Businesses all across the globe are looking to be more environmentally friendly, but some need help to do it. This is where the voluntary carbon market plays a vital role in reducing greenhouse gas emissions, explains Viridios Group CEO Eddie Listorti.
These markets allow business owners to offset their carbon emissions more cost-effectively than they'd be able to on their own. These are done voluntarily by purchasing credits toward projects that help reduce emissions or remove them permanently, such as planting trees.
While the market has recently received much negative attention, it is changing for the better. Here are some ways in which it is doing so.
Overcoming Credibility Issues
One of the biggest challenges in the voluntary carbon market is building credibility. Many critics of the market believe the credits often don't fully deliver the benefits that they promise to the environment. They also point to the fact that the markets are fragmented and unregulated.
However, the market is building credibility by impacting underserved areas. The market does so by building credibility in the southern part of the globe as a region and within companies that otherwise wouldn't have been able to reduce their carbon emissions.
Another way the markets are overcoming credibility concerns is through what's known as financial additionality. Financial additionality is how project developers prove that the revenues they bring from the carbon credits are necessary to move the project ahead.
Meeting Global Demand
Voluntary carbon markets are bringing about significant change in sectors that are traditionally huge carbon emitters. In this way, they are helping to meet the global demand for credits in different sectors.
These sectors include airlines, which are huge emitters, and governments and other sectors where it's hard to decrease emissions on their own. The voluntary market has lagged behind the mandatory market to this point, but it's on the rise. In 2021, it rose above the $1 billion level for the first time.
Ensuring Quality
To increase the number of voluntary carbon offsets, they must first be of high quality. Eddie Listorti says that the Taskforce on Scaling Voluntary Carbon Markets, or TSVCM, established a set of underlying features to which all carbon credits should adhere.
The set of features includes permanence, overestimation, additionality, exclusive claim, and the provision of co-benefits that align with the Sustainable Development Goals outlined by the United Nations.
By standardizing the trading and contract infrastructure of carbon credits, the voluntary market is working to overcome some of its current shortcomings, such as limited availability of data, a dearth of financing, and relatively low liquidity.
Asset managers can serve an important role in this aspect by providing both the transparency and the liquidity that the voluntary carbon market needs, and that's already beginning to happen as it's changing for the better.
About Eddie Listorti
Eddie Listorti is the Founding Partner and CEO of Viridios Group. He has a proven track record with 30 years in business and banking. His experience includes managing teams of over 2,000 people and annual revenues exceeding AUD 2 billion. Mr Listorti has held board positions in industry bodies and joint venture partnerships.
