Guidance published for buying carbon credits in private markets

An investor body has issued a guide for private markets players wishing to buy carbon credits.

Initiative Climat International (iCI) polled more than 100 private markets institutions, including general partners (GPs) and limited partners (LPs), and found that 42 are already purchasing carbon credits and nearly 60% intend to increase their activities in the space over the next 12 months.

Backed by the Principles for Responsible Investment, iCI is dedicated to decarbonisation efforts in private equity. It developed the latest guidance in partnership with green consultancy Anthesis.

“High-quality carbon credits can play a role in supporting the global transition to net zero emissions if integrated into an approach which includes emission reduction targets,” the report said.

However, it noted, reputational risks were a major concern for those considering engaging with the market, along with a lack of clarity around quality and regulation.

MSCI estimates the value of the voluntary carbon market – through which entities can buy certificates representing carbon savings made by other entities – could grow from $1.4trn in 2024 to $35bn by the end of the decade.

“The supply-demand gap for affordable, effective carbon credits is expected to increase due to the slow progress of nature-based and technology-driven solutions,” said iCI.

“As private markets align with net zero goals, this could create investment opportunities.”

But, it noted, just eight of the 43 private equity firms who said they were buying carbon credits are currently investing directly in carbon projects.

iCI pointed out that private markets investors could also invest in companies that are active in the value chain of voluntary carbon markets, or create or allocate to dedicated funds.

Its survey found that carbon credits are currently being used mainly to compensate for direct emissions, known as Scope 1 and 2.

Despite the fact that investment portfolios are the greatest source of emissions for most investors, only four of the private equity houses surveyed bought credits to offset their investments.

Instead, most Scope 3 (indirect) offsetting is currently directed towards travel-related emissions, such as business flights, staff commutes and distribution activities.

To help scale the use of high-quality carbon credits in private markets strategies and climate commitments, iCI published a seven-step process for responsible procurement.

The guide is based on existing best practices established through key frameworks like the Oxford Offsetting Principles, the Integrity Council for the Voluntary Carbon Market, the Voluntary Carbon Markets Integrity Initiative and the Science-based Targets initiative.

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