A new analysis from MSCI Carbon Markets highlights trends in climate investments and sheds light on the impact of climate financing to date. The report titled Investment Trends and Outcomes in the Global Carbon Credit Market examines capital flows in the voluntary carbon market and considers both publicly announced raises and commitment of capital and capital expenditure at a project level.
Here is a snapshot of the key trends from the global carbon credit market:
Carbon capital investment trends:
- Nearly USD $42 billion was invested between 2013 and 2023 in 11,752 carbon-credit projects.
- Half of this expenditure (~USD $22 billion) occurred between 2021 and 2023, reflecting a rapid increase in activity.
- Asia, the Americas, and Sub-Saharan Africa accounted for 99% of investments.
- Nature-based projects, such as afforestation and REDD+ attracted 54% of total spending.
- USD $43.4 billion was committed or raised between 2021 and Q3 2024.
- 70% of capital raised went to carbon-removal initiatives, with nature-based projects accounting for 45% and engineered solutions like Direct Air Capture (DAC) representing 23%.
- 2024 is on track to set a record, with USD $14 billion raised by Q3.
Carbon project investment trends:
- Nature restoration projects led investments, accounting for 37% of total spending since 2013.
- The protected forest area increased by 70% from 30 million hectares in 2021 to 51 million hectares in 2024.
- Renewable energy projects accounted for 18% of expenditures, although their share has declined recently.
- Energy efficiency and non-CO2 gas projects are gaining prominence, particularly in Sub-Saharan Africa.
Environment and social impact trends:
- Projects registered since 2020 collectively offer an annual emissions reduction capacity exceeding half a gigaton (500 MtCO2e).
- To date, projects have achieved reductions of 2.6 GtCO2e, primarily through emission-reduction activities (92%).
- Over 1,000 projects support multiple UN Sustainable Development Goals most notably #3 health, #7 clean energy, and #8 economic growth.
- Projects like REDD+ and afforestation create significant jobs, averaging 100 positions per project.
- 66% of afforestation projects show potential for improving local biodiversity.
- Nature-based initiatives enhance ecosystem connectivity and help mitigate biodiversity loss.
Geolocation trends:
- Asia was the largest recipient of investments, with China and India dominating. India surpassed China in 2023 project spending.
- USD $14.9 billion invested, driven by Brazil and Colombia in Latin America, and the U.S. and Mexico in North America.
- USD $5.9 billion invested, with Kenya leading. Investments here grew at the fastest rate between 2021 and 2023.
Market dynamics trends:
- Corporations are shifting from purchasing carbon credits in secondary markets to direct investments in projects and long-term agreements.
- Capital raised for engineered solutions nearly doubled in early 2024 compared to the whole of 2023.
Invert Insights.
💡 The carbon credit market has become a critical tool for climate mitigation, promoting sustainable development and biodiversity protection while offering significant socio-economic benefits. Its rapid growth is led by increased private-sector participation and a strong focus on nature-based solutions.Â
💡 The report paints an optimistic future for the global carbon market that mirrors other forecasts for the VCM in 2024. Future growth will likely be spurred by rapid innovation, expanding geographic reach, and increasing alignment with global sustainability priorities. However, sustained growth will depend on addressing regional disparities, ensuring market stability, and fostering innovation across project types.
💡 As corporations shift their investment directly to projects and long-term agreements, there is a massive opportunity to scale nature-based solutions, which offer more economical and immediate climate returns. With engineered solutions requiring significant capital and a longer runway for implementation, the timeline to realized climate benefit does not often allow organizations to meet near-term objectives. Businesses working with organizations like Invert, who have the capacity and competency to identify and develop nature-based carbon projects, will be better positioned to benefit from the climate impact and catalyze the industry as a whole.
