Domestic carbon credits garner increased focus among UK companies amidst their pursuit of a carbon-neutral future
In the world of corporate net-zero strategies, the role of carbon credits is becoming increasingly significant. According to a recent report, institutional investors in the UK are showing growing interest in purchasing UK-based carbon credits, a trend that is expected to accelerate as the UK government integrates carbon removal credits into the regulated UK Emissions Trading Scheme (UK ETS) by 2029 [1].
Despite this growing interest, institutional investors currently face challenges such as carbon credit quality and verification uncertainty, which makes them cautious. However, discussions among investors highlight the need for better platforms, long-term offtake contracts, and improved credit quality assurance to increase institutional participation [2].
The report, based on a survey of 300 senior UK business leaders across various sectors, reveals that 92% of senior decision-makers are confident that their organizations will meet their net zero targets, but only 42% could accurately define what carbon credits are [3]. This lack of understanding around credits is the leading obstacle to UK businesses buying carbon credits [4].
Removal credits, which physically remove carbon dioxide from the atmosphere, are seen as an opportunity to provide measurable environmental impact. In comparison, tech giants like Microsoft, Google, and Amazon have been more proactive and sizable purchasers of carbon credits globally. They often engage in long-term agreements for high-quality carbon removal projects, including direct air capture and nature-based solutions, as part of comprehensive corporate net-zero strategies [1].
Notable exceptions among institutional investors include Canada's CPP Investments and Temasek, which are actively involved in carbon credit initiatives and supporting the development of carbon markets [5]. Octopus Investments, a major player in the UK carbon credit scene, invests in projects that generate credits and advocates for better standards and a focus on higher quality removal credits [6].
The demand for high-quality and verifiable carbon removal projects is at an all-time high, according to the researchers. A new report from Octopus Investments reveals that 76% of UK businesses prefer UK-based carbon credits to meet their net zero targets [7]. Carbon credits are being purchased by institutional investors for two main reasons: speculation and offsetting their own emissions, particularly hard-to-abate emissions [8].
Temasek is bolstering Asian efforts to support the development of carbon markets through platforms like GenZero [9]. Avoidance credits, which account for 96% of the global voluntary market, are less favoured due to their lack of physical removal of carbon dioxide from the atmosphere [10].
As the UK ETS integration of removals credits approaches, it is likely to catalyse greater institutional investor participation, providing a regulated and transparent platform for UK-based carbon removals [1][2][3]. Pension funds, for instance, tend to invest in carbon credits as a by-product as part of their wider forestry strategy [11].
In conclusion, while institutional investors in the UK are increasingly aware and beginning to engage in carbon credit markets, their current involvement remains more cautious and less direct compared to the large-scale, strategic purchasing and financing conducted by tech giants. However, the upcoming UK ETS integration of removals credits is likely to catalyse greater institutional investor participation, unlocking financing opportunities for removal projects and potentially attracting institutional capital over time.
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