As the world turns its sights to Belém for COP30 and faces the stark likelihood of an overshoot on the Paris goal of 1.5°C, the urgency for emissions reduction could not be higher. Carbon markets have shown both promise and peril as one avenue of many for incentivizing this unprecedented emissions drawdown. Indeed, UN Secretary General António Guterres has called for the integration of carbon neutrality into all economic and fiscal policies and decisions. “It is time to put a price on carbon,” said Guterres, stressing the need for a clear market signal to drive the transition.

This article from Head of UNEP FI, Eric Usher, outlines what we can expect to be agreed on at COP30 and highlights some of the risks and opportunities for financial institutions.

Key developments in the COP30 negotiation process indicate a possible breakthrough in the establishment of a UN-regulated carbon market. Article 6 of the Paris Agreement provides the framework for multilateral cooperation on carbon trading. Last year at COP29 in Baku, negotiators finalized their key guidance to operationalize Article 6.4 of the Paris Agreement, which established the framework for the first UN regulated global carbon market: the Paris Agreement Crediting Mechanism (PACM).

This market has the potential to create actionable, high-integrity opportunities for financial institutions and support global decarbonization. Decisions at COP30 will shape how credits are generated, verified, and traded across borders – the technical rules needed to launch the new system.

Carbon markets might also soon play a significant role in scaling climate finance, especially in emerging markets and developing economies (EMDEs), where those new price signals can make additional opportunities in low-carbon projects bankable.

Policy frameworks, governance mechanisms, and environmental and social safeguards developing at the country and regional level out of Article 6.4 will be essential signposts for financial institutions looking to engage in the market in a high-integrity, effective way.

Risks for financial institutions

With abatement and removals standards developing rapidly, the quality of credits is key to effectively reduce emissions and remove carbon. A lack of standardization, inadequate monitoring and verification, and a lack of transparency and effective cross-border systems leave current carbon markets a risky investment for financial institutions.

A range of initiatives such as the “High-Integrity Carbon Markets Initiative” and the “Coalition for Paris-aligned and high integrity use of carbon credits” are working to address these risks. They are aiming to restore confidence by promoting clearer methodologies, better governance, and stronger safeguards for communities and ecosystems.

Opportunities and new roles for financial institutions in Article 6.4 and G20 implementation

While there are risks, there is also a significant opportunity for financial institutions. Efforts to harmonize frameworks are emerging. While some markets like the EU emissions trading system (ETS) are well-established, others are still developing or piloting new approaches. The G20 SFWG’s Common Carbon Credit Data Model (CCCDM), developed in 2025, aims to standardize data across markets and improve traceability, potentially easing cross-border transactions, and supporting due diligence.

Since 2018, member states have been developing key components to operationalize the PACM, including new standards to measure project impact, and an audit, appeals and grievance mechanism to uphold accountability and human rights. These milestones position the PACM for full implementation following COP30. Key aspects expected to be finalized in Belém include rules on emission avoidance, additionality testing, and benefit-sharing mechanisms.

UNEP FI is part of the Taskforce on Net Zero Policy, which will contribute to these discussions with its forthcoming COP30 report, analyzing carbon credit market policies across G20 countries. The Net-Zero Asset Owner Alliance (NZAOA) has recently released a report for institutional investors on “How to Get to the Net? A Discussion Paper on Carbon Dioxide Removal” on supply and demand in both compliance and voluntary carbon markets. It includes recommendations for the broad range of actors and policymakers.

For financial institutions, the operationalization of the PACM presents some key opportunities. In this new market, financial institutions may act as buyers to meet their own internal transition targets, as investors in carbon transactions, or as insurance providers to carbon removal project developers and ecosystem actors (i.e., standard setters, buyers, tech enablers, market intermediaries etc.). They may also simply benefit from the lower climate risk and decarbonization of portfolio companies that participate in regulated or voluntary schemes.

Through the Methodological Expert Panel on emissions reduction and removal activities, UNEP FI has been advising on how specifically insurers can absorb some of the risk exposure faced by carbon credit buyers, and may support other financial institutions, such as banks, asset owners or export credit agencies, on carbon markets in the future.

As carbon markets mature, governments and monitoring institutions are working towards high integrity, harmonized frameworks, scaling durable carbon removal solutions, embedding robust social and environmental safeguards, and preserving natural carbon sinks. These elements are essential to ensure that carbon markets deliver real climate impact, especially in emerging economies, without hindering rapid and ambitious decarbonization efforts.

PACM could quickly gain traction once finalized. As one example, the EU has recently agreed that up to five percentage points of their 90% emission reduction goal by 2040 can be achieved through trading foreign carbon credits.

As the urgency to bend the carbon curve intensifies, financial institutions can participate in this new global marketplace, supporting their corporate transition plans and contributing to high-integrity emission reduction.

About this series:

This blog series on the road to COP30 highlights core UN climate negotiation issues affecting banks, insurers, and investors, as well as the wider financial system.

The series focuses on issues that delegations are deliberating under the UN Framework Convention on Climate Change and the Paris Agreement on Climate Change. Following the June 2025 Bonn Intersessional meetings, Parties will resume formal negotiations at COP30 in Belém, Brazil November 10-21, 2025.

UNEP FI participates in UN climate COPs as a Non-Party Observer Organization and has no formal negotiating role, though it provides technical advice.

This article is the third of three blogs in the run up to COP30. The first in the series highlighted the top 5 negotiation outcomes affecting the global finance sector at COP30. The second blog discussed the finance sector investment opportunities in countries’ climate plans.

Please find more information on UNEP FI’s COP30 events page.