We are becoming increasingly aware of how our actions are damaging our planet, leading to rising global average temperatures beyond sustainable levels. Reducing carbon emissions is key to combatting the climate emergency, and as emissions continue to rise, the time for decarbonisation action is now.

As the drive to curb rising temperatures gathers pace, carbon markets are becoming increasingly fundamental to the task of achieving net-zero emissions. At a high level, the purpose of carbon markets is to put a price on carbon. In this paper, Isio describe two main types of carbon markets – Voluntary and Compliance. Voluntary markets allow carbon emitters to offset emissions by voluntarily purchasing carbon credits generated by projects that reduce or remove emissions from the atmosphere. Whereas compliance markets are regulatory in nature and typically incorporate a market where companies are required to trade the ‘right to pollute’.

While carbon markets are still evolving and growing, investors are increasingly considering the opportunities and risks involved. Potential opportunities for investors include:

1. The contribution of carbon markets to emissions offsetting and net zero.
2. A potential investment opportunity including carbon price hedging and improving portfolio efficiency (potential for strong returns and diversification).

Learn more here