Davos Agenda

A practical guide for corporations to navigate the voluntary carbon markets

Voluntary carbon markets (VCM) have a critical role to play in protecting nature and achieving our global climate ambitions.

Voluntary carbon markets (VCM) have a critical role to play in protecting nature and achieving our global climate ambitions. Image: Unsplash.

Nasim Pour
Lead, Carbon Removals and Market Innovation, World Economic Forum
Dale Hardcastle
Partner, Bain & Company SE Asia Inc
Henning Huenteler
Expert Associate Partner, Bain & Company Inc.
Sara Figel
Consultant, Bain & Company
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Davos Agenda

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  • Voluntary carbon markets (VCM) have a critical role to play in protecting nature and achieving our global climate ambitions.
  • Market participation has plateaued and urgent interventions, market reforms, and corporate commitments are needed to accelerate and scale the VCM.
  • A new white paper outlines four key areas of action corporates can take to effectively engage with the VCM.

The devastating impacts of climate change to the planet, people, and economies are increasingly well understood. The key question is what we do to catalyse immediate action and accelerate mitigation efforts. The voluntary carbon market (VCM) is one of the few transition finance options that can accelerate action, scale new technologies, and connect private capital to high-potential projects in the limited time available.

Investment today is critical, not only to protect nature and mitigate carbon emissions immediately, but also to build credit supply in preparation for 2030 targets and ambitions beyond. However, the VCM has failed to secure the financial investment necessary to scale and innovate sufficiently.

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The risk of criticism, complexity of the market landscape, and lack of strategic incentives has recently flatlined VCM growth. While valid market concerns are being addressed, companies should start using carbon markets to deliver climate action now and position themselves and society to achieve net-zero ambitions. Companies need a strategic approach to integrate climate risk management, design transparent disclosure processes, and secure future access to carbon credits. The World Economic Forum and Bain & Company have collaborated with over 30 high-ambition corporates, motivated by the shared objective of assessing and harnessing the potential of carbon markets, to publish a white paper aiming to accelerate corporate engagement with the VCM.

A future vision for voluntary carbon markets

We developed a vision for the future of the VCM seen through six lenses:

A vision for the future of the Voluntary Carbon Market (VCM) seen through six lenses.
A vision for the future of the Voluntary Carbon Market (VCM) seen through six lenses.
  • A new narrative: A new narrative must acknowledge and reward the use of high-integrity carbon credits as a complement, rather than an alternative, to other decarbonization activities. A few companies have abused carbon markets as a low-cost shortcut to avoid taking meaningful decarbonization measures. This has led to reputational risks even for companies acting with integrity. Without this new narrative, boards and investors lack the rationale to deploy significant capital toward the VCM.
  • Strategy, not philanthropy: Today, the VCM is primarily used by corporations philanthropically or to achieve their corporate responsibility objectives. Corporations need to implement carbon credits as an integral cost of doing business, rather than viewing credits as discretionary spending.
  • Pragmatic recognition of efforts: Explicit recognition of high-integrity efforts is critical to incentivize action. Yet this recognition should acknowledge corporations have different emissions profiles, unequal access to decarbonization levers, and are at different stages of the journey to net-zero. Recognizing these limitations and differences across sectors, regulators and standard setters can design frameworks that provide specific incentives for companies to allocate capital to mitigation efforts beyond their value chains while retaining the abate-first mitigation hierarchy. A thriving carbon market in the future will provide incentives for parallel investments in abatement efforts and beyond-value-chain mitigation.
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  • Transparent disclosure and claims: The next wave of corporate engagement in the VCM will require trust and confidence in the market and the associated claims corporates can make. The Voluntary Carbon Markets Integrity Initiative (VCMI) Claims Code of Practice provides a basis for communicating corporate action in a standardized way. However, various standards and guardrails need to be further harmonized. Corporate dedication to transparent and accurate reporting must be sustained to build trust, combat greenwashing, and lay the groundwork for the next wave of corporate action.
  • Mature risk management: Future carbon markets should emulate mature market systems with multiple levels of risk management and quality control. For example, data from projects and registries should be regulated and subject to frequent audits and rating agency evaluations to give buyers confidence before making large investments.
  • Convergence on a global market: As the VCM matures, an integrated system of global carbon pricing can be developed, offering increased transparency. Today, pricing systems are fragmented by geography and across compliance and voluntary markets, complicating the landscape further for corporates otherwise ready to engage. Carbon credits provide weak linkages between markets; this can strengthen over time. As prices, markets, and standards evolve, winning players will continuously monitor developments and adjust their strategies accordingly.

For the VCM to scale effectively, and for corporates to embed the VCM into their broader decarbonization strategies there must be a willingness to act now and learn in the open, and companies need air cover from unwarranted criticism if they step forward in this way.

Four tracks of action

To accelerate participation, we have identified four key tracks of action to enable the next wave of corporates to navigate the VCM.

voluntary carbon market four tracks of action

1. Define net-zero role for credits

Corporates must define a clear role for carbon credits, complementary to in-value chain decarbonization. Both a concrete ambition and aspirational goals should be set with quantifiable, near-term outcomes.

2. Create value and recognition

Securing the capital needed to meaningfully scale the VCM requires a clear case for value creation. Corporations should consider the full range of value creation opportunities, both for their commercial interests as corporations as well as for stakeholders along the value chain and within the broader ecosystem.

3. Tailor a portfolio

To complement primary abatement efforts, corporations can build a portfolio of carbon credits that maximizes the impact of their transition strategy. Portfolios should consist of high-quality credits tailored to their business, with a short-term focus on avoided emissions that transitions towards carbon removal over time.

4. Orchestrate the effort

Corporations can design their operating model to position them for their desired level of VCM participation. Corporations can act as purchasers, partners or all-in business builders with increasing capability and FTE requirements. The level of external support required should also be considered in this context.

Without changes today, corporate boards and investors lack a rationale to invest at the scale required—billions per year, not millions—and natural capital will be lost, communities further affected, and early investment in solutions needed for the road to net zero will not be made. Put simply, moving the VCM to wider corporate adoption requires rethinking incentives and recognition to accelerate action now.

Please see our recently published white paper for additional specificity on each action track and detailed case studies: Scaling Voluntary Carbon Markets: A Playbook for Corporate Action.

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