2025: A pivotal year for climate progress – VCM 2.0, CSRD, and peak emissions

2024 was the hottest on record and the first with a global temperature average exceeding the 1.5°C pre-industrial average of the Paris Agreement.

With fossil fuel emissions hitting unprecedented levels and showing “no sign” of peaking, as projected by the Global Carbon Project, the gap between climate action and reality is widening.

The IPCC warns that global emissions must peak by 2025 to limit warming to the Paris Agreement temperature goal, yet current trajectories put us on a path toward 2.6-3.1°C by century’s end.

State of the climate 2025

While the numbers and future predictions can feel abstract, the reality of extreme weather events exacerbated by climate change is undeniable, with millions already suffering from its impacts.

In 2024, the El Niño event intensified heatwaves across South and Southeast Asia; unprecedented rainfall in Brazil and Kenya led to devastating floods; wildfires in Canada and California are becoming increasingly severe each year, driven by prolonged drought conditions; and cyclones hit the coastal regions Bangladesh and West Bengal, which occurs regularly but made much more dangerous with rising ocean temperature and sea levels.

This small list indicates how some densely populated communities in regions with limited access to safe infrastructure, and least responsible for carbon emissions, will be affected the most by climate impacts, emphasising the urgent need for a global response.

COP29 and the NCQG

At COP29, financial decisions dominated the climate conference agenda. The New Collective Quantified Goal (NCQG) was established in Paris to take mitigation actions in developing countries. The conference closed later than expected while negotiations stalled on producing an outcome for increasing the NCQG that would be unanimously agreed upon. Representatives of the least developed countries (LDCs) and other international alliances, citing economic research, advocated for $1.3 trillion per year to build low-carbon economies and infrastructure resilient to more extreme weather events. The final agreement came to $300 billion per year, with the remaining $1 trillion expected to come from additional public and private sources.

Article 6

Another major outcome from COP29 was progress on finalising the framework for carbon markets under the Paris Agreement. Article 6.2 authorises direct carbon trading agreements between countries while Article 6.4 agrees upon standards for an international carbon market, establishing the UN-managed carbon crediting mechanism known as the Paris Agreement Crediting Mechanism (PACM).

This use of carbon markets has the potential to significantly narrow the global financial gap but still requires international support on methodologies and implementations.

Voluntary carbon market 2.0

In recent years, concerns over low-quality carbon credits and contribution transparency spread doubt in the carbon market's integrity. The PACM is an international carbon market developed under the UN’s multilateral system to increase that integrity. This allows the private sector and other stakeholders to participate in Paris Agreement activities, potentially enabling the first PACM credits to enter the market this year.

One criticism of voluntary carbon market (VCM) is that companies often purchase and retire carbon credits instead of actively reducing their own emissions. Ideally, carbon credits should complement, not replace, efforts to cut emissions within supply chains.

However, this criticism appears largely unfounded. Research by MSCI shows that companies using carbon credits are more transparent about their scope 1, 2, and 3 emissions, set more credible reduction targets, and are more likely to have reduced their scope 1 and 2 emissions.

Companies continue to make climate action commitments through the Science Based Targets Initiative and renewable energy transitions. Aligning climate action strategies with science-based targets brings more integrity to the carbon market, along with new sources for carbon credits, such as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). CORSIA requires credits or sustainable fuels to take responsibility for all growth in aviation emissions above 85% of 2019 baseline levels. This is currently in Phase 1, which started last year and ends the following year. From this first phase alone, over 100 million tonnes of credits could be required.

2025 has immense potential for the growth and integrity of the VCM, with its value multiplying significantly if companies and governments uphold their climate commitments and by necessity close the global financial gap.

CSRD adds more companies

The Corporate Sustainability Reporting Directive (CSRD) is a regulatory framework to enhance and standardise non-financial reporting requirements for companies operating within the EU. 2025 marks an important year as companies that were already reporting under the NFRD must begin reporting on their sustainability performance for the financial year 2024. Starting in January 2026, this requirement will expand to companies that fulfil two of the following criteria: more than 250 employees, over €50 million in net turnover, and/or a balance sheet exceeding €25 million. This broader reach is bound to have profound impacts on the European market.

Regarding climate action, the European Sustainability Reporting Standards (ESRS) E1 is the topical standard for climate change standards. Companies are required to disclose their carbon footprint, including scope emissions, as well as their climate-related policies, actions towards mitigating climate change, progress towards reduction targets, and energy consumption mix.

Within ESRS E1, there are nine distinct reporting requirements, such as transition plans and policies. To comply with CSRD standards, companies need to follow three steps:

Conduct a double-materiality assessment to find what internal and external factors affect a company.
Report against those factors according to the nine reporting requirements.
Have the report audited independently.

ClimatePartner offers a variety of consulting services and training to help companies meet CSRD and ESRS requirements and refine their climate action strategy.

Climate expectations for 2025

One critical milestone will be the delivery of nationally determined contributions (NDCs) in the first few months of the year. These measures are a vitally important step in forming the international backbone of climate action. Yet, as stated in the Emissions Gap Report 2024, ambitious reductions are necessary to prevent more extreme weather events. Current NDCs will cut emissions 8% by 2030 according to 2019 figures, but research shows that 43% is required.

The UN started Climate Promise 2025 to help developing countries align with the 1.5°C Paris target, an important step to increase the opportunity for global climate commitments ahead of COP30 in Belém, Brazil. This conference is significant both physically, as it takes place at the gateway to the Amazon River, and symbolically, marking the ten-year anniversary of the Paris Agreement.

COP30 will place tropical forest conservation at the top of the agenda, such as the Tropical Forest Finance Facility and Tropical Forest Mechanism (TFM). Brazil, supported by other regions and governments, is leading the effort to reverse deforestation and preserve tropical forests, which play an important role as massive carbon sinks.

A key geopolitical concern is how the incoming Trump administration will handle the U.S. position within the Paris Agreement and renewable energy subsidies from the Inflation Reduction Act. On top of that, the SEC may also reverse requirements from public companies to disclose carbon emissions and climate-related risks.

Global climate action commitments are needed not only to mitigate the effects of extreme weather events but also to counter the risks posed by unilateral actions by individual countries.

Your partner in climate action

There is much to anticipate and prepare for in 2025.

As the year plays out, ClimatePartner will be leading the way in following important events and milestones, preparing companies for CSRD ESRS reporting, adapting to VCM 2.0 advances like CORSIA, and developing pathways to net zero emissions.

If you’re ready to take climate action today, please reach out and we’ll be happy to help.

Get in touch