As the urgency to address climate change intensifies, carbon markets remain one of the most critical tools for reducing global emissions. These markets provide businesses with a flexible mechanism to offset their carbon footprints while driving funding toward effective decarbonization projects.
Carbon financing enables investment in solutions that address critical needs in emerging markets, which produce a fraction of the emissions compared to the developed world.
However, as voluntary carbon programs expand, so do concerns about their credibility. Scandals and accusations of greenwashing have raised legitimate doubts about the effectiveness and transparency of carbon credits, leading some to question whether these markets can truly benefit the communities they claim to support or meet the emissions targets they pledge to offset.
Let’s be clear: abandoning the voluntary carbon market would be a colossal setback in efforts to limit global warming to under two degrees Celsius. While the system is far from perfect, no other tool matches carbon markets’ scale and momentum in reducing emissions.
Without them, critical funding for decarbonization efforts in rapidly growing regions would be lost, stalling the transition to green energy and harming communities that rely on these projects for energy access, health, education, and gender equity co-benefits.
This is a wake-up call. To ensure carbon markets fulfill their potential, we need to see them as a valued asset rather than a commodity. We must rethink how credits are sourced, verified, and monitored, ensuring they bring real value to both people and the planet. The solution lies in market-tested approaches and technology—specifically, advancements in Environmental, Social, and Governance (ESG) platforms and Measurement, Reporting, and Verification (MRV) systems.
Tech-enabled transparency
Technology is a powerful tool for restoring trust and transparency in carbon markets. New ESG platforms are transforming how businesses calculate and report their greenhouse gas (GHG) emissions. This is crucial, especially as Scope 3 emissions—indirect emissions from a company’s supply chain—account for over 70% of many corporations’ carbon footprints but have historically been the hardest to measure, leading to inconsistent reporting standards.
These platforms are also creating new marketplaces for procuring next-generation environmental attributes, giving businesses access to more credible carbon offsets. But perhaps the most transformative development lies in the advances of MRV systems, which are setting a new benchmark for transparency by delivering audit-ready data and ensuring that every carbon credit is tied to a verifiable emissions reduction. MRV improvements can significantly cut global emissions, according to the International Emissions Trading Association.
Yet, too few companies have embraced this transformative technology. While some grapple with its complexity, cost, and evolving regulations, others resist due to the transparency MRV systems demand, which invites scrutiny of data and credit quality. But in the face of the climate emergency, there’s no room for half measures—the consequences of inaction far outweigh the costs of adopting these systems.
Ground-up demand
Technology alone isn’t enough to restore trust in carbon markets. Achieving impact at scale requires aligning technological advancements with market-based solutions that embed social and environmental benefits into business models. These solutions, validated by customer demand, drive innovation while ensuring financial sustainability.
Carbon financing plays a key role by enabling affordability and scaling high-quality, energy-efficient products.
Burn Manufacturing, a Kenyan cookstove company and Acumen investee that has sold over four million stoves since 2014, has provided more than $1 billion in household savings and impacted over 25 million lives. They have also reduced more than 26 million tons of CO2 emissions, saved over 14 million tons of wood, and created 2,500 jobs. Other social enterprise examples include solar lanterns, solar irrigation, and solar home systems, which reduce emissions while providing savings and health benefits. Their success in underserved markets depends on affordability and the capacity of social enterprises to scale.
The next frontier lies in innovations like productive-use energy solutions that increase revenues for small businesses and communities, soil carbon methodologies, and improving productivity and market access for smallholder farmers. Additional revenue from carbon credits can enhance their impact and accelerate growth.
By adopting MRV technologies, social enterprises can verify their impact, building trust among credit buyers. This transparency boosts investment, strengthening carbon financing as a tool for scaling solutions in underserved markets. Development sector stakeholders can provide critical technical support for integrating reporting practices and technology, enhancing credibility and reach.
Turning the page
Voluntary carbon markets are at a critical juncture, with calls for reform gaining momentum across climate forums. At New York Climate Week 2024, attention focused on anticipated regulatory shifts from the U.S. government, drawing keen interest from corporate buyers, particularly in the tech sector.
Momentum isn’t just coming from the most powerful players—social enterprises and impact innovators are increasingly stepping in, pushing for a future where credibility and meaningful impact go hand in hand.
This theme was central to the discussion at Credit Where It’s Due, a dialogue hosted by Acumen and featuring leaders from Carbon Solutions Group, Biolite, Boomitra, and the Shell Foundation. The conversation underscored the need to improve verification processes and address price volatility—essential steps to ensure carbon markets truly benefit social enterprises and the communities they serve.
Enhancing verification methods through improved MRV systems and using philanthropy to support price stability will allow these markets to scale high-impact projects and generate consistent revenue streams for enterprises offering nature-based solutions. Achieving this vision requires addressing market fragmentation and volatility while clarifying standards for credit quality.
Additionally, it’s crucial for stakeholders from the impact and social enterprise sectors to ensure their voices are heard in these ongoing debates. Those developing carbon removal projects and working with low-income communities in emerging markets need a seat at the table.
Carbon credits’ promise
Ultimately, the future of carbon markets is not just about tracking emissions but ensuring that every credit traded delivers real, measurable results for people and the planet. By promoting market-based solutions and adopting the latest reporting platforms, we can create a system that is trusted, transparent, and impactful, helping scale carbon markets in a way that drives meaningful progress toward global climate solutions and provides critical pathways to build climate resilience for low-income communities, not just for the wealthy.
As we approach major international forums like COP29, it’s critical to reframe the dialogue around carbon credits. Rather than focusing on high-profile missteps, we need to zero in on the transformative potential of these markets, especially for the most climate-vulnerable communities.
Carbon credits remain vital in the transition to a low-carbon economy and are a crucial source of financing for social enterprises working at the intersection of energy access, climate change, and poverty reduction. The path forward must prioritize innovation in how credits are sourced, tracked, and verified to unlock their full potential and restore trust in this powerful tool.
Amrita Bhandari is the chief strategy officer at Acumen, a global nonprofit impact investor. Daniel Sadik is the senior vice president of origination at Carbon Solutions Group, an advisory for accelerating cross-sector decarbonization.
