HSBC has decided to abandon its plans to create a carbon credit desk, following a sharp decline in the credibility of the voluntary carbon market. The move is a blow to efforts to develop new avenues for financing climate action, as the market for voluntary carbon credits has been plagued by controversies in recent years.
Voluntary Carbon Market Faces Challenges
Accusations of overissuing credits and general malpractice have significantly impacted the voluntary carbon market, which has seen a dramatic drop in revenue. The market currently represents trades worth around $1 billion, a far cry from its previous growth projections. Some major companies have already pulled back from the market, including Shell and Delta Airlines, as concerns about transparency and effectiveness mount.
Tech giant Google also made waves recently by announcing it would stop purchasing credits from the voluntary carbon market. Instead, Google plans to focus on cutting its own emissions and investing in carbon removal projects. The company has launched a $200 million fund dedicated to supporting these initiatives, signaling a shift in strategy away from traditional carbon credit purchases.
HSBC’s Exit at a Crucial Time
HSBC’s decision to exit the voluntary carbon market comes as a breakthrough agreement was reached at COP29. At the summit, new methodologies and standards were approved for a future global carbon market. This market is expected to generate tens of billions in revenue by the end of the decade. It could reach $250 billion annually, presenting a major opportunity for climate finance.
Also read: COP29 Deal Clears Path for Global Carbon Credit Trading Market
While HSBC moves away from voluntary markets, other banks like Credit Agricole are increasing their focus on compliance carbon markets. These markets are expected to become a key part of global efforts to meet emissions reduction targets. Unlike voluntary markets, compliance markets are tied to regulatory frameworks that require companies to offset their emissions.
What’s Next for the Carbon Credit Market?
Despite challenges, the global carbon market still shows strong potential. The focus is shifting toward compliance carbon markets. New global standards approved at COP29 offer hope for recovery.
HSBC and Google’s decisions reflect growing skepticism about the voluntary market. However, these moves also highlight changes in climate finance.
As more companies and financial institutions adjust their strategies, the future of the carbon market remains uncertain. It’s unclear what role voluntary credits will play moving forward.