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Carbon markets: connecting capital and corporates with climate action
Glenda So
Written by
Glenda So
Nov 14, 2023

By Glenda So, Group Head of Emerging Business & FIC, HKEX.


Summer 2023 has been one for the record books when it comes to extreme weather. In Hong Kong, the city experienced two typhoons and two severe rainstorms in the span of five weeks. And around the world, heatwaves, wildfires, storms, floods and droughts continued to batter communities, creating headlines and destruction. Scientists recently confirmed Summer 2023 as the hottest on record, and by a “large margin”. 

These events are a stark reminder that climate change is here and happening. The effects of global warming can be seen everywhere. 

To limit global warming, we – governments, companies and individuals – need to take drastic steps to reduce carbon emissions by 45% by 2030 and reach net zero by 2050, as per the Paris Agreement. 2030 is only seven years away – therefore we must act now if we want to sustain our planet as we know it. 


Capital markets for climate action

Large sums of capital are already being mobilised in the fight against climate change. Global ESG-related assets under management totalled US$18 trillion in 2021, and are expected to rise to US$34 trillion in 2026 according to PwC. Exchanges and infrastructure providers who operate capital markets – such as HKEX – have a key role to play in creating the financial products, platforms and channels needed to connect capital with climate-related opportunities, facilitating the transition to net zero. 

In fact, they are already doing this – through green bonds, ESG indices and carbon ETFs to name a few. Among a plethora of sustainable finance tools that have emerged in recent years, carbon markets have grown rapidly and are fast-becoming one of the key mechanisms used to connect private capital – from sources such as corporates, academic institutions and industry bodies – with green projects in areas such as new energy production and nature protection. 

Despite the challenging macro environment, the growing corporate commitment to climate action, together with efforts to improve carbon credit quality and disclosure requirements, will continue to drive demand for the $US2 billion voluntary carbon offsetting market – which has already witnessed impressive growth from around US$200 million in 2016.


carbon article chart

While most voluntary carbon markets are based in Europe and the United States, Asia has recently caught up. The region saw the most voluntary carbon offset transactions between 2019 and 2021, as suppliers to large multinationals embarked on carbon mitigation. And places such as Hong Kong, Singapore, Thailand, Malaysia, Taiwan and Indonesia have established their own voluntary carbon credit trading platforms and exchanges since 2021. 

HKEX launched Hong Kong’s voluntary carbon market – Core Climate – a year ago to connect capital with climate-related opportunities and accelerate our shared net-zero transition. Despite being relatively new, its participant list has tripled to nearly 70 and there are now more than 40 quality projects on the platform from three continents – Asia, South America and Africa – covering diverse initiatives such as forestry, solar, wind and biomass.  

There are two big reasons behind the impressive growth of carbon markets: (1) the role they play in helping fund the technologies needed to fight climate change, and (2) the role they play in supporting corporates’ net-zero strategies.


Exchanges and infrastructure providers who operate capital markets – such as HKEX – have a key role to play in creating the financial products, platforms and channels needed to connect capital with climate-related opportunities, facilitating the transition to net zero.
Funnelling the capital needed to finance new tech and fight climate change

At a macro level, the transition to net-zero requires us to innovate and develop new technologies that reduce or remove carbon emissions, or both. The challenge with any new technology is that it requires substantial R&D investment to bring it to life. The Climate Policy Initiative forecasts annual investments of over US$4 trillion are needed in global climate finance by 2030, a nearly six-fold increase of 2020 levels. McKinsey predicts Asia needs US$3 trillion of green investments annually to hit net zero by 2050. Meanwhile, China needs a total of US$20 trillion to reach carbon neutrality by 2060 as per the World Economic Forum. 

These are significant sums of money.  And this is where voluntary carbon markets have a big role to play as one of the few mechanisms available that can quickly scale to connect large pools of capital with high-potential, sustainability-focused projects. Specifically, credits – or certificates – traded in carbon markets represent the removal, avoidance or reduction of one tonne of CO2 from the atmosphere. They typically cover reforestation projects, and tech-driven initiatives such as renewable energy and carbon storage – all of which are vital to slowing global warming. 


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A good example of this in action is from an eight-year-old US agricultural technology start-up. The use of sustainable agriculture to capture and store carbon in the soil represents one of the biggest scalable solutions to combat climate change. To realise this potential, the US agri-tech company needed to come up with a way to incentivise farmers to adopt its carbon storage technology and sustain their use of it – which they did by monetising farmers’ adoption through carbon credits, and therefore using carbon markets to provide them with consistent earnings at a scale. 

Equipping companies with a practical way to transition to net zero

Besides channeling capital into innovative, carbon-mitigation projects, carbon markets are also valuable in supporting corporates’ transitions to net zero. 

Businesses have a key role to play in the net-zero transition as sources of carbon emissions themselves – and indeed many have set net-zero targets. As of June 2023, almost half of Forbes’ Global 2,000 – a ranking of the world’s largest companies – have set net-zero targets, up from around 400 in December 2020. The challenge with this is that while companies want to decarbonise, many don’t know where to start, as achieving net-zero is a complex, multi-decade journey. This is where carbon markets can help. 

To create a net-zero strategy, companies must first figure out how much CO2 they emit, which is typically measured using the widely recognised GHG protocol. Once they know this, they can purchase carbon credits to offset their emissions, alongside measures to decarbonise their operations. The purchase of carbon credits to offset emissions is important because it puts a dollar figure on their carbon footprint – a tangible, yearly cost pressure that fosters actual emission reductions as companies try to keep costs down.


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Therefore carbon markets present companies with an opportunity to calculate the ‘cost’ of their carbon footprint and begin their net-zero journey. They have the added benefit of allowing companies to offset unavoidable emissions where there are no other alternatives – such as aviation emissions – and show climate leadership. 

An example of this is with a global, European-headquartered reinsurer – which has committed to purchasing carbon certificates at a rising internal carbon price of US$100 to US$200 per tonne of CO2 between 2021 and 2030. At this triple-digit level, the carbon steering levy as the company calls it, will foster meaningful emission reductions and support the company’s goal of achieving net zero by 2050.


Carbon markets present companies with an opportunity to calculate the ‘cost’ of their carbon footprint and begin their net-zero journey. They have the added benefit of allowing companies to offset unavoidable emissions where there are no other alternatives – such as aviation emissions – and show climate leadership.  
Back to basics

By helping corporates with their net-zero goals and connecting capital with projects that mitigate carbon emissions, carbon markets have a crucial role to play in driving climate action. And the rapid growth of voluntary carbon markets across the world underlines their importance.

At HKEX, we know that carbon markets are the platforms we need to realise the net-zero future we want, so we invite issuers, investors and corporates to join Core Climate, Hong Kong’s international carbon marketplace, and help mobilise the investment needed to fund new climate projects, technologies and business models.

Our recently signed MOU with the China Emissions Exchange Shenzhen – through which we will explore cooperation in cross-border carbon market connectivity and climate finance – is a further testament to our commitment to the net-zero future.

In my next piece, I’ll explore how we can strengthen and navigate the fast-evolving world of carbon markets, allowing us to harness the unique potential they offer and secure a sustainable future for coming generations in Hong Kong, Mainland China, Asia and beyond.


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