By Max Mattern, CGAP, World Bank

Embroiled by controversy, carbon markets have spent recent years scrambling to address difficult questions about the integrity and transparency of mitigation outcomes. But a singular focus on buyers’ concerns about the integrity of carbon credits risks overshadowing a debate that is equally vital to the long-term viability of carbon markets: is carbon finance actually delivering value for local communities on the frontlines of the accelerating climate crisis?

In 2022, almost 98% of carbon offset retirements originated in Asia-Pacific, Latin America, and Africa [1] – regions that are rich in natural capital yet lag behind in the global green transition. At the same time, many communities in emerging markets and developing economies (EMDEs) face a persistent gap in access to climate finance, with estimates suggesting that less than 10% of climate finance is reaching the local level.[2] This is where carbon markets can play a critical role – helping to mobilise private capital that supports local efforts to bolster climate resilience, adaptation, and a just transition.

But this potential can only be realised if carbon markets are truly inclusive of and impactful for people living in EMDEs. And although our latest research identified several emerging examples of inclusive carbon projects, many still fail to include or meaningfully benefit local communities.

Without explicit and credible plans to include and benefit underserved communities, carbon markets run the risk of exploiting vulnerable populations to benefit wealthy investors. Additionally, evidence suggests that women face challenges to participating and benefiting from carbon projects, thus threatening to further jeopardise their access to the benefits of a green transition.

Embracing inclusivity cannot wait. And our latest research highlights how inclusive financial services can play a critical role in building more inclusive carbon markets.

An opportunity to expand participation, ensure equitable benefit sharing, and maximise development impact

From Sub-Saharan Africa to South Asia and beyond, there are emerging examples of carbon projects that leverage credit, savings, and payment products to reach excluded communities and deliver concrete improvements to the lives and livelihoods of the people most vulnerable to the accelerating climate crisis, including women. For example, credit and savings products are being used to enable low-income households and small businesses with limited access to capital to invest in new technologies or to transition to more sustainable practices that are often required to participate in and benefit from carbon projects, whilst digital payments are helping to ensure that households are fairly compensated for their contributions to mitigation outcomes. This is particularly true for women, for whom a financial account provides greater access to and control over their earnings.

In addition, pairing carbon projects with microfinance can maximise both project co-benefits and permanence by allowing participants to more effectively invest carbon revenues in improving their livelihoods, increasing the value of their participation and making it less likely that they will drop out of projects prematurely.

This is why CGAP has set out to demonstrate the potential impact of financial services in carbon projects. We are currently working with a REDD+ project developer and a microfinance bank in Colombia to test how credit and savings products can help smallholder farmers and ranchers to invest in new livelihood practices that protect local ecosystems; whilst in West Africa, we are exploring how digital payments can support more transparent and equitable benefit sharing by delivering hard earned carbon revenues to remote communities that previously had no access to formal financial services. And in Kenya, we are testing how carbon projects tied to the use of green building materials can be leveraged to expand access to affordable housing finance.

Still, more work will be required to maximise the potential of inclusive finance. This includes forging partnerships between project developers and financial service providers, as well as supporting the development of new financial products and services that better meet the needs of carbon project participants.

Financial services can overcome barriers to women’s inclusion

Our research shows that integrating gender considerations into project design not only improves long-term outcomes – it is also increasingly recognised by standard-setting bodies as essential for credibility. Yet doing this requires more than good intentions—it demands practical mechanisms.

Women often face systemic barriers to participating in carbon projects: limited asset ownership, lack of credit history, exclusion from decision-making, and time poverty.  If these challenges aren’t addressed head-on, carbon projects may inadvertently perpetuate inequality.

Women-centric financial services offer practical mechanisms to overcome these challenges. They make clean technologies more affordable, enable ownership of productive assets, and facilitate transparent benefit-sharing. They also enhance project credibility by demonstrating measurable development impact, particularly through women’s empowerment initiatives.

This documented social impact creates valuable co-benefits that can be monetised in carbon markets; early evidence suggests that carbon credits with gender and social co-benefits may sell at a premium—up to 86% more.

One of the clearest examples of financial inclusion enabling gender impact comes from the Self-Employed Women’s Association (SEWA) in Gujarat, India who are partnering with a carbon project developer, Value Networks Ventures, to help women salt farmers shift from diesel-powered to solar-powered water pumps.

The solar pumps represent a major investment for these households. To make them accessible, SEWA facilitates financing through a mix of bank loans and government subsidies. But this isn’t just about affordability. Families are also encouraged to register loans and assets in women’s names, enhancing women’s legal asset ownership and decision-making power.

This strategic use of financial services has transformed the intervention from a clean energy project into a vehicle for women’s economic empowerment, showing that unlocking gender impact in carbon markets starts with unlocking finance for women.

Ultimately, VCMs have enormous potential to effect positive change for low-income communities. By leveraging financial services and collaborative approaches, carbon projects can not only support a just, green transition, but also improve the lives and livelihoods of underserved communities.

[1] https://www.deloitte.com/us/en/insights/industry/financial-services/future-of-carbon-market.html

[2] https://www.iied.org/10178iied

Max Mattern is a Senior Financial Sector Specialist who is leading research at CGAP on the potential of carbon markets to benefit the world’s most vulnerable communities. CGAP is a think tank focused on financial inclusion, housed within the World Bank.

Any opinions expressed in this commentary reflect the views of the authors and not of Carbon Pulse.