As climate urgency intensifies, carbon credits have emerged as a critical tool for corporations committed to sustainability. The Hong Kong Exchanges and Clearing Limited (HKEX), a pivotal global exchange group, has positioned itself at the forefront of this transition with the launch of Core Climate—a transparent, integrated carbon marketplace designed to connect capital with climate-related opportunities.

For international investors and corporate leaders, understanding the mechanics and strategic use of carbon credits is no longer optional—it is essential. HKEX's recently released Carbon Credits: A Buyer's Guide offers a timely and comprehensive roadmap for navigating this complex landscape.

A carbon credit represents one tonne of carbon dioxide or its equivalent (CO₂e) either avoided or removed from the atmosphere. These credits are generated through projects that reduce emissions—from reforestation and renewable energy installations to technological innovations like direct air capture.

Their importance is twofold: they serve as compliance instruments in regulated markets, such as China's National ETS or Korea's Emissions Trading System, and as voluntary instruments for companies aiming to offset residual emissions on their path to net zero.

According to the World Bank, carbon pricing initiatives now cover more than 23% of global emissions. Voluntary carbon markets, though smaller, are growing rapidly as corporates align with international climate agreements and stakeholder expectations.

Corporates purchase carbon credits for both compliance and strategic voluntary purposes. In regulated jurisdictions, credits offer flexibility in meeting emission caps. For others, especially those in hard-to-abate sectors like aviation under CORSIA, carbon credits are a practical mechanism to mitigate environmental impact.

Yet, beyond compliance, leading companies are using carbon credits proactively—as part of a broader climate strategy that includes immediate action alongside long-term decarbonization. Tencent, for example, has committed to achieving carbon neutrality across its operations and supply chain by 2030, using carbon credits to address unavoidable emissions while increasing investment in removal projects over time.

Not all carbon credits are created equal. The guide emphasizes the importance of due diligence based on project type, location, co-benefits, standard, and vintage.

• Project Type: Avoidance projects (e.g., renewable energy) accelerate the transition to net zero, while removal projects (e.g., afforestation or DAC) are essential for neutralizing residual emissions.

• Location: Projects in climate-vulnerable regions or those aligned with a company’s operational footprint can enhance supply chain resilience and support sustainable development.

• Co-benefits: Beyond carbon, projects may deliver biodiversity conservation, community development, or job creation—aligning with UN Sustainable Development Goals (SDGs).

• Standards: Credibility is underpinned by standards such as Verra’s VCS, Gold Standard, or government-led mechanisms. The Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles (CCPs) provide a meta-framework for assessing quality.

• Vintage: Credits from 2021 or later are preferred by many to align with the Paris Agreement’s Article 6, though some argue that older vintages should not be dismissed if they meet robust criteria.

Carbon Growth Partners, an Australian asset manager, illustrates this approach well. The firm invests in nature-based projects that not only sequester carbon but also protect biodiversity and support local communities—factors that enhance long-term project viability and investor confidence.