Posted on November, 15 2024

In the simplest terms, carbon finance is a subset of climate finance, involving the funding of
measurable outcomes from activities that reduce, avoid or remove greenhouse gasses. WWF
supports an approach to carbon finance that is focused on transforming carbon emitting sectors
and markets, driving credible and durable emission reductions, and maximizing global climate
action in a way that benefits nature and people.

As leaders and decision makers from the government and the private sector look to accelerate
carbon finance and climate action, here are five ways they can maximize impact:
 

• Prioritize market transformation – Businesses stand to make the greatest contribution to solving the climate crisis by investing in and reducing emissions within their value chains. This is where they typically have the greatest incentive to act and where the majority of current carbon finance from the private sector is flowing. Investments in business transformation yield business benefits, such as resilience and continuity, risk mitigation, future-proofing, and increasing the long-term certainty of supply and demand—while also delivering the durable transformation of the global economy that we need. Governments can support market transformation and enhance finance through a combination of economic policy instruments that put a price on carbon and other policy tools that spur innovation and changes to market systems.

 

• Invest beyond value chains – While reducing emissions in value chains is central to effective climate action, there is also a critical role for investments beyond value chains to innovate and scale climate solutions, protect and restore vital natural carbon sinks, and support a just energy transition. To determine the scale of this investment, corporate leaders should set and disclose an internal carbon price that reflects the true environmental and social cost of their remaining emissions—and serves as their fair contribution to global climate efforts. A carbon price that reflects the full cost of a high-quality intervention is key to ensure investments deliver promised emission reductions, protections for human rights, and equitable benefit sharing with Indigenous Peoples and local communities.

 

• Build higher integrity market solutions – Increasing carbon finance is not a substitute for increasing climate impact. Public and private sector leaders have an important role to play in ensuring that carbon finance delivers the emission reductions and removals it promises, in a way that serves both planet and people. Companies can enhance climate action through the targeted use of market mechanisms including renewable energy certificates, certified commodities, insets, and high-quality carbon credits to neutralize residual emissions and as investments beyond value chain. Government leaders can play a critical role in designing and implementing regulations that ensure carbon finance is transparent, well-planned, implemented and monitored—and actively promotes human rights in addition to environmental impact. For their part, private sector leaders have a responsibility for robust due diligence and oversight to ensure that corporate carbon investments simultaneously benefit climate, nature and local communities. This responsibility cannot be passed to others.

 

• Harness the power of nature – Nature is essential to solving the climate crisis, and it’s also essential to business. Roughly half of the world's total GDP, or about $44 trillion of economic value, depends on the natural world in some way, so business has a real stake in protecting these resources. Leading companies and governments recognise the importance of healthy ecosystems to the global economy and integrate nature in their climate strategies, commitments and investments, both within and beyond their value chains. Businesses and governments have a role to play in scaling finance for well- designed nature-based solutions that protect and restore natural ecosystems, and also provide tangible benefits to communities, sequester or remove emissions, enhance climate resilience, and support sustainable development.

 

• Deploy the right solutions – With so much attention focused on the promises and pitfalls of carbon markets, it’s important to remember that they are only one way to raise carbon finance. A broad array of innovative financial mechanisms is needed, both within and beyond corporate value chains. These solutions can include tools such as payments for ecosystem services, power purchase agreements, funds for carbon removal technologies, certified commodities, debt for nature swaps and a host of other instruments. One of the keys to unlocking carbon finance lies in simplifying processes, clarifying standards and regulation, and providing pragmatic and science-based pathways for public and private sector leaders to invest in (and get credit for) interventions with the most material impact.

Meeting the global need for climate and nature finance demands a systemic shift to get funding
flowing—and leadership from the public and private sectors to unlock investment that is
environmentally sound, socially just and economically effective.