Last year, as global carbon emissions hit a record high of 58 gigatons, some 12.5 gigatons traded in the world’s carbon compliance markets. Although voluntary trading is still quite low, total traded volume on emissions exchanges was roughly 20 percent of global emissions.

Demand for carbon assets is expected to grow substantially as governments, companies and communities tap into the power of markets to facilitate the energy transition. A study conducted by GIC (a sovereign wealth fund in Singapore), the Singapore Economic Development Board, and McKinsey & Company forecasts a 15-fold increase in demand for carbon credits between 2021 and 2030.

Alongside the exponential growth in volume, there are further opportunities to increase the quality and efficacy of tradable carbon assets. International efforts to develop governance and market infrastructure for carbon trading is adding momentum to this emerging asset class.

With this collection of articles by experts across State Street, we provide a guide for institutional investors looking to understand the importance of carbon markets and how to approach them. In this guide, we:

• Explain the mechanics of carbon markets: their role in the global transition to net zero, their structure and evolution, and more importantly, some of the challenges involved
• Explore carbon asset strategies for institutional investors. From portfolio diversification to hedging risk, carbon assets hold the promise of both facilitating the energy transition and generating returns for investors with carbon assets in their portfolio
• Examine opportunities for tokenization to increase liquidity and growth in carbon assets in the future