The total value of global carbon markets grew by over 20 percent in 2020—the fourth consecutive year of record growth. Compliance carbon markets (CCMs), where mandatory national, regional, or international regimes trade and regulate carbon allowances, play an increasingly visible role in efforts to reduce emissions. Voluntary carbon markets (VCMs), where companies and individuals trade carbon credits on a voluntary basis, play an important role in driving investment in carbon offset projects, such as carbon compensation and carbon neutralisation, to offset their emissions.

Today, institutional investors participate in these markets only to a limited extent. Structural obstacles prevail, and the market dynamics are relatively unclear. Yet, the picture is changing. This joint paper from GIC, the Singapore Economic Development Board (EDB), and McKinsey discusses the rapid emergence of carbon markets as a viable asset class. It suggests that institutional investors could play a critical role in helping corporations and nations use these markets to achieve global climate goals while also fulfilling institutional investors’ own mandates. While it does not issue an investment recommendation, it aims to shed light on the evolution of carbon market mechanisms and their relevance to institutional investors.

The low-carbon transition is gaining momentum in Asia, with countries such as China, Japan and Korea announcing net-zero ambitions. The Association of Southeast Asian Nations (ASEAN) has committed to a 23% renewable energy mix by 2025. In this transition, carbon markets in Asia will play an important role, by providing a mechanism for pricing carbon and encouraging companies to decarbonise their operations. ASEAN countries such as Vietnam, Indonesia and Thailand are also considering Emission Trading Systems (ETS) in their respective markets. Voluntary carbon markets in Asia are also gaining traction, as more companies make climate commitments.

Singapore, at the heart of Asia and as a growing carbon services and green finance hub, is interested to support investors, corporates and policymakers, to promote and catalyse the growth of trusted and high-quality carbon markets.

Download the full report for more details.