What are voluntary carbon markets (VCMs)?

As organisations increasingly embrace net-zero strategies, voluntary carbon markets (VCMs) are emerging as vital components of the global climate solution. These markets allow companies to engage in actions beyond regulatory obligations by acquiring carbon credits from verified offset projects. But how do VCMs function, and what sets them apart from compliance carbon markets?

What are voluntary carbon markets?

Voluntary carbon markets allow businesses, organisations, and individuals to purchase carbon credits on a discretionary basis to offset their greenhouse gas (GHG) emissions. These markets operate outside of government-imposed emissions trading schemes and offer a more flexible, market-led route to climate action.

The difference between voluntary and compliance carbon markets

• Voluntary markets are not legally mandated and are driven by climate-conscious entities seeking to reduce or offset their emissions.

• Compliance markets, such as the EU Emissions Trading System (EU ETS), are regulated systems where emitters are legally obliged to stay within a capped allowance.

Key players in the VCM ecosystem

• Buyers: typically, corporations seeking to meet climate goals.

• Sellers: developers of carbon offset projects who generate credits.

• Verifiers: third-party auditors who ensure emissions reductions are credible.

• Platforms: marketplaces where carbon credits are traded, tracked, and retired.

How do carbon credits work in VCMs?

Carbon credits are the unit of trade in voluntary carbon markets. Each credit represents the reduction or removal of one tonne of CO₂ equivalent. The credits are generated through certified carbon offset projects, which undergo rigorous oversight and verification.

These projects may encompass nature-based solutions such as reforestation, soil carbon enhancement, or mangrove restoration, alongside technological interventions like renewable energy development or methane capture from landfill sites. Prior to issuing credits, a project must undergo a process known as MRV - measurement, reporting, and verification - to demonstrate that the climate benefit is genuine, measurable, and additional.

Role of third-party standards

• Verra: administrator of the Verified Carbon Standard (VCS), one of the most widely used frameworks in the market.

• Gold Standard: known for its strict sustainable development criteria alongside carbon verification.

These standards provide methodologies, ensure independent audits, and increase buyer confidence.

Why do companies use VCMs?

Companies use VCMs as a strategic complement to internal efforts to reduce emissions. In sectors where complete decarbonisation is not yet feasible - such as aviation or cement production - voluntary offsets provide a mechanism to manage residual emissions.

Moreover, VCMs support broader Environmental, Social and Governance (ESG) alignment. Investors, regulators, and consumers are increasingly evaluating companies on their climate credentials. Participation in voluntary markets demonstrates proactive climate stewardship and helps meet stakeholder expectations.

Motivations include:

• Supporting net-zero and carbon neutrality goals

• Compensating for hard-to-abate emissions

• Meeting ESG expectations and strengthening brand reputation.

Benefits of voluntary carbon markets

Voluntary carbon markets are not just beneficial for the companies involved - they offer systemic advantages that contribute to global climate resilience and sustainable development.

Climate finance for developing nations

VCMs enable the transfer of funds from high-emitting countries to carbon-saving projects in the Global South. These funds help improve local livelihoods, enhance biodiversity, and foster climate adaptation.

Incentivising innovation in sustainability

By establishing financial incentives for emissions reductions, VCMs promote investment in low-carbon technologies and nature-based solutions. This, in turn, fosters green innovation and accelerates the net-zero transition.

A flexible, market-driven approach

Because participation is voluntary, the market is dynamic and adaptable. It can quickly evolve in response to technological advances and climate science, giving businesses more control over their decarbonisation pathways.

Criticisms and challenges of VCMs

Despite their promise, VCMs face legitimate scrutiny. The most common criticism centres around greenwashing - where companies use offsets to appear climate-friendly while making little effort to cut their own emissions.

There is also a lack of uniformity in how credits are assessed and priced. Some credits may overstate their climate impact or fail to account for issues like impermanence or leakage. Without strong governance and transparency, the risk of low-quality or ineffective credits remains.

Finally, the absence of clear global standards creates uncertainty. Companies and developers must navigate a fragmented landscape, which can lead to inefficiencies and reduced trust in the market’s integrity.

The future of VCMs

The voluntary carbon market is undergoing significant transformation. Emerging technologies, such as blockchain, are being deployed to enhance transparency and traceability, ensuring that each credit is unique, trackable, and tamper-proof.

At the same time, demand is set to rise as more businesses come under mandatory climate disclosure regimes. Frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and the EU’s Corporate Sustainability Reporting Directive (CSRD) are prompting companies to account for and manage their emissions more rigorously.

Future developments to watch

• Digitisation and blockchain for traceability

• Rising demand due to regulatory disclosure requirements

• Integration with Article 6 of the Paris Agreement

These trends suggest that VCMs may soon play a more formal role in national and international climate strategies, potentially bridging the gap between voluntary and compliance mechanisms.

Voluntary carbon markets offer a practical way for organisations to reduce their carbon footprint while supporting global decarbonisation efforts. Unlike compliance markets, VCMs are driven by proactive climate ambition rather than regulatory obligation. Through the purchase of verified carbon credits, businesses can offset emissions they cannot yet eliminate and contribute to projects that deliver genuine environmental and social impact.

While concerns about quality, transparency, and regulation persist, the market's trajectory is one of maturing standards and growing credibility. As demand increases and governance improves, VCMs are set to become a key lever in achieving both corporate and global net-zero goals.