Feature By: Justice Akoto
The growing carbon market promises climate finance at scale, but integrity issues pose significant risks to banks, investors, and the environment. Without robust credibility, the market is vulnerable to three systemic risks: greenwashing, double counting, and reputational contagion.
Greenwashing occurs when climate claims outpace verified impact. A company may market “carbon neutrality” while relying on weak or poorly verified credits. For banks financing such entities, the exposure is not only environmental, it becomes reputational and regulatory risk, especially as global disclosure frameworks tighten.
Double counting, a complex issue, happens when multiple actors claim the same emissions reduction. This can occur when a host country claims emissions reductions under its Nationally Determined Contribution (NDC), while a buyer uses the credit for corporate climate claims.
The Paris Agreement’s corresponding adjustment mechanism was designed to prevent this, but weak governance or unclear authorization processes can still create uncertainty.
Reputational contagion is another risk, where the failure of one project or entity can impact the credibility of the entire market.
In Ghana, carbon-backed projects are increasingly appearing in loan proposals, blended finance deals, and sustainability-linked investments. If carbon revenues underpin a project’s financial model, weak integrity directly affects cash flow credibility, loan performance, and institutional reputation.
To mitigate these risks, robust frameworks are essential, including transparent registries to track carbon credit transactions, credible standards for verifying emissions reductions, host-country oversight to ensure accountability, and verification and accountability mechanisms to prevent greenwashing and double counting.
Banks like Fidelity Bank Ghana are prioritizing sustainability, supporting clients with credible carbon integrity and responsible financing pathways. By doing so, they are helping to build a credible carbon market that delivers climate finance and sustainable development.
The Ghanaian experience highlights the importance of credibility in the carbon market. As the market grows, ensuring the integrity of carbon credits will be crucial to maintaining investor confidence and achieving climate goals.
Justice Koto is an Environmental and Climate Management expert
