Enabling a net-zero economy involves an aligned approach to limit further temperature rises and reduce global emissions. According to the IPCC Special Report on the impact of global warming of 1.5°C (2018), the transition requires a significant reduction in carbon emissions, between 100 billion and 1 trillion tonnes of CO2 over the course of this century.

Both reducing emissions and at the same time removing CO2 from the atmosphere is necessary for limiting temperature rises. Carbon offset projects invest in Nature-Based Solutions to finance changes in land use such as reforestation. Nature-Based Solutions can act as carbon sinks to absorb CO2 and help achieve the net-zero goal. The Energy Transition Commission estimates that 7-8 billion tonnes of CO2 per annum need to be captured in man-made or natural carbon sinks by 2040, equivalent to the total energy-related emissions of US and India in 2019.

A quarter of the Fortune 500 companies have committed to be carbon neutral by 2030, according to research by Natural Capital Partners. As corporates are raising their own net-zero ambitions, a voluntary carbon offsets market is increasingly becoming a necessity.

This HSBC paper outlines the role of Nature-Based Solutions, the current state of the voluntary carbon offsets market and provides recommendations for its further development.

The voluntary carbon offsets market represents just 0.01 per cent of the compliance credit market, but is growing and has tripled to reach USD0.6 billion in 2019. The finance industry is vital in facilitating the scale up of a credible voluntary carbon offsets market and helping businesses address residual emissions. This paper recommends the creation of a common market mechanism, reporting principles, global platforms and innovative financial products to help create liquidity, foster transparency and provide scale for investors. Building a carbon offsets market at scale could become one of the key tools to mitigate the harmful effects of climate change.

Read the full report in PDF format


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