Carbon credits and institutional investors are key to a sustainable future

The view of Keppel Bay from Henderson Wave, Singapore. Credit: Shutterstock

Voluntary carbon markets that allow investors, governments and businesses to buy carbon credits could lower greenhouse gas emissions.

This is one of the main conclusions of a new report led by Dr Raúl Rosales, Research Fellow at the Centre for Climate Finance & Investment at Imperial College Business School.

The report examines the rationale for trading carbon credits and the role of institutional investors in developing voluntary carbon markets in the Southeast Asia region.

The report sets out policy considerations for the Southeast Asian region and reviews the current accounting practice applied to carbon finance. The report addresses how voluntary carbon markets are an effective tool in lowering net greenhouse gas emissions in the Southeast Asian region. It identifies opportunities and innovation gaps in the context of voluntary carbon markets that present investment opportunities to help countries shift towards a low-carbon economy whilst maintaining economic sustainability for a clean energy transition.

The report highlights how well-designed voluntary carbon markets can also reduce costs for emerging technology, achieving more significant decarbonisation.

Voluntary carbon markets refer to the trading of voluntary carbon credits, usually by private institutions, which offset emissions elsewhere, and can be used to help companies meet their corporate climate targets in support of the low-carbon transition.

The report's findings are particularly relevant to Singapore, as it plans its future as a regional carbon service and trading hub. The report analyses the case to scale up the carbon finance market in Southeast Asian countries, focusing on voluntary carbon markets.

According to the report, the key to scaling up voluntary carbon markets in Southeast Asia and reducing greenhouse-gas emissions is to secure high-quality carbon offsets based on transparency, liquidity and pricing, which are the drivers for capital markets, and institutional investors.

“With its richness in biodiversity, forests, and renewable energy sources, the Southeast Asian region has great potential to become a more carbon-friendly economy." Dr Raul Rosales Research Fellow, Imperial College Business School

The authors argue that building up the market efficiency of carbon finance should be a gradual process and should happen after these markets have secured credibility. Accountants, auditors, and other stakeholders should expect standardised carbon accounting measures and financial disclosure alongside the latest cutting-edge technology.

Commenting on the report's findings, Dr Rosales said: “With its richness in biodiversity, forests, and renewable energy sources, the Southeast Asian region has great potential to become a more carbon-friendly economy. However, success depends on investors, governments and businesses establishing robust financial procedures to help bring down greenhouse gas emissions further.  Our report shows that carbon offsets should be tackled by implementing high-quality and trusted carbon credits which serve as effective financial tools to mitigate climate-related risks.”

The report is part of an overarching project developed in collaboration with the COP26 Universities Network and commissioned by the British High Commission in Singapore with the objective of identifying innovation gaps and challenges related to achieving a shift towards a low carbon and sustainable economy in Southeast Asia. The policy report is a collaboration between researches, practitioners, government, and industry, with a contribution from the Singapore Green Finance Centre.

The report, Voluntary Carbon Markets in ASEAN: Challenges and Opportunities for Scaling Up was led by Dr Raúl Rosales of Imperial College Business School, independently via Imperial Consultants.