will require collaboration and open frameworks between market participants across the ecosystem. London Stock Exchange Group’s Open Access philosophy will be at the heart of our approach to this market.
Julia Hoggett, CEO of the London Stock Exchange:
“Climate change is the most urgent challenge of our lifetimes. It is essential that the global capital markets, long the drivers of economic activity, are reoriented to act in service of the planet. By creating solutions to direct capital flows into projects that address the climate crisis, many in the Global South, the London Stock Exchange can play its part in supporting a just transition to a low carbon economy.”
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