Big Money Bets On The Voluntary Carbon Market

2022 has seen significant capital inflow into the voluntary carbon markets (VCM). Diverse participants such as trading platforms (Hungry For High-Quality Carbon Credits: NCX Fund Raising Of $50 Million), direct air carbon capture (DACC) technology firms (Verdox $80m Fundraising Shows Thirst For Direct Carbon Removal Technology), and registry providers (witness APX’s acquisition by Xpansiv) have all seen activity.

This level of investment signals an unprecedented level of confidence in the future of the voluntary carbon markets, which until recent years had failed to scale significantly. But these deals are small in comparison to Climework’s April $650 million fundraise. Climeworks, which operates several DACC plants, the largest of which is located in Iceland (see Verdantix Climeworks Scales Up Atmospheric CO2 Removal As A Service) was the first commercially viable DACC firm. Noteworthy clients include Microsoft, Stripe, and Shopify. And these names reoccur once more in the launch of Stripe-owned Frontier, whose members today announced a $925m commitment towards buying permanent carbon removal credits by 2030. To put these numbers in perspective, in 2021 the total value of the voluntary carbon market topped $1bn for the first time.

How should firms interpret this activity? For one, it signals big money is being betted on the price of credits trending upwards. This is unsurprising – supplies of high quality carbon credits are seriously constrained, and demand is growing due to corporate net zero ambitions. Second, it suggests that future demand will be focused on the highest quality credits, which constitute nature-based removals with data assurance measures, or DACC credits. One should take into account here the SEC’s proposed climate disclosures, which would require firms to specify both the amount and source of any carbon offsets. This is a significant regulatory move, and would expose purchasers of less than trustworthy credits to reputational damage.

Carbon and ESG management solution suppliers would also do well to keep an eye on the voluntary carbon markets. As the price trends upwards, so to does the requirement to factor this cost into carbon pricing strategies – and therefore the onus is on suppliers to meet this demand. Over the past year firms such as Persefoni, Greenly, and Emex have already begun to integrate carbon credit purchasing platforms into their offering. Field tested carbon financial management functionality is less widespread, but championed by vendors such as Sinai Technologies.

Investment in the voluntary carbon markets will continue. Will it however be accelerated – or stymied - by events at COP27 this year? will lingering questions regarding the implementation of Article 6 be answered? Firms should nevertheless adapt decarbonisation strategies to take into account constrained supply and rising prices, at least until this year’s major fundraising has translated into tradable credit supplies in the future.

ESG Big Money Bets On The Voluntary Carbon Market

Connor Taylor

Analyst, Verdantix

Connor is a Technology Analyst in the ESG & Sustainability practice. His current research agenda focuses on emerging software solutions across financial markets, and broader market trends in the ESG space. Connor joined Verdantix in 2021 and has experience in EHS technology sales and development. He holds a B.A from Cambridge University in Anglo-Saxon, Norse and Celtic.