The year 2025 is poised to be a pivotal one for the global carbon market, with significant implications for sustainable financing trends. As nations grapple with the urgency of climate change and the need for economic growth, the evolution of carbon markets will play a crucial role in directing investments toward a greener future. This article explores the key factors shaping this landscape and their impact on sustainable financing based on the latest report and analysis.
The Rise of Compliance Carbon Markets
A significant trend is the increasing development of compliance carbon markets, particularly in Asia. Countries like South Korea and Japan are reassessing their national energy strategies, potentially adopting ambitious decarbonization plans. Although political factors might delay some decisions, these nations are likely to implement new policies in 2025, with Japan planning a transition from a voluntary to a mandatory Emissions Trading System (ETS) by 2026, requiring the implementation rules to be in place by 2025.
Other Asian countries, such as Indonesia, India, Vietnam, Malaysia and Thailand, are also making strides in this area. Indonesia launched a cap-and-trade system for its coal-fired power sector in 2023, and they have officially opened its domestic carbon market to global investors through IDXCarbon by offering five projects in January 2025. India is also poised to launch a compliance market regulating 11 sectors, with policy guidance expected in 2025. Similarly, Vietnam will assign emission quotas to key industries, while Malaysia is likely to announce a carbon tax, and Thailand will launch its Climate Change Act, setting national carbon pricing strategies. According to the S&P Global analysis, these compliance markets drive demand for carbon credits, creating a financial incentive for emission reduction projects and bolstering sustainable investments.
The Impact of Article 6
Another catalyst for the growth of carbon markets is the progress made on Article 6 of the Paris Agreement at COP29, which is expected to set the stage for implementing international carbon market mechanisms. Article 6.2 facilitates the exchange of emission reductions through bilateral or multilateral agreements, which is being explored by Japan and Singapore, who have both signed several such agreements to source for carbon credits. In 2025, they need to translate UN guidance into specific implementation details under these agreements. A key issue will be to clarify under which conditions a seller country can revoke its authorization for carbon credit exports and safeguard the integrity of carbon credits (S&P Global, 2024).
Article 6.4 establishes a framework for a UN-led global carbon market. These developments will drive greater investments in carbon markets from countries worldwide, and mechanisms to cooperate in order to reduce carbon emissions and achieve Nationally Determined Contributions (NDCs). This will boost international carbon trading.
The Convergence of Climate and Nature Finance
Beyond carbon markets, there is an increasing recognition that environmental assets are fundamental to our economy and society, which has led to a push to include areas such as water, biodiversity, soil health and plastic in the concept of “creditization”. This has led to the emergence of new financial instruments focused on ecosystem-wide and landscape-level approaches, integrating multiple metrics that could include carbon, biodiversity and water.
The World Economic Forum latest article emphasizes that despite slow progress in mobilizing public capital, the momentum on climate and nature finance has shifted towards the private sector. Businesses are increasingly recognizing that acting on nature and climate strengthens their value chains. This has led to the growth of carbon markets with emissions covered increasing from 7% to 24% globally (WEF, 2025). Water markets have existed for decades, and there is an increasing interest in biodiversity credits that offer a way to invest in nature and local communities. This trend shows that sustainability is increasingly recognized as a vital factor for business.
Challenges and Opportunities
While the growth of carbon markets is promising, challenges persist. Voluntary action alone will not be enough to close the sustainability finance gap. Policy regulations and incentives are needed, as well as public-private cooperation. The global carbon market is estimated at more than $1 trillion, with the voluntary market covering less than $1 billion (WEF, 2025).
In 2025, it will also be critical to address the need for greater transparency and standardization in carbon pricing to avoid a trust crisis. In addition, there is a need to develop more detailed policies to standardize international trading activities. The focus on practical solutions and ambition is expected to unlock private capital, particularly for climate projects in developing economies.
Another important factor is the need for a “JUST transition” to ensure that the transition to a low carbon future is fair and inclusive. This will mean managing the negative impacts on people, including job displacement and increased energy costs, which has implications for the private sector.
The Role of Technology
AI is also expected to play an increasing role, as the technology has the potential to radically improve energy efficiency and resource use and become a tool in emissions and land-use measurement and climate scenario analysis. However, there is also a need to balance the energy needs of AI with its climate benefits (S&P Global, 2025).
The global carbon market is set to gain momentum in 2025, driven by new policy advancements, Article 6 of the Paris Agreement and the convergence of climate and nature finance. Although challenges remain, the increasing emphasis on sustainability, the role of the private sector and technology offer opportunities to achieve a meaningful transition to a low carbon future. The developments in 2025 will provide a basis for greater international cooperation, standardized systems and mobilization of financial resources that will drive more sustainable investments in the years to come.
