To align with the Paris Agreement, emissions from animal protein production must be halved by 2030. Without meaningful progress, the environmental and economic consequences could be severe for agri-food companies and their investors.
FAIRR estimates that livestock companies could face losses of nearly 40% by 2030 and 60% by 2050 if global temperatures rise by more than 2◦C. This will not only affect investors with direct exposure to such companies but also has wider implications for supply chains, lenders, and insurers.
Yet, the sector remains one of the least aligned with climate targets, posing a systemic risk to the planetary tipping points and long-term investment returns.
For investors, this underscores the urgency of integrating climate considerations and decarbonisation strategies into their portfolio construction and asset allocation decisions. So how can companies and investors decarbonise their operations, supply chains and assets?
One emerging, albeit imperfect, solution lies in the voluntary carbon credit market (VCM). Indeed, carbon credits have returned to the spotlight recently, with the Science-Based Targets initiative (SBTi) revisiting their role in climate transition.
This Insight explores how carbon credits in the VCM can potentially help agri-food sector decarbonisation, how institutional investors can access these and the challenges that must be addressed to ensure a credible market.
How can carbon credits be used to address emissions?
Decarbonisation is the process of lowering – and ultimately eliminating – all CO2 emitted from human activity, and institutional investors and companies have a role to play in this process by addressing their direct emissions and those coming from their value chains.
Residual emissions are the greenhouse gas emissions that remain in a value chain once all possible steps have been taken to reduce their emissions, and as the SBTi has outlined, these emissions need to be counterbalanced or neutralised.
Instruments such as carbon credits provide one way of reducing or removing emissions while also offering investors a diversified source of returns.
One carbon credit represents one tonne of CO2 (or an equivalent greenhouse gas), and such credits are generated through projects that reduce, avoid or remove emissions. When a carbon credit is purchased and retired, the avoided, reduced or removed emissions it represents can be used to offset a buyer’s equivalent emissions.
These instruments are traded in regulated markets under government-mandated emissions trading schemes and in voluntary, decentralised markets – the focus of this piece.
Agricultural carbon credits represent a small but growing segment of the VCM – 20 million agricultural-related carbon credits were issued in 2022, representing just over 1% of the 1.7 billion credits issued overall that year.
Despite their modest share, estimates indicate that agricultural projects that can sequester soil carbon have the potential to address 10% of global emissions by 2050.
Reflecting this potential, agricultural credits typically command a premium, priced between US$10 and US$35 per tonne on average, compared to US$6.53 per tonne for carbon credits more broadly, as of November 2024.
Prices also vary depending on project type and additional benefits delivered, and whether the credits are classified as avoidance credits, which prevent emissions from occurring, or removal credits, which capture carbon (see table below).
Removal credits typically tend to be priced higher than avoidance credits due to their increased climate impact.
Table 1: Avoidance and removal credits
Avoidance credits | Removal credits |
|---|---|
Definition: Avoidance credits are generated from activities intended to prevent emissions. | Definition: Removal credits capture and remove carbon from the atmosphere. |
Examples: Preventing deforestation, methane capture from livestock operations | Examples: Regenerative practices, reforestation and afforestation |
Cost: US$9 to US$25 per tonne | |
Current market share: - 80% of the voluntary carbon market across all sectors. - 98.5% of total agricultural carbon credits. | Current market share: - 20% of the voluntary carbon market across all sectors. - 1.5% of total agricultural carbon credits. |
Projected market share: 65% of the voluntary carbon market by 2030 across all sectors. | Projected market share: 35% of the voluntary carbon market by 2030 across all sectors. |
Unlocking revenue streams and supporting decarbonisation
Investors can gain exposure to carbon credits in the VCM by:
buying them directly from a dedicated broker;
allocating capital to nature-based investment strategies or funds, where underlying offset projects generate credits that can replace, or be combined with, traditional returns; or
investing directly in companies developing products or solutions that reduce or remove carbon to generate credits.
For example, investment manager Robeco introduced carbon offset share classes for some of its strategies in 2023, allowing clients to purchase carbon credits with part of their investment that offset the emissions linked to their portfolios.
In the same year, the World Bank issued a US$50 million emission reduction bond. While the principal was used to fund World Bank projects, up-front coupon payments worth US$7.2 million were transferred to a water purification project in Vietnam that aimed to generate avoidance credits. The project is expected to cut three million tonnes of CO2 over five years, with investors receiving a return tied to the credits generated.
Some asset managers are also recognising the role that carbon credit markets can play in supporting farmers to adopt regenerative agriculture practices. Last year, SLM Partners partnered with Climate Farmers to fund the development of a carbon credit accounting methodology for Mediterranean orchards. The partnership aims to provide a new revenue stream while ensuring the carbon sequestration benefits of SLM’s fund assets can be verified.
These examples show that investors are interested in using carbon credits as part of their climate risk management and that they can play a role in neutralising emissions in the agri-food sector. However, the voluntary carbon market has proven to be contentious in recent years.
Addressing scale and integrity issues with carbon markets
In April 2024, the SBTi announced it would allow companies, including agribusinesses, to use carbon credits to offset their value chain emissions, only to reverse the decision months later following strong stakeholder backlash.
The SBTi’s second draft standard for companies setting net-zero targets, released last month, maintains that reversal.
Although the guidance is not yet final, uncertainty around whether carbon credits can be used to offset value chain emissions or only to neutralise residual emissions creates significant challenges for the agri-food sector.
For investors, it is difficult to assess the long-term demand for credits and determine the appropriate level of investment. For companies, it complicates the role of credits in net-zero strategies, especially when Scope 3 emissions remain the hardest to address.
Adding to the challenge is the issue of integrity. The quality, permanence, and transparency of some offset projects are under scrutiny, and weak regulatory oversight has drawn sharp criticism. However, this has also led to the development of integrity frameworks and initiatives to safeguard investments and ensure genuine climate benefits.
The Integrity Council for the Voluntary Carbon Market launched the Core Carbon Principles (CCPs) in 2023. These principles aim to ensure that offset projects effectively reduce emissions, support the UN Sustainable Development Goals, and maintain robust governance. CCP-labelled carbon credits are more likely to trade at a premium over non-CCP-labelled credits.
Certification standards such as Verra and the Gold Standard also certify projects in the VCM. As of April 2025, there were 320 agri-food-related projects registered with Verra, and 369 projects listed on the Gold Standard impact registry.
Other challenges include leakage, where emissions reductions in one area inadvertently cause increases elsewhere, and high verification costs, which limit accessibility for smaller market participants.
Carbon credits: A compelling but complex opportunity
Voluntary carbon credits present a compelling but complex opportunity for investors looking to decarbonise their agri-food investments. High-integrity credits can help address emissions and diversify returns - complementing, not replacing, direct emissions reductions.
But for voluntary carbon markets to scale effectively, they must be based on rigorous accounting standards, integrity and transparency. Clear guidance is needed from standard setters, while stronger third-party verification and transparent monitoring systems can help build trust and ensure that credits deliver additional, permanent emissions reductions and removals.
Investors can also shape this evolving market by financing projects or assets that generate high-quality credits or by integrating them into their net-zero strategies.
With careful due diligence, carbon credits could offer the potential to support financial returns and a more sustainable food system – FAIRR will continue to explore how carbon credits can facilitate climate-aligned investment strategies and support investors to do the same.
FAIRR insights are written by FAIRR team members and occasionally co-authored with guest contributors. The authors write in their individual capacity and do not necessarily represent the FAIRR view.
