The London Stock Exchange (LSE) has become the first major trading venue to set listing rules for companies that finance carbon offset projects to grow the market and enhance transparency.
As companies seek to achieve net-zero emissions goals through projects such as tree planting or renewable energy, demand for carbon offsets is expected to soar.
Such rules are likely to be debated at climate talks in Egypt in November, but the global market for voluntary carbon credits, as opposed to binding commitments to cut emissions by companies and countries, remains largely unregulated.
Following a public consultation, the LSE released its final admission and disclosure rules on voluntary carbon offsets that coincide with Britain's push to make London a centre for green finance.
Under the new rules, a fund or company would have to issue a prospectus evaluated by the Financial Conduct Authority that gives details of the carbon emission-cutting project it wants to finance.
Once an offset project generates carbon credits, equivalent to tonnes of carbon dioxide reduced or removed from the atmosphere, shareholders could receive a dividend in the form of carbon credits, or the fund could sell them and use the cash to pay a dividend.
"What this brings is proper transparency, proper due diligence and proper disclosure, so corporates and other investors truly know what they’re buying. That's something that the voluntary carbon markets haven't had before," LSE Chief Executive Julia Hoggett said.
With a value of around US$2 billion in 2021, according to Ecosystem Marketplace, the annual global market for voluntary carbon credits could hit US$50 billion by 2030, consulting firm McKinsey have estimated.