There is a pattern in how markets develop that the voluntary carbon market is running into hard. First come the environmental questions: are the underlying assets real? Can they be verified? Do they deliver what they claim? Carbon markets have wrestled with those questions publicly and painfully since at least 2022, when a series of investigations into major project developers shook buyer confidence and triggered a round of market reform. Standard-setters, registries, and methodologists have spent the years since building better systems for verification and transparency.
Those efforts are ongoing and necessary. But a different category of problem has moved alongside them, quieter and harder to solve with better science. Scaling carbon credit financing and insurance remains a challenge as the market continues to grapple with legal and accounting uncertainties. For many market participants, legal uncertainty is emerging alongside environmental integrity as a major obstacle to market growth: who can say what about climate action without facing litigation, who actually owns a carbon credit in a legally enforceable sense, and which rules apply when regulations across jurisdictions contradict each other.
The voluntary carbon market was originally built as an environmental market rather than a financial one. Early attention focused on project quality, emissions accounting, and verification standards. As participation expanded and larger investors entered, questions traditionally associated with mature financial markets began to emerge. Ownership rights, transferability, collateralization, insolvency treatment, and disclosure liability were largely secondary concerns when the market was smaller. They have become far more important as governments and businesses increasingly view carbon markets as a mechanism for financing climate action at scale. The gap between the market's environmental ambitions and its legal infrastructure is where the growth constraint now lives.
Making a Climate Claim Has Become a Legal Strategy Exercise
The relationship between carbon credits and corporate climate communications has shifted noticeably over the past three years. Companies that once treated carbon neutrality claims as evidence of environmental leadership are now treating them as potential liabilities. Litigation involving climate-related claims remains a source of exposure for companies across all sectors, with consumer litigation and state attorney general enforcement expected to intensify around the integrity of climate claims, according to the Harvard Law School Forum on Corporate Governance's July 2025 climate litigation trends analysis. Several climate law experts have identified a growing pattern of greenhushing, in which companies become more cautious about publicly discussing climate actions because of litigation and regulatory concerns, rather than any weakening of underlying programs.
The regulatory picture is fragmenting rather than clarifying. The European Union's Empowering Consumers Directive takes a restrictive approach to carbon neutrality claims in consumer-facing marketing, effectively limiting how offsets can be used to support product-level environmental claims. In the United States, California's AB 1305, the Voluntary Carbon Market Disclosures Act, already requires detailed disclosures about offset methodology, verification, location, and retirement for companies making climate claims in the state. AB 1911, currently under consideration in the California legislature, would create a safe-harbor framework establishing conditions under which companies could make climate-related claims while reducing litigation exposure. The contrast between the EU's restrictive approach and California's safe-harbor proposal illustrates a problem that will not resolve on its own: a claim permissible under one jurisdiction's framework may create material legal exposure in another. For legal and sustainability teams at multinational companies, carbon communications are no longer an editorial function. They are a compliance function.
The Ownership Question Is Becoming a Barrier to Scale
The litigation risk affects buyers. The ownership question affects the capital structure of the entire market. Ask who legally owns a carbon credit and the answer is less clear than it should be for an asset class that advocates want to see integrated into mainstream financial systems. Most carbon credit registries include legal disclaimers explicitly stating that registry records indicate where credits are held but do not constitute a legal determination of ownership. Uncertainties relating to the legal nature of voluntary carbon credits give rise to questions over whether an investor has a proprietary entitlement to an asset that is insolvency remote from the intermediary, as well as questions over fungibility, the circumstances under which a transferee obtains ownership rights on transfer, and the requirements for taking proper security, according to ISDA's foundational analysis of voluntary carbon credit legal implications.
For everyday market participants, those distinctions can feel technical. For the institutional investors, lenders, and insurers whose participation would materially expand the market's capacity to finance climate projects, they are not. The challenge is legal, not technical: converting measurement, reporting and verification systems into enforceable rights and obligations. Credible carbon trading depends on enforceable contracts, verifiable data and transparent governance, per the International Bar Association's December 2025 analysis of carbon market legal architecture. Markets grow when ownership is clear, assets can be collateralized, security interests are recognized, and disputes have a defined resolution pathway. Voluntary carbon credits do not yet reliably offer all of those conditions, which many market participants argue is limiting broader institutional participation at the scale the market needs.
What Is Being Done and What the Timeline Actually Looks Like
The most watched effort to close the legal gap is being led by UNIDROIT, the International Institute for the Unification of Private Law, which is developing legal principles intended to give governments guidance on how carbon credits should be treated under private law, covering ownership, transfer, security interests, and insolvency treatment. The project is expected to conclude in early 2027. Germany-based carbon market participants called in April 2026 for stronger political recognition and clearer rules for the use of carbon credits, saying uncertainty is creating hesitation among buyers.
California's climate disclosure framework, now one of the most watched regulatory developments globally, adds another layer of urgency. The Voluntary Carbon Market Disclosures Act mandates disclosures about voluntary carbon offsets and emissions reduction claims for companies undertaking specified activities in California or making certain claims. That disclosure obligation is already active, and its interaction with the proposed AB 1911 safe-harbor framework is still being worked out. Companies operating in California that use carbon credits as part of their climate strategy are navigating both simultaneously, with legal counsel trying to interpret requirements that were not designed in coordination with each other.
Many legal experts and market participants argue that capital will be less likely to flow at the scale envisioned by net-zero pathways until questions surrounding ownership rights, transferability, and legal treatment are resolved. Project developers can improve methodologies, registries can upgrade transparency systems, and standard-setters can tighten verification requirements, all of which are happening. But those improvements address the environmental architecture of the market. The legal architecture, covering what buyers can say, what they own, and how disputes get resolved, requires a different set of actors: governments, legislators, and international bodies whose timelines do not always align with the market's ambitions. Environmental ambition did not create this problem. Legal infrastructure will determine whether that ambition can be fully delivered.
