The London Stock Exchange (LSE) welcomes the first fund to use its new market framework for carbon credits, the Foresight Sustainable Forestry Co., to raise capital and transparency to the market.
The LSE is the first exchange to use a public carbon market framework to drive funding into climate mitigation projects that create carbon credits. It offers access for investors and companies wanting to buy carbon credits to offset emissions.
The Exchange has issued its first Voluntary Carbon Market (VCM) designation to Foresight Sustainable Forestry Company. It’s an investment company offering direct and liquid access to UK forestry and afforestation projects, with future exposure to the VCM.
London Stock Exchange Carbon Credits Framework
Individuals and companies can get carbon credits through intermediaries like brokers. But some of them find it hard to source information about the project and its developers. They may also be struggling to identify certain projects that suit their requirements and preferences.
This is why the London Stock Exchange launches its VCM to give investors easier access to information about carbon credits they seek to buy. The Exchange’s head of sustainable finance for capital markets division Claire Dorrian said:
“I think the overarching principle behind all of this is transparency through disclosure.”
The LSE VCM platform gives entities and individuals a means to raise funds and use the money on projects that cut GHG emissions. In return for their investments, investors and firms can get carbon credits in place of cash dividends. They can then use those credits for offsetting purposes and meeting net zero targets.
- Demand for carbon credits in the VCM is growing as firms pledge to reach net zero and help abate climate change. The volume of credits traded last year is up more than 3x, from $520 million to about $2 billion.
LSE First VCM Designation
Foresight Sustainable Forestry Co. (FSF), a London-based investment firm, is the first to take part in the LSE new VCM platform. FSF invests in developing land for commercial forests, primarily in the U.K.
The firm’s current portfolio consists of about 9,700 hectares of UK standing forestry and afforestation assets. The carbon sequestered by its 27 afforestation sites equals to around 800,000 carbon credits under the Woodland Carbon Code.
If the current capital is deployed, FSF can create about 1 million carbon credits in its first wave of afforestation deployment. And in the year ahead using its LSE first VCM designation, the shareholders can elect to get carbon credits instead of cash dividends.
Foresight’s co-head Richard Kelly remarked that:
“We’d be looking to attract companies, and ideally companies with science-based, net-zero pledges, to join us as shareholders… By connecting investors with net zero ambitions to entities such as FSF that generate voluntary carbon credits, the launch of the VCM is a major milestone in the UK’s fight against climate change.”
He also added that the VCM designation means that the ever-growing number of climate-minded investors can easily and confidently identify sustainable solutions.
Investing in LSE’s Carbon Credit Market
Operating companies or investment funds on the LSE are eligible for the VCM. But they must meet all other requirements for the market on which they are listed. The Exchange operates the FTSE 100 and FTSE 250 indexes and provides financial data.
The LSE VCM designation requires issuers to perform disclosures relating to the projects they are directly or indirectly financing.
In particular, developers must disclose the percentage of their total assets invested in climate mitigation projects. They must also disclose the industry standards they follow to certify those projects.
Yet, LSE new VCM may come with challenges for those looking to invest in carbon credits. For example, they may find it difficult to make the narratives about their green investments if the credits they buy are linked to multiple underlying projects. In this case, disclosing information related to the project may be hard.
But the new market in the Exchange can address that challenge and how entities buy carbon credits. Yet, it may take some time for companies to raise funds.
As per Dorrian’s words “it’s going to take, I think, a little bit of time for the market to digest”.