Category: Blog

Written by: Jay Tipton and Sean Penrith

As we look ahead to 2026, carbon markets and climate finance more broadly are moving from a period of rebuilding to one of structural reshaping. COP30 in Belém concluded with limited political progress, yet markets themselves continue to evolve through integrity reforms, the expansion of compliance frameworks, rapid shifts in impact investing, major new blended-finance initiatives, and increased flows of private capital into transition and resilience solutions. Drawing on developments across 2025, we outline our predictions for 2026 across our six IMPACT pillar framework.

IMPACT stands for – Integrity, Momentum, Prices, Achievement, Collaboration, and Targets.

I = INTEGRITY

Integrity remains the foundation of credible climate finance; not just for carbon markets but also for impact investing vehicles and blended-finance structures. Investors increasingly demand robust ESG verification, audited impact reporting, and alignment with global disclosure frameworks such as the ISSB standards.  

Asset managers are tightening controls around ESG and impact claims as regulators in the EU and U.S. step up greenwashing and enforcement actions, as reflected in ESMA’s greenwashing report and supervisory focus on asset managers’ sustainability claims and SEC cases against asset managers for misleading ESG disclosures. 

Meanwhile, in carbon markets, companies accelerated the retirement of legacy methodologies and increased reliance on credits aligned with the Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles (CCPs). Analyses confirm a durable correlation between credit quality and price, with high-integrity and removal credits earning premiums of 50–150% relative to generic avoidance supply.

Litigation and regulatory enforcement are also intensifying. A 2025 London School of Economics review found a sharp increase in global legal challenges targeting overstated climate claims, signaling rising accountability expectations for voluntary market participants.

COP30 provided little political progress, but technical integrity advances under the Paris Agreement Crediting Mechanism (PACM / Article 6.4) continued. Parties extended the CDM transition deadline to June 2026 and instructed the Supervisory Body to accelerate its review of legacy CDM methodologies. Negotiators confirmed advancement on five foundational standards – baselines, additionality, leakage, suppressed demand, and permanence – while welcoming the first PACM methodology for landfill gas, indicating that the mechanism is slowly shifting from design to implementation. 

A notable instruction from Parties requires future standards, especially for nature-based solutions, to be grounded in best-available science, signaling a move toward stronger, evidence-based integrity frameworks for NBS projects.

Still, PACM’s funding gap for 2026–2027 threatens to delay implementation, as highlighted in the Supervisory Body’s financial update. As integrity rises, uneven country readiness may widen participation inequities.

In 2026, integrity will increasingly define who can participate meaningfully in carbon markets – not just how.

M = MOMENTUM 

Momentum in 2026 will come from both market-driven and finance-driven forces. COP30 ended with 29 countries rejecting the presidency’s proposed package over inadequate commitments on fossil fuel transition and deforestation. Yet outside negotiations, major initiatives moved forward. The Scaling J-REDD+ Coalition launched with the aim of mobilizing $3–6 billion annually by 2030 to support high-integrity jurisdictional forest conservation, with backing from governments, Indigenous organizations, investors, and standards bodies. Côte d’Ivoire also finalized a $23 million agreement under the Taï National Park emissions program through the FCPF (Forest Carbon Partnership Facility) standard – another signal of market confidence in robust jurisdictional REDD+ approaches. 

Global sustainable and impact assets surpassed $30 trillion in 2025, with strong growth in climate resilience, biodiversity, nature-based funds, and emerging-market transition capital. Blended finance alone mobilized over $50 billion annually. 

Regulatory momentum also strengthened. Expanding compliance markets in China, the EU, Korea, and Australia and increased clarity around Article 6.2 reporting frameworks point toward deeper integration between voluntary and regulatory systems.

But momentum is not without headwinds. Rapid growth in AI computing demand is already straining electricity systems, with the IEA warning that AI and data center load could triple by 2030 and significantly increase near-term grid emissions intensity if not matched with new clean power and firming capacity. 

In 2026, we expect market-driven momentum to continue outpacing political ambition, increasingly shaped by cross-sector coalitions and emerging economy leadership.

P = PRICES

Carbon credit price dynamics will reflect tightening supply, deepening quality differentiation, and rising compliance-linked demand. In 2025, despite a ~25% drop in transaction volumes, average prices held steady – a sign of resilient demand for high-quality supply. High-integrity, removal-focused, and CCP-aligned credits earned substantial premiums, while generic avoidance credits continued losing market share.

Supply constraints are expected to intensify in 2026 as legacy credits phase out, the CDM fully closes at end-2026, and Article 6.4 methodologies take time to operationalize. Corporates preparing for the SBTi’s forthcoming Ongoing Emissions Responsibility (OER) framework are exploring forward contracts and multi-year procurement, further increasing competition for premium supply.

As high-quality supply tightens faster than new projects emerge, volatility may increase. Smaller buyers could face challenges securing credible credits at reasonable prices.

Scarcity for high integrity credits will be a defining theme in 2026 and prices will reflect it.

A = ACHIEVEMENT

Despite limited political consensus at COP30, 2025 brought several significant achievements that lay the foundation for 2026. 

Article 6.4 advanced key methodological building blocks; the first PACM methodology entered the system; and Article 6.2 bilateral agreements continued to expand between early-mover countries. 

Climate finance reached record levels, surpassing $2 trillion according to the Climate Policy Initiative’s Global Landscape of Climate Finance 2025 report, with private capital accounting for a majority of flows.

Corporate governance also matured. New disclosure rules under CSRD, greenhouse gas assurance requirements, and updated reporting frameworks have accelerated internal carbon pricing, emissions measurement rigor, and procurement discipline. Together, these shifts position 2026 as an inflection point for high-integrity corporate climate action.

Still, major gaps remain. PACM’s funding shortfall threatens to slow methodological review and registry development. Adaptation finance continues lagging far behind need, with key decisions on share-of-proceeds contributions postponed until 2030 and payouts not expected until 2035. 

2026 will likely mark the first practical demonstrations of Article 6.4 issuance – a milestone nearly a decade in the making.

C= COLLABORATION

Collaboration heading into 2026 reflects a fragmented geopolitical landscape but growing regional and sectoral cooperation. COP30 exposed deep divisions in climate ambition: the presidency’s Global Mutirão draft lacked language on fossil fuel phaseout or deforestation reduction. Adaptation finance discussions broke down over baseline definitions, with differences amounting to as much as $50 billion in potential commitments.

At the same time, the United States’ continued retreat from federal climate leadership further strains global diplomacy, leaving the EU, China, Brazil, and a coordinated African bloc to steer Article 6 engagement, forest finance, and emerging carbon governance frameworks. Subnational U.S. actors led by California Governor Newsom remain deeply engaged, especially through regional ETS systems and corporate coalitions, but cannot replace absent federal leadership.

Yet collaboration is evolving rather than eroding. The UN Ocean Conference saw over €3 billion in new commitments for ocean conservation and $2.5 billion for Latin America. Jurisdictional NBS coalitions, Article 6 capacity-building alliances, and blended-finance structures continue to drive meaningful progress across regions.

In 2026, collaboration will be less centralized, more regional, and increasingly driven by coalitions sharing standards rather than geopolitics.

T= TARGETS

The most consequential shift shaping 2026 is the Science Based Targets initiative’s release of the second draft of its Corporate Net-Zero Standard (CNZS V2) and the introduction of the Ongoing Emissions Responsibility (OER) framework. For the first time, SBTi formally integrates carbon credit use into a structured, mandatory pathway for addressing ongoing Scope 1–3 emissions. 

OER becomes mandatory for Category A companies beginning in 2035. Ahead of that, companies can pursue voluntary recognition tiers – Recognised (taking responsibility for at least 1% of ongoing emissions) and Leadership (applying an $80/tonne internal carbon price and purchasing credits for at least 40% of ongoing emissions). By a company’s net-zero year (typically 2050), 100% of residual emissions must be neutralized with carbon removals, with 41% sourced from long-lived removals.

Updated Scope 2 rules require 100% low-carbon electricity by 2040 with geographic matching, while Scope 3 guidance restricts simultaneous use of commodity EACs (Energy Attribute Certificates) and carbon credits and introduces new requirements tied to supply chain visibility. 

This new structure is expected to transform corporate procurement strategies, catalyze long-term removal investments, and accelerate the shift toward high-integrity credit portfolios. Yet greenhushing persists as companies weigh legal and reputational risk, suggesting action may accelerate internally while public commitments lag.

In 2026, corporate climate governance will begin to move from voluntary ambition to structured responsibility.

FINAL OUTLOOK

Taken together, these developments signal that 2026 will be the year carbon markets and climate finance move from rebuilding to reshaping. Political ambition is faltering, yet thankfully market ambition is accelerating. 

Integrity is driving consolidation; momentum comes from coalitions and capital markets; prices reflect scarcity and rising quality expectations; achievements depend on execution capacity; collaboration is diversifying globally; and targets are entering a new era defined by structured responsibility and portfolio alignment. 

Success in 2026 will favor actors who commit early to integrity, anticipate scarcity in high-quality supply, scale capital deployment into high-impact sectors, and position themselves to navigate the converging architecture of climate, nature, and transition finance.

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Written by: Sean Penrith

A couple of weeks ago, I read the piece titled “Study Finds Carbon Offsets Failing to Deliver Real Climate Impact,” which was based on the article “Are Carbon Offsets Fixable?” In the abstract for the article, authors Romm, Lezak, and Alshamsi conclude that “most popular offset project types feature intractable quality problems,” and “We should focus on creating rules to find and fund the relatively few types of high-quality projects while employing alternative finance and strategies.”

As a participant in the voluntary carbon market (VCM) for over two decades, I agree that the authors flag real issues that need remedies and are in the process of receiving focused attention in an effort to enhance the integrity of the VCM. VCM projects must indeed demonstrate substantiated additionality, account for permanence, and avoid double-counting.

The recommendation that the world find “alternative finance and strategies” is the gateway to the divide between pro-market advocates and staunch combatants of market mechanisms. Critics of carbon markets do not reject private capital flowing to the Global South; they reject the market logic that, in their view, perpetuates extractive relationships and commodifies nature. Instead of expanding voluntary carbon markets or offset mechanisms, they are calling for a wholesale reorientation of climate finance toward direct public investment, reformed development finance institutions, and mandatory regulatory frameworks. Their vision emphasizes redistribution over trading, featuring large-scale grant-based finance, concessional lending, and debt restructuring that relieve fiscal pressure rather than create new forms of dependence.

This alternative framework places governments and communities, not markets, at the center of climate action. These advocates push for transformative investments in renewable energy, technology transfer, and just transition programs financed through public guarantees, restructured multilateral bank mandates, and regional cooperation mechanisms that retain capital in developing economies. In their view, integrity in climate finance is achieved not through credit ratings or carbon credit registries, but through transparency, community control, and development-aligned outcomes.

Ultimately, the divide is philosophical as much as it is financial. Market-oriented mechanisms aim to price and trade carbon. Development-oriented critics aim to rebuild the financial architecture itself. They envision a system where climate action is driven by regulation, state-led industrial policy, and participatory budgeting, where such an architecture channels capital toward transformation, not via a transaction landscape. Their challenge to carbon markets is not anti-investment but pro-justice, being a call to design finance that serves both the planet and the people most vulnerable to its warming. This final insight underscores our convergent disagreement. Anti-market actors call for the design of climate finance that serves both the planet and the people most vulnerable to its warming. Interestingly, that is precisely what advocates of the VCM (including myself) seek as well: a carbon finance system designed to serve both the planet and the people most vulnerable to its warming.

Two points to make on the authors’ conclusion, “most popular offset project types feature intractable quality problems.” One, intractable implies it is impossible to solve, which is not the case, as evidenced by the massive industry-wide undertaking to upgrade the market to VCM+. Two, the “popular” project types are those in the nature-based arena. They are not “popular,” but rather real pathways with significant potential to help us meet our climate goals at affordable levels. Critics posit that carbon markets commodify nature in ways that undervalue ecosystem complexity. Well, I am all for it…If the VCM helps conserve nature’s ecosystems, that gets first prize in my book, since nothing else seems to be doing the trick!

In peer reviewed research titled “Natural climate solutions” by Brennan W. Griscom et al. (2017), published in the Proceedings of the National Academy of Sciences (PNAS), it was found that nature-based solutions, such as restoring forests, conserving mangroves and peatlands, agroforestry, and sustainable land management, could collectively deliver over one-third of the global emissions reductions needed by 2030 to keep global warming below 2°C, and significantly contribute to the 1.5°C target. To label them as simply “popular” does not give them the appropriate dues.

As some of you know, I was born in Zimbabwe and raised in South Africa. I am a fan of the carbon markets because it is the one viable instrument we have to move vital capital from developed countries to emerging countries. Or, another way to say it, is that for the first time, emerging economies have something of global value to help sustain life on earth, vast carbon sinks that the developed nations will pay for.

Let’s take a look at a project on the ground to frame the impact of direct funding and carbon markets. For roughly two decades prior to the launch of the Mikoko Pamoja carbon project in 2013, the Gazi Bay and Makongeni communities in Kenya benefited from a steady flow of traditional aid through multilateral, bilateral, and NGO channels. Between the mid-1990s and 2015, these coastal villages received portions of large-scale World Bank programs, which included the $35 million Kenya Coastal Development Project and the $200 million Coastal Region Water Security and Climate Resilience initiative. Although village-level disbursements are difficult to trace, conservative estimates suggest that $2–4 million reached the Gazi Bay–Makongeni area over 20 years, funding infrastructure, water, and conservation projects. Yet, despite this sustained external support, poverty persisted, access to clean water and education remained limited, and mangrove degradation continued to threaten both livelihoods and ecosystems.

The arrival of carbon finance fundamentally altered this trajectory. Over just a decade (2013–2025), the Mikoko Pamoja project channeled approximately $119,000 (small perhaps to us, but critical to the community) in verified carbon revenues directly to the community, funding clean water for 3,500 people, school and sports improvements, and the protection of 117 hectares of mangroves that sequester 21,000 tonnes of CO₂. Mikoko Pamoja garnered support from the GEF, UNDP, WWF-Kenya, and long-standing research partnerships with Edinburgh Napier University and the Kenya Marine and Fisheries Research Institute.

The contrast is stark: a fraction of the financial input delivered far greater, measurable outcomes. The difference lies in design. Carbon finance embeds community ownership, transparent benefit-sharing, and clear economic incentives for conservation. Such elements were largely absent from earlier aid flows. This case underscores a pivotal lesson for us all…aligning local agency with global climate value creates more durable and cost-effective development outcomes than traditional top-down aid models ever achieved alone.

But let us turn to the argument from VCM critics that we need dramatically scaled public finance rather than market-based mechanisms. Two points here:

1. I’ve never met a VCM proponent who has disagreed that we need enhanced official development assistance (ODA), reforms to our Development Finance Institutions (DFIs), improved technology transfer and direct investment, and more widely adopted regulatory and policy-based approaches. Here is the thing, though, with the glacial pace of implementing those recommendations, we believe the VCM can play a vital transitional role, pricing the priceless, fighting climate change, and channeling needed capital to emerging countries.
2. The evidence unequivocally demonstrates that public finance alone is categorically insufficient to meet planetary climate targets, creating an unavoidable dependence on private capital, regardless of the critics’ preferred alternative mechanisms.

The quantitative reality of global climate finance reveals a staggering gap between ambition and capacity. Achieving the 1.5°C target requires approximately $5 trillion in annual investment through 2030, with developing countries alone needing $2.4 trillion each year. Yet current public climate finance amounts to only $253 billion annually, barely 5% of global requirements. Even under the most optimistic projections, public resources cannot close this gap. Official development assistance stands at roughly $200 billion per year and is politically constrained, while multilateral development banks might expand to $240 billion annually by 2030. Even if governments and public institutions could stretch to cover 30% of the need, which would be an unprecedented leap, this would still require $1.5 trillion per year or six times today’s levels. The arithmetic leaves no room for illusion, I’m afraid. To bridge the divide, private capital must supply at least 70% of the total, or $3.5 trillion annually, representing a fourteenfold increase over current private climate investment. While critics propose sophisticated mechanisms for channeling private capital, they rarely address how to generate the market-rate returns required to attract the private investors who must supply this 70% — without market-based solutions. None of these mechanisms generates revenue streams sufficient to secure the $3.5 trillion in private capital annually required. To attract this capital, a compelling value proposition is needed. High-integrity carbon markets provide one such value proposition along with scores of co-benefits.

It’s useful to reflect for a moment. Throughout modern history, several industries have demonstrated how persistence through clouds of skepticism pushed through the barriers to produce transformative global change. Initially dismissed as unrealistic, risky, or unnecessary, these sectors too had to overcome structural opposition, prove their economic and social value, and ultimately reshape entire systems. Their trajectories illustrate how innovation, coordination, and diligence, when aligned with clear purpose and market need, can generate extraordinary scale, liquidity, and societal impact.

• Microfinance: Once derided as “impossible economics,” microfinance revolutionized global financial inclusion by proving that the poor are creditworthy and that small loans can generate large-scale empowerment. What began with Muhammad Yunus’s $27.00 experiment in rural Bangladesh now reaches more than 140 million borrowers worldwide, boasting repayment rates near 98% and fueling women’s entrepreneurship, financial access, and poverty reduction.
• Renewable Energy: Initially dismissed as an “expensive fantasy,” the renewable energy sector overcame technical, political, and economic resistance to become the fastest-growing source of power globally. With solar, wind, and battery costs plummeting by up to 90% in two decades, renewables now provide the world’s cheapest electricity and anchor global decarbonization, innovation, and investment flows exceeding $380 billion in just the first half of 2025.
• Digital Payments: Once viewed as an unnecessary alternative to cash, digital payment systems now underpin global commerce, processing trillions in annual transactions. Overcoming early criticism leveled at security, scalability, and privacy, they have expanded financial inclusion to millions, slashed transaction costs, and powered the rise of e-commerce and mobile economies, turning a niche technology into a universal financial infrastructure.

So, in conclusion, I would offer that pro-market and market critics are after the same thing: we occupy a spirit of positive convergent disagreement aligning on the need for the design of climate finance to serve both the planet and the people most vulnerable to its warming. Also, this is not an either/or, but ‘and’ where regulatory mechanisms and carbon markets both can and must aid in the fight against climate change, and nothing is ruled as intractable. And finally, constructive criticism is good if it serves to spur the needed improvements to the solution.

P.S. Romm, Lezak, and Alshamsi framed their paper with this title: “Are Carbon Offsets Fixable?”

Yes.

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Written by: Jimena Caballero

The climate finance pipeline is overflowing with projects looking for investment, but the real challenge for investors isn’t sourcing deals—it’s figuring out which ones are worth the time and resources. With $8.1 trillion in climate investment in nature-based solutions needed by 2050, the stakes have never been higher for allocating capital to solutions that truly move the needle and deliver lasting impact.

That’s where the screening tool Traro^®, developed by Gordian Knot Strategies, makes the difference.

A Repeatable Screening Framework

If you’ve been following along, you’ll remember that in an earlier Sliced newsletter this month—Inside the Minds of Impact Investors: Surprising Secrets to Screening Climate Deals—we pulled back the curtain on how investors actually approach screening. We found that while everyone employs a screening approach, few have an effective and systematic process. Screening often gets squeezed between relationship-building and diligence, creating inefficiencies, wasted time, and missed opportunities.

Traro^®’s seven pillar filtering framework helps investors quickly identify viable climate projects by assessing problem clarity, solution credibility, stakeholder engagement, team strength, impact measurement, policy alignment, and verified market demand. Together, these seven elements serve as an expedited and consistent model to separate investment-ready climate projects from distractions—turning screening from a “messy middle” into a clear, repeatable deal flow identifying opportunities positioned for both real impact and financial returns.

The Traro^® Framework in Action

Recently, we worked with an impact investing client who had to evaluate potential investments in a selection of 55 U.S.-based climate projects spanning biomass, timber products, carbon credits and more. The projects seeking investment represented a mix of businesses including early-stage startups, newly established businesses, and companies looking to scale. These 55 applicants were invited to submit their narrative into the online Traro^® platform, responding to questions for each of the seven key elements in the Traro^® Archway, which are labeled: Problem, Practices, Participation, Partners, Precision, Policy, and Payors. Applicants have to complete narratives for each element within a specified character limit and are not permitted to upload any attachments. This forces proponents to be absolutely succinct unable to rely on word salads in an attempt to gloss over a question.

At first glance, many of the submitted narratives looked promising with ambitious claims. Yet our client was aware of the risk of “shiny object syndrome”—projects that sparkle up front but collapse under scrutiny. This was the key reason our client wanted the applicants to be assessed using the Traro predictive analytical framework we have developed.

With a maximum Traro score of 60, applicants were sorted into three categories based on the assessment results: those scoring between 50 and 60 were recognized as top performers, demonstrating optimal potential to deliver both impact and returns; scores between 40 to 50 indicated project opportunities that would benefit from coaching to improve their project designs, and scores below 40 were seen as needing significant improvement before they would be positioned for investments. Those scoring 50+ are typically considered worthy of due diligence with a few to pursuing investment.

Among the 43 applicants who scored below 50 on the Traro^® screening, approximately 58% failed to clearly define the problem they were attempting to address, 63% presented unproven practices that would be employed to deliver impact, 51% lacked stakeholder participation crucial to the success of the project outcomes, 51% had weak or ill-equipped teams, 47% struggled to describe the precise impact measurement methods they would use, 63% did not show strong policy alignment, and 77% failed to demonstrate they had positioned credible market demand or buyer engagement. These figures reveal common weaknesses that kept many proposals from advancing to the full proposal and subsequent due diligence process.

Traro^® didn’t just screen out weaker projects, it served as a capacity building tool to the field. Each applicant received a Traro^® Scorecard complete with tailored and implementable feedback to every applicant, helping them improve their design and approach. This guidance gave all applicants a strong foundation to improve project design, which they used to increase the quality of the full proposals they chose to submit.

A game-changing bonus: after receiving their scores and feedback, 43% of applicants (24 out of 55) realized they were not ready and chose not to submit a full RFP, self-selecting themselves out and saving our client and themselves valuable time and resources.

The Outcome: From 55 Proposals to 5 High-Value Opportunities

Applicants who scored highly in Traro^® consistently rose to the top in the RFP proposal review stage. Again, every applicant received detailed feedback in the Traro phase designed to help them strengthen their final proposals. Applicants applauded the client for taking this innovative step. But, those who chose to ignore this feedback encountered  difficulty in advancing through to the finals. Out of a maximum possible RFP score of 215 (with a passing threshold of 143), 14 out of 31submitted investment proposals made the cut, while 18 fell short of threshold.

This streamlined approach meant the more intensive due diligence and review process was reserved only for the most promising proposals, saving the client weeks of effort and enabling fast and confident decisions. Instead of getting bogged down with “solutions in search of a problem,” or projects with no willing and able payors, impact screening with Traro® accelerated the deployment of capital to projects backed by real science, solid stakeholder engagement, and proven market demand. By relying on the Traro^® predictive analytics solution, our client quickly moved past distractions and focused its due diligence on five truly high-value projects ready for investment

As important as the time saving, Traro^® also drove significant cost efficiency for the client. In a traditional process, the client would have needed to review all 55 full proposals at approximately 10 hours each if accounting for the internal review, circulation, discussion, and ranking that is typical in the RFP process. This equates to a total of 550 hours and $137,500 in blended staff time. Leveraging Traro^®, the screening phase took just 55 hours, allowing the RFP review to focus on just the 31 submitted proposal requiring just 310 hours at $77,500 representing a savings of $60,000 (does not account for subscription use of the Traro^® software platform).

The lesson is simple: the challenge isn’t pipeline scarcity—it’s pipeline clarity. And that requires better screening!

Learn More and Take Action

For a deeper dive, download our free guide: Smarter Climate Investing: 7 Strategic Filters Before Your First Impact Dollar.

And don’t miss our upcoming free webinar on October 2^nd, where we’ll share proven best practices for applying these screening strategies directly to your impact investment process. Spots are limited so reserve your spot here!

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