Sustainable investment opportunities as the carbon management industry matures

The 30th Conference of Parties, where signatories of the Paris Agreement will meet to discuss progress, will be hosted in Brazil at the end of 2025. It will be an important milestone for the global ambition to achieve net zero emissions. This year marks the anniversary of the first global stocktake from five years ago in Glasgow of countries’ nationally determined contributions (NDCs) to support the goals of the Paris Agreement. Countries are expected to submit their updated NDCs at this year’s conference, which will provide greater clarity on national climate plans and expected policy over the next decade.

Carbon Dioxide Removals (CDR) will be an important part of this discussion and the overall plan to scale decarbonization efforts across markets. They’ll be an increasingly essential part of achieving global climate ambitions as energy systems and industry move towards net zero. As a result, the industry is undergoing rapid maturation to achieve the scale required for achieving these goals. Estimates for the required amount of removals in a net zero economy are as high as 10 gigatonnes per year by 2050.

We believe both nature-based and novel CDR technology and capacity will need to scale significantly over the coming decades. Nature-based solutions are proven and feasible today and should continue to scale accordingly as they mitigate the worst effects of climate change in the near term. We expect nature-based solutions to lead the market, but they have limitations that novel-based CDR approaches can address over the long term.

While certain novel or technology-based CDR solutions are viable today at a smaller scale, more innovation and improved economics will be required before they are commercially viable. Given the current landscape, we see nature-based solutions dominating the CDR market until at least 2030. However, we anticipate novel CDR will continue to improve from both a technological and cost perspective, resulting in market share gains to approximately 25% of the CDR market over the long term.

Overall, we believe that CDRs are a key sector in the transition economy for sustainable investing, and a combination of nature-based, novel and hybrid approaches will be needed to address residual emissions in 2050 and beyond. Demand for CDR projects and credits is growing, driven by regulatory action in the public sector and company decarbonization targets in the private sector. This presents an emerging opportunity for investors to support the development of a critical industry in facilitating real-world decarbonization.

While the current investment universe is limited, strong support from market participants has the industry poised to scale and grow, enabling greater liquidity and transparency within carbon markets. We believe this will ultimately result in a larger opportunity set for investors in the coming years as the role of CDRs in climate transition plans and global decarbonization efforts becomes clearer.