2025 Public Sector Perspectives

Carbon credit markets Carbon credit markets are critical to mobilize climate finance to EMDCs. While the adoption of carbon pricing mechanisms and the growth of the voluntary carbon markets continues to be slow, there are areas of progress where governments and market participants are taking steps towards addressing some of the existing bottlenecks. Integrity: The Integrity Council for the Voluntary CarbonMarket (ICVCM) is in the process of assessing and certifying carbon creditingmethodologies that comply with its Core Carbon Principles (CCP). The CCP help identify high quality carbon credits against a set of governance, emissions impact and sustainable impact principles. In June 2024, the ICVCMawarded the first CCP label to several carbon creditingmethodologies and is reviewing additional methodologies that will cover over 50%of themarket. 6 Complementing its work on certification, the Voluntary CarbonMarkets Integrity Initiative has developed a Claims Code of Practice to provide guidance to companies on the credible voluntary use of carbon credits and associated claims. Article 6.2: The adoption of final guidance on the operationalization of Article 6 at COP29 is an important milestone for the mobilization of capital to EMDCs. The number of bilateral agreements for governments to cooperate under Article 6.2 continues to grow. Over 30 EMDCs have signed MoUs with potential sovereign buyers to explore cooperative approaches. 7 The Republic of Singapore is a leader in this space, having signed MoUs with more than 20 EMDCs 8 to explore the transfer of high quality carbon credits for the achievement of Singapore’s NDC targets. Singapore has set eligibility criteria that potential credits must meet, and an International Carbon Credit Framework aligned with Article 6 that allows carbon tax-liable companies to offset a portion of their taxable emissions using international carbon credits. 9 Wider replication by other countries of Singapore’s model for the integration of compliance and voluntary markets could help boost demand for quality carbon credits from EMDCs and facilitate financing flows into the global south. Financial innovation: Innovative financing models like theWorld Bank Outcome Bonds have emerged to help solve the timing mismatch between upfront investment in carbon removal/reduction projects and revenue generation from carbon credit issuance. Similarly, return-seeking investment vehicles funding projects using carbon credit spot sales and long-term offtake contracts are helping bridge the upfront financing gap. Mombak’s Amazon Reforestation Fund includes investors such as CPP Investments and the Rockefeller Foundation, and offtakers such as Microsoft, and aims to enable the reforestation of large areas of degraded land in the Amazon. 10 Separately, several insurance solutions provided by the likes of Oka, Kita, AON andMIGA and others are now available to carbon credit buyers to protect against pre- and post-issuance risks, reducing some of the uncertainties associated with voluntary and compliance carbonmarkets. 11 Conclusion Deploying climate finance at the scale necessary to keep within reach of the targets of the Paris Agreement will require an unprecedented level of innovation and collaboration among multiple actors, including governments, the private sector, financial institutions, development banks, NGOs and philanthropic institutions. This is especially the case for the mobilization of private capital to EMDCs, where macroeconomic, regulatory and political challenges are recurrent roadblocks for investment and capital inflows. Scaling up the financial instruments outlined above, developing others that include risk mitigating tools to address these challenges, and broadening the participation of relevant actors across the climate finance spectrum, are critical to help EMDCs decarbonize, and most importantly, adapt to the impacts of climate change that disproportionately affect countries in the global south. Citi is working with its public and corporate clients to bring about innovative and collaborative climate finance solutions, in line with its goal to reach $1 trillion in sustainable finance by 2030. Citi has acted as a Global Coordinator and Bookrunner on over 85 Sovereign Green and Sustainable bond transactions since 2018, partnered with the World Bank in four out of its five outstanding outcome bonds and served as financial advisor to the Government of Belize in their Debt Conversion for Marine Conservation. Citi is leveraging its climate and sustainable finance expertise across products and its global network to continue to support the climate agenda of sovereigns around the world. 6 ICVCM https://icvcm.org/integrity-council-announces-first-high-integrity-ccp-labelled-carbon-credits-as- assessments-continue/ 7 IETA https://www.ieta.org/resources/visualising-article-6-implementation/ 8 IETA ibidem. 9 https://www.carbonmarkets-cooperation.gov.sg/ 10 https://carboncredits.com/mombak-carbon-removal-company-secures-100m-amazon-reforestation-fund/; Mombak https://mombak.com/news/carbon-removal-startup-mombak-begins-100m-amazon-reforestation-strategy/ 11 World Bank, State and Trends of Carbon Pricing 2024 The World Bank has spearheaded further innovation in the sustainable debt capital market through its outcome bond program. Citi Perspectives for the Public Sector 21