Domestic carbon credits take precedence for UK companies as they strive towards carbon neutrality
The UK carbon credit market is witnessing a surge in interest, with major players advocating for higher standards and a more robust system known as the Voluntary Carbon Market 2.0. Octopus Investments, a key player in the UK carbon credit scene, is spearheading this movement, focusing on improving the quality of removal credits.
A recent report from Octopus Investments reveals an interesting trend: 76% of UK businesses surveyed prefer UK-based carbon credits to meet their net zero targets. This preference is driven by the stringent standards that UK carbon credits adhere to, such as the Woodland Carbon Code, which offer greater quality and more robust oversight, thus reducing the risk of greenwashing.
The survey, conducted among 300 senior UK business leaders, also found that 73% of firms are planning to offset their hard-to-abate emissions using carbon credits. However, a knowledge gap was highlighted, as only 42% of respondents could accurately define what carbon credits are, and even fewer understood the distinction between removal and avoidance credits.
The lack of understanding around carbon credits is the leading obstacle cited by UK businesses for not buying them, according to the survey. But this is where the insurance sector comes into play. Insurance companies in the UK are playing a pivotal role by developing carbon credit insurance products that reduce delivery and regulatory risks. For example, CFC’s carbon insurance helped Chestnut Carbon secure $210 million project financing, backed partly by Microsoft’s carbon credit offtake.
Pension funds and sovereign wealth funds are also part of the broader institutional interest, particularly in funding nature-based and technological carbon removal projects. However, their participation is linked to evolving market and regulatory frameworks. The UK government’s plan to integrate removal credits into the UK Emissions Trading Scheme by 2029 is expected to unlock more institutional investment by providing a regulated, transparent market where project developers can directly sell compliance credits.
Tech giants like Microsoft, Google, and Amazon remain the most active direct buyers of carbon credits in the UK, especially in voluntary and nature-based markets. These companies are aggressively acquiring credits to meet their internal net zero targets, driving demand and helping to establish credit prices.
In summary, while institutional investors—pension funds, insurance companies, sovereign wealth funds—are growing their exposure primarily through financing mechanisms, insurance products, and emerging regulatory markets, tech giants maintain a leadership role as large direct buyers and off-takers of UK carbon credits. The insurance sector’s innovations and government policy changes are expected to increase institutional participation, but currently, tech companies like Microsoft, Google, and Amazon are the primary active purchasers in the UK voluntary carbon credit market.
Elsewhere, Singaporean investment company Temasek is bolstering Asian efforts to support the development of carbon markets through platforms like GenZero. Notable exceptions among institutional investors include Canada's CPP Investments, which has engaged in multiple initiatives involving carbon credits, partnering with Conservation International in one such initiative.
The growing interest in carbon credits is not limited to the UK. Institutional investors, such as pension funds, insurance companies, and sovereign wealth funds, have not shown the same level of enthusiasm as tech giants like Microsoft, Google, and Amazon in purchasing carbon credits. However, their involvement is expected to increase as the market matures and regulatory frameworks become more established.
Sources:
[1] Octopus Investments (2022). Voluntary Carbon Market 2.0: The pathway to high-quality carbon removal credits. [2] Compass Insights (2022). The Role of Carbon Credit Insurance in the UK Market. [3] UK Government (2021). Carbon pricing: Supporting the UK's net zero emissions target.
- In the UK, a significant proportion of businesses prefer UK-based carbon credits to meet their net zero targets due to stricter standards and robust oversight, such as the Woodland Carbon Code.
- The insurance sector in the UK has taken a crucial role in the carbon credit market by developing insurance products that reduce delivery and regulatory risks, enabling projects to secure funding.
- Institutional investors like pension funds, insurance companies, and sovereign wealth funds are gradually increasing their involvement in carbon credit markets, with maturing markets and established regulatory frameworks expected to boost their participation.
