Experts Shane Fagan from Patch and Tom Spencer from Swiss Re explore the increasingly important and multifaceted roles carbon credits can play in corporate climate strategies
The global voluntary carbon credit market (VCM) has been on something of a rollercoaster ride over the past half decade.
Less than five years ago it was being touted by Mark Carney - formerly the Bank of England governor, now Canada's Prime Minister - as one of the biggest levers for private investment in nature restoration and the net zero transition, with potential to grow into a $100bn-per-year market by 2030.
Perhaps inevitably, such bullishness invited unprecedented scrutiny of a nascent market still lagging in terms of its governance infrastructure. And so, as transparency and oversight concerns grew louder, a spate of allegations followed claiming the market was awash with 'junk' credits that were doing little for – and in some cases even potentially damaging - the environment, the climate, and local communities.
As a result, even the VCM's biggest proponents were forced to reassess their ambitions, as the market entered a period of structural adjustment and realignment, voluntary and regulatory oversight increased, and businesses investing in the market to support their climate strategies were forced to recalibrate the role of carbon credits in supporting their climate and nature efforts.
But if these stutters could be characterised as the VCM's 'difficult teenage years', there are signs the market in 2025 may have endured the lion's share of such upheaval, with many across the value chain - from project developers, to middlemen certifiers, right through to buyers - quietly confident signs of maturity are beginning to emerge.
To understand these green shoots, however, it is worth digging down a little deeper than the headlines, as the true state of the VCM is more nuanced than first appearances suggest.
The aforementioned upheaval and 'greenwashing' concerns resulted in the market as a whole falling into decline for several years. Last year, the volume of total transactions fell by 25 per cent, while the average carbon credit price fell by 5.5 per cent, according to Ecosystem Marketplace. It totted up the total transaction value worldwide at $535m in 2024, almost 30 per cent lower than the previous year. Crucially, though, that decline is now slowing, according to the report.
"Headline figures can suggest there's a flat or depressed demand on a pure dollars basis, but actually there's growing demand in the right places," explained Shane Fagan, climate strategist at Patch, an end-to-end marketplace platform that connects carbon removal project developers with companies seeking to purchase high-integrity carbon credits.
"We would call this - to use a term Bloomberg first made famous - a 'bifurcation of the market'," he continued. "Which is basically a tier of higher-priced, higher-integrity credits that demand is growing for, and buyers are willing to pay a premium for. And then there is this tranche of legacy-type credits that are a bit lower integrity and lower in cost."
In short, while the number of overall carbon credit sales on the market may have fallen compared to a few years ago, those businesses which are active in the market are increasingly buying higher quality credits, and they are willing to pay more to secure them.
Why? Firstly, the onus has shifted away from organisations using carbon credits to directly offset their emissions. The Science Based Targets initiative, for one, does not allow carbon credits to count towards a company's emissions reduction targets until they have delivered as much direct decarbonisation of their operations and value chain as possible. Instead, the push has been for carbon credits to form part of so-called 'beyond value chain mitigation' - i.e. companies investing in climate efforts outside of the confines of their own business and value chain.
The SBTi's corporate net zero standard is currently undergoing revisions, but it is almost certain compliance with the standard going forward will further increase the impetus for companies to buy higher quality credits.
Then there are regulatory drivers, such as the EU's Green Claims Directive, which aims to stamp out 'greenwashing' by limiting the ability of organisations to describe their products or services as 'carbon neutral' when they have purchased carbon credits to make such claims. Other efforts, such as the EU's Corporate Sustainability Reporting rules, or the work of the UK Transition Plan Taskforce, are also aimed at enhancing disclosure and transparency around how carbon credits are used to support corporate climate action.
These trends, coupled with the growing confidence high integrity projects will deliver promised emissions savings or removals, mean companies are increasingly keen to invest in the higher tier of credits that can deliver "real impact", Fagan said.
"So instead of asking 'how can I most cost effectively offset all those emissions?' a company can instead say 'how can whatever my budget is drive the most impact?'" he explained. "And that means you can pay a higher average dollar cost per tonne."
On top of that, there is the obvious desire to avoid the reputational risk that comes with investing in cheaper, lower quality carbon credits - although this does also come with a downside.
As Fagan noted "nobody wants to be in the news for the wrong reason", but at the same time fewer companies are talking publicly and transparently about their climate efforts. "This notion of 'greenhushing' is unfortunate, because I think vocal leadership [on supporting high quality carbon removals] can have quite a positive effect," he said.
Not all major corporates are guilty of 'greenhushing' though, of course. Fagan's comments came last week during a webinar hosted by BusinessGreen in association with Patch, which explored 'How to build a business case for high integrity carbon credits' and also included input from one major firm that has been working hard on putting a robust set of policies in place to support its involvement in the VCM.
Tom Spencer, environmental management specialist at Swiss Re, explained how one of the world's biggest reinsurance companies is more deeply acquainted than most firms with the complex economic and financial risks associated with climate change and nature degradation. As such, the firm has also long been ahead of the game in developing its own strategy to achieve net zero by 2050, and to curb the physical and transitional threats posed to its business by the climate and nature crises.
Alongside these efforts, Swiss Re first began developing its strategy for utilising the VCM back in 2021, which Spencer summarised as a "do our best, remove the rest" strategy - i.e. reduce emissions as far as possible, and then only invest in high integrity carbon removals projects to tackle residual impacts. The firm's investment in such carbon credits was built upon its decision to implement an internal carbon price across the business starting at a $100 per tonne of CO2 baseline. That price has also been increasing each year towards a headline $200 per tonne in 2030, which is "baked into our strategy", Spencer said.
"We called it the 'carbon steering levy' to emphasise the behavioural steering element," he explained. "So, whenever an employee books a flight, they'll see the cost in dollars and in tonnes of CO2, which is the impact of that flight and that their team will also have to pay."
That carbon price has had all sorts of subtle and more overt impacts across Swiss Re's business and operations, as it effects countless decisions made across the company. And crucially, one of those impacts has been to set a price signal that makes higher integrity, and usually higher cost, carbon credits a much more cost effective proposition.
"Historically, there's been a tendency in the VCM to define a strategy around ‘how can we get the right number of credits for as cheap as possible?'," Spencer explained. "And we've seen the effects that that's had when we designed our own strategy. We wanted to start from the position of ‘OK, what are we willing to pay for our carbon compensation?'"
Having begun largely investing in carbon avoidance credits - often supporting projects such as forest protection schemes that prevent emissions - Swiss Re has set targets for enhancing its investment in carbon credits to help catalyse the market for projects that actually remove additional carbon from the atmosphere.
"We're going to continue supporting avoidance credits, but we're going to ramp up the amount of removals in our portfolio from a ow level of only 10 per cent in 2021, and increasing each year up to 100 per cent by 2030, and that way we can add a bit of balance," Spencer explained. "On the one hand, removals are still expensive, even more so a few years ago, but as they scale up, we can hopefully get them towards that $200 per tonne of CO2 level that we have now baked into our strategy."
Efforts have also been under way in recent years to build governance structures that are helping to improve confidence that carbon credits - whether nature-based, engineered, or anywhere in between - are as high-integrity as is claimed. The Integrity Council for the Voluntary Carbon Market's (ICVCM) Carbon Core Principles (CCP) label is now being increasingly widely used to help decipher what a 'good' carbon credit project is, backed by registries and certifiers such as Verra, in addition to which there are ratings agencies including Silvera and BeZero Carbon which add another layer of oversight and transparency to the market.
On top of that, companies should also be carrying out their own due diligence to ensure the projects they invest in are sound, said Spencer.
"With this pyramid - all these different levers - we can start to feel pretty comfortable that, actually, the credits we're doing really are doing what they say they're doing," he said.
For Fagan, meanwhile, beyond supporting climate strategies or complying with increasing regulatory or investor pressure, the business case for investing in high integrity carbon credits is becoming ever clearer.
For one, companies are becoming increasingly aware of the wider, more holistic nature of the climate crisis, and how it can directly or indirectly impact their business and supply chains, as well as the need to build resilience against the growing costs of global warming. Investing in beyond value chain mitigation and adaptation can also help build resilience across the wider economy, and a company's supply chain. There is, after all, no business on a dead planet, as they say.
"The cost of action is going to be far lower than the cost of inaction," said Fagan, highlighting recent research by the World Economic Forum showing that investments in climate mitigation and adaptation deliver significant returns on GDP several times over in the medium to long term.
Plus there is also good old-fashioned competition. "Carbon has increasingly become a pillar of competition, and companies look at their peers," said Fagan. "Carbon targets and VCM investments are a way to add legitimacy to that ambition."
That competition increases the pressure on companies to get ahead of their peers and invest in the high integrity credits available in the VCM now, before financial, risk, regulatory, investor, and public pressure see more companies crowd into the market. There are scenarios in the coming years where demand for high integrity credits could start to significantly outstrip supply, leading to upward pressure on credit prices.
As Fagan argued, companies which have set out business strategies and targets need to be able to tackle their emissions and achieve impact at a predictable and stable price, which means there is a compelling case for moving early.
"By engaging early, you secure access, secure favourable pricing, and you're contributing - as Swiss Re is - to the critical cost decline of these carbon removals solutions, rather than free-riding until your net zero target year and then jumping in," he said. "So companies do recognise, I think, the time value of carbon and efficiently use the VCM to fund projects already having an impact now - and that reduces, ultimately, the likelihood of operational supply disruptions."
Looking ahead, both Fagan and Spencer are positive the voluntary carbon market is heading in the right direction after a challenging few years of realignment.
"My hope and belief is that by around 2040, carbon credits are more of a regulated balance sheet commodity - truly a tradeable asset, versus a sustainability cost centre," said Fagan. "[Perhaps we'll also have] fungibility between regulatory carbon markets, and removals dominating by 2040. Hopefully nature has been scaled to its capacity [for carbon sequestration projects] by then, so carbon removals dominate the price, which can start to come down as these projects scale."
In the more immediate term, too, Spencer claims he is "actually quite optimistic".
"In the VCM there are now so many different types of credits," he said. "There's so many different actors involved in ensuring credibility, and so many more people are switched on. I don't think there's going to be a ‘big bang' where everything moves forward suddenly, but we're going to see these steps accumulate over the next five years.
"I think that by 2030, if the political environment changes and we have lots more momentum behind climate action, then we'll be really well set up to move forward with a lot more strength."
The voluntary carbon market has endured a raft of upheavals in recent years, but the light is now shining at the end of the tunnel and the future looks bright. The business case for investing in high integrity carbon credits, it seems, is only going to strengthen.
The webinar - 'How to build a business case for high integrity carbon credits' - was hosted by BusinessGreen in association with Patch, and can be watched back again in full here.
