London Stock Exchange Launches First Fund Under New Market for Carbon Credits

The new market offers a way for companies and investors to purchase carbon credits to offset emissions and meet net-zero commitments. Developers can raise funds through the exchange and use the money on projects to reduce greenhouse gasses. Companies and shareholders, in return for their investments, can receive carbon credits in lieu of cash dividends. 

Companies can currently purchase carbon credits through brokers and private-market intermediaries. However, some companies find it difficult to get information about project developers and can struggle to identify specific projects—in areas such as forest protection or renewable energy—that fit their preferences, environmental lawyers said. 

By launching the market the London Stock Exchange hopes to make it easier for companies and investors to access information about the projects that generate carbon credits, said

Claire Dorrian,

head of sustainable finance for the exchange’s capital markets and post-trade divisions. “I think the overarching principle behind all of this is transparency through disclosure,” Ms. Dorrian said.  

Demand for credits in voluntary carbon markets is on the rise as more companies make net-zero commitments and position themselves as taking steps to improve the environment. Just under $2 billion in carbon credits were sold in 2021, up from $520 million a year earlier, according to Ecosystem Marketplace, which tracks data on environmental finance. By contrast, mandatory carbon markets in Europe and elsewhere force major polluters to limit their emissions.

Foresight Sustainable Forestry Co.

PLC, a London-based investment firm, is the first company to take part in the new voluntary carbon market, the London Stock Exchange said Monday. Foresight invests in developing land for commercial forests, primarily in the U.K. 

The company, which listed on the public markets in 2021, expects to raise additional funds in the year ahead using its Voluntary Carbon Market, or VCM, designation, meaning shareholders could elect to receive carbon credits in lieu of a cash dividend, said

Richard Kelly,

co-head of Foresight. “We’d be looking to attract companies, and ideally companies with science-based, net-zero pledges, to join us as shareholders,” Mr. Kelly said. 

For the new market, developers must disclose the percentage of their total assets invested in eligible climate-change mitigation projects. They must also disclose the industry standards they use to certify their projects. Operating companies or investment funds on the exchange are eligible for the voluntary carbon market and must meet all other requirements for the market on which they are listed. London Stock Exchange Group also operates the FTSE 100 and FTSE 250 indexes and provides financial data. 

Companies are facing increasing pressure to disclose climate-related information from regulators and standard-setters across the globe. Finance departments, in particular, are taking on a bigger role when it comes to allocating capital toward carbon offsets and reporting on pollution. “It is becoming more of a financing function, more of a treasury responsibility,” Ms. Dorrian said.

Still, the new market could come with challenges for companies looking to invest. For instance, those interested in crafting a particular narrative about their green investments may find it hard to do so if the credits they receive are tied to several underlying projects, lawyers said. 

Underlying demand among companies for purchasing credits through the exchange also remains an open question. “It’s maybe a question of, ‘If you build it, they will come,’”  said

Chris Staples,

a partner at the law firm Linklaters LLP.

Ms. Dorrian, the London Stock Exchange’s head of sustainable finance, declined to provide a specific figure on the number of companies and funds the stock exchange expects to launch on the voluntary carbon market in the coming year. The new market represents a change in how companies currently buy carbon credits, and it takes time for funds and companies to raise new funds, she said. 

“It’s going to take, I think, a little bit of time for the market to digest,” Ms. Dorrian said. 

Write to Kristin Broughton at [email protected]