A new report by GIC, the Singapore Economic Development Board and McKinsey sheds light on how institutional investors can play a role in building robust carbon markets in support of net zero – and why it is in their interest to do so
Traded and regulated by
mandatory national, regional
or international regimes.
TODAY
Traded by companies and individuals
on a voluntary basis to achieve carbon
compensation¹ and neutralization².
N-GEO (Nature-Based Global
Emissions Offset™) spot futures
contract is traded on the CBL
exchange and provides liquidity for
Agriculture, Forestry, and Other Land
Use (AFOLU) projects.
Carbon allowances could provide downside protection
and enhance risk adjusted returns in scenarios
involving immediate or delayed climate actions.
VCMs are expected to experience significant
growth with the potential to reach market
value of US$5B -US$30B in 2030.
Invest in the VCM value chain and scale up
the supply of high quality credits, for example
by directly financing technology based carbon
removal projects or nature based solutions
that involve forest protection and restoration.
Be mindful about various risks, including
execution, reputation and regulatory changes.
Look out for opportunities and regularly
evaluate key changes in the markets which
will remain susceptible to regulatory changes, for
example, measures to increase price stability.
Invest in the VCM value chain and scale up
the supply of high-quality credits, for example
by directly financing technology-based carbon
removal projects or nature-based solutions
that involve forest protection and restoration
Support the establishment of high-
integrity VCM standards and governance:
transparent, liquid and high-quality.
Guide portfolio companies on the path
to net zero, for example by guiding them on
setting and reporting decarbonisationtargets
or advising them on using carbon credits.
* As of 2020
1. Compensation measures include supporting the avoidance of further emissions (e.g., preserving natural carbon sinks such as forests), and helping others
reduce emissions via new technologies that are less carbon intense.
2. Neutralisation measures remove CO2e from the atmosphere via nature-based (e.g.,reforestation) and technology-based (e.g., direct air capture) sequestration.
3. 5% portfolio allocation to carbon allowances vs the expected return for a regular 60/40 equity:bond portfolio of approximately 4 percent.
4. With 5% carbon allowances inclusion vs the expected returns for a regular 60/40 equity:bond portfolio with approximately 4% annualised return.
Source: Taskforce on Scaling Voluntary Carbon Markets, January 2021, iif.com
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