Fixing the carbon market’s wealth gap is key to fighting climate change, Davos panel says

It’s been six months since the Glasgow Climate Pact was formed after the COP26 conference, and many questions still remain about what it means for the global carbon market.

While more and more companies are speeding up their goals to reduce and offset emissions, many are still left stymied by the lack of international standards and the problems created by vast wealth gaps to effectively accelerate the worldwide effort to prevent the earth’s temperature from rising too drastically.

These issues were discussed Monday at the World Economic Forum in Davos by a panel of executives from the corporate, government, and nonprofit worlds, who offered both optimism and stark assessments of where the global community is lagging. The event kicked off with an introduction by COP26 President and British politician Alok Sharma in which he touted the conference’s success in agreeing on the pact and urged for more participation in the Voluntary Carbon Markets Integrity Initiative (VCMI).

“It was a big collective achievement by the international community because what it means is that we're going to get finance flowing to climate. We're actually going to get some action when it comes to climate,” Sharma said. “What we’d very much like is for all of you to engage with VCMI. If we're able to do that, and we can have an agreement on how voluntary carbon markets are governed in a way that is Paris Agreement-compliant, you're going to see…a lot of finance flowing in that direction, which ultimately is going to help companies and countries deliver on the goal of limiting global warming to below 1.5 degrees.”

The main holdup, according to Bahlil Lahadalia, Indonesia’s Minister of Investment, is the lack of a level playing field. As he noted, “The price of carbon from developing countries is around $10 the price for carbon in developed countries is around $100.” That imbalance, he said, makes international collaboration almost prohibitively difficult.

“What is important is to ensure that the carbon trading and investment in this sector is a win-win project that delivers mutual benefits to all,” he said. “It has to be fair, it has to be transparent. The baseline for carbon credit calculation, one company has a different baseline from other companies. The second is who purchases these carbon credits? For example, in Indonesia, not many companies are engaged with this carbon trading. Developing countries do not have adequate capital for investment in forest preservation. That is why it highlights the importance of collaboration.”

Dr. M. Sanjayan, the CEO of Conservation International, agreed, saying that the money to fix this issue is there, globally, and the outcome will depend upon better communication and leadership from the wealthier nations. “The real barrier right now is clarity. That's what has been lacking,” he said. “In the absence of governments stating clear rules, it's been left to the non-profit sector and the companies to come up with our own rules. Desperately, we need the signal from the United States on what they see as the right approach to this because I think that will immediately shift and signal the market.”

As Standard Chartered CEO Bill Winters pointed out, the financing gap between developed and developing nations needs to be closed quickly in order for the necessary progress to be made.

“It's not that the money isn't there. It's just not always being directed in the right places,” he said. “If there's any silver lining in this war, it's that the price of energy is high and there is a massive investment into renewables right now or alternatives. The flip side is that the cost-of-living crisis, which begins with energy prices but extends to food and pretty much everything else, is putting tremendous financial pressure on the poorest countries and the poorest people. We have to solve both those problems, and we have to capitalize on getting all that money from what's waiting to be invested in scale into high-quality projects and high-quality solutions.”

There’s also a power disparity between large and smaller companies who don’t have as much say in the collaborations, according to Salesforce Chief Impact Officer Suzanne DiBianca. Her company is spearheading several efforts to bridge that gap, which she says has led to “a crisis of trust” on the supply and demand sides.

“We set up something called the Blue Carbon Buyers Alliance so that we can create a community amongst companies so that we have a common language, common standards that we're using in the absence of anything in the regulatory environment,” she said. “We need to hold each other accountable and we have to be really transparent. The small- and medium-sized businesses are really struggling here, so this is why I think these buyers alliances are really critical.”

Wrapping up the panel, Winters summed up the collective opinion that, while Glasgow was a huge step forward, a multilateral approach to leveling the carbon playing field is the key to stemming climate change.

“It's very important that we get as close as we can to a single market and a single price for carbon globally,” he said. “I’m not naive enough to think we're going to get all the way there very quickly because different governments and different regimes have different objectives. If we can get to the same place, then we've got a tremendous pool of liquidity, a tremendous pool of understanding and can converge on solving these problems. But I think there's a bit more legislative, judicial, and market clarity that's required to get fully there.”

This story was originally featured on Fortune.com