Sustainable/Impact Investing] Carbon Markets 2.0 – From Voluntary to Compliance-Driven Demand

London Impact Investing Network (LIIN) | Imperial Business School, London | October 29, 2025

Panellists:

• Guy Turner, MD, Carbon Markets – MSCI
• Thomas Kelly, Associate Director, Climate Risk & Resilience – Howden
• Adrian Rimmer, Director, Sustainable Finance & Investment – LSEG
• Adam Standage, CDR Policy – Green Finance Institute

I. Executive Overview

The carbon-credit landscape is undergoing a fundamental transformation. As voluntary markets mature and governments integrate carbon credits into compliance frameworks, we are entering a new era of policy-driven demand, standardisation, and portfolio-based carbon strategy.

The discussion brought together voices from banking, insurance, policy, project development, and fund management to examine how organisations can build credible, investable carbon strategies for the decade ahead.

Speakers repeatedly emphasised that the market has shifted from a phase of “storytelling” to “systems engineering”—carbon as infrastructure rather than marketing.

“We’ve reached the point where the excitement has faded, and now the hard work of design and verification begins,” one panelist remarked.

II. Thematic Insights

1. Market Transition: From Storytelling to Systems

Panelists described today’s market as “less glamorous, more technical, but more real.” The voluntary market has served its experimental purpose but is giving way to hybrid systems linked to the UK ETS, EU ETS, and other regional frameworks.

Compliance integration is becoming the primary driver of liquidity and institutional participation. The transition remains uneven—some corporates still view offsets as reputational tools, while others treat them as balance-sheet instruments tied to internal carbon pricing.

Data context:

• The EU ETS generated €43.6 billion in auction revenues in 2023 (European Commission).
• 24 % of global emissions were covered by a carbon-pricing mechanism in 2024 (World Bank).
• The total carbon-credit market is forecast to grow from USD 933 billion (2025) to USD 16.3 trillion (2034) (Precedence Research).

2. Policy & Standardisation as Core Catalysts

Panelists voiced consistent concern about fragmentation, uneven definitions, and regulatory lag. Several referenced the UK ETS integration timeline as evidence that policy clarity creates durable investment signals.
Emerging legislation and pending amendments will reshape what qualifies as a “high-integrity credit.”

Investor relevance: Asset managers should anticipate fewer methodologies, tighter baselines, higher verification costs, and therefore higher integrity premiums.

3. Infrastructure and Data – The “Snap-Structure” Opportunity

Speakers highlighted the emerging “infrastructure and data backbone” of the market—covering measurement, reporting and verification (MRV), registries, and credit-tracking systems.

One participant noted that the infrastructure layer is “where investors are seeing real traction.” Another described the “binding activity” as the contractual integration between project originators, verifiers, and corporate buyers.

This reflects a shared view that alpha now lies in the market plumbing, not the offsets themselves.

Reference benchmarks:

• Digital MRV innovations could reduce verification costs by up to 40 % over five years (World Bank 2025).
• Market consolidation continues—Verra, Gold Standard, and Puro.earth account for over 80 % of issued credits (Ecosystem Marketplace 2025).

4. Economics and Institutional Appetite

Panelists acknowledged that the market remains capital-intensive and operationally complex. Verification and transaction costs were called the “silent killer of ROI.” Liquidity is still thin, but institutional credit funds and insurers are experimenting with structures that link payouts to verified reduction milestones.

The discussion pointed to a growing convergence between infrastructure finance and climate finance, with insurers providing reversal and delivery-risk coverage.

Supporting data:

• The compliance carbon-credit market could reach USD 458 billion by 2034, CAGR ≈ 15 % (GMI Insights 2024).
• EU ETS forward curves indicate potential price rises from ~€65/t (2024) to €146/t by 2030 (BloombergNEF).
• Voluntary-market retirements reached 95 MtCO₂e in H1 2025—the highest half-year on record (Sylvera 2025).

5. Portfolio Challenge: Mitigation vs Removal

A recurring theme was the “dual-track problem.” Corporates and investors must deliver near-term mitigation—via affordable, nature-based credits—while funding future-focused removals such as DAC, biochar, and BECCS.

As one panellist noted, “The opportunities outside removal are still strong, but we must design vehicles that last through cycles.”
The concept of portfolio durability—balancing cost efficiency today with technological necessity tomorrow—dominated the debate.

Market signals:

• Removal-linked credits trade at 3–5× average voluntary prices.
• Post-CCP landfill-gas credits rose 35 % in price and 149 % in volume in H2 2024 (Ecosystem Marketplace).

6. Global Fragmentation & Localisation

Speakers compared regional dynamics:

• “Australia is looking increasingly investable,” one said, referencing its Safeguard Mechanism.
• “Japan remains mixed,” another noted, citing the GX League’s slow standardisation.

These comments underscore persistent policy asymmetry across markets.
Investors were urged to treat carbon exposure as a jurisdictional risk asset, where local regulation defines liquidity and pricing power.

7. Market Mood: Pragmatism and Professionalisation

The panel closed on a pragmatic note:

“The undeniable truth is these projects take serious management—but that’s exactly what makes them investable.”

Consensus formed around a single message: the carbon market has matured from hype to hard hats. It is now a technical, data-driven system governed by compliance and credibility—boring, perhaps, but bankable.

III. Strategic Implications for Private-Markets Investors

• Build the Plumbing: Target MRV, registry, and assurance platforms—own the infrastructure that enables scalability.
• Integrate Policy Intelligence: Model returns under multiple ETS linkages and monitor legislative timelines.
• Design Portfolio Layers: Combine near-term mitigation with long-term removals and compliance-eligible assets.
• Adopt Structured Vehicles: Use credit, blended-finance, or insurance-wrapped structures to translate project risk into bankable cash flows.
• Quantify Integrity Premiums: Track pricing gaps between Core Carbon Principles (CCP)-approved and unverified vintages.
• Prepare for Convergence: Expect voluntary and compliance markets to merge; valuation will depend on recognised methodologies and policy alignment.

IV. Key Metrics to Monitor (2025–2030)

V. Recommended Resources

• World Bank – State and Trends of Carbon Pricing 2024: Annual global benchmark on carbon pricing coverage, revenues, and ETS/tax design.
• Ecosystem Marketplace – State of the Voluntary Carbon Market 2025: Latest analysis on voluntary market volumes, methodologies, and integrity trends.
• ICAP – Emissions Trading Worldwide: 2024 Status Report: Comprehensive overview of active and emerging ETS systems worldwide.
• Sylvera – Carbon Credit Data and Market Insights (Q2 2025)
  : Quarterly data on credit retirements, pricing, and quality ratings.
• BloombergNEF – EU ETS Market Outlook 1H 2024: Market forecast and scenario analysis for allowance pricing and policy impact.
• Green Finance Institute – Carbon Dioxide Removal (CDR) Policy Briefings: UK-focused insights into regulatory frameworks and financing mechanisms for removals.
• Carbonaires: Carbon finance, project diligence, and digital platform for institutional investors and high-integrity carbon removals.

VI. Closing Reflection

Carbon markets are no longer an ESG accessory; they are becoming a compliance-driven asset ecosystem with data, risk, and return profiles comparable to early-stage infrastructure.
The next decade will belong to investors who combine governance discipline, policy foresight, and portfolio creativity—turning carbon from a reputational hedge into a genuine performance asset.

“It’s not about offsets anymore—it’s about ownership of the system that makes net zero investable.”

Bonus