Carbon Credits as a Financial Asset
Carbon credits are increasingly recognized as a tradable economic asset in international markets. Although Israeli law does not currently provide an explicit definition classifying carbon credits as a “financial asset,” the existing legal, contractual, and accounting frameworks already make it possible, in practice, to treat them as an asset with economic value.
At CarbonWorld, we operate within the existing regulatory and accounting frameworks to build legal and financial structures that enable the recognition, valuation, and use of carbon credits for financing and investment purposes—without waiting for new, dedicated legislation. This approach allows projects to generate liquidity, raise capital, and integrate carbon credits as part of a broader financial strategy.
How Israeli Law Treats Carbon Credits in Practice
Israeli law does not currently classify carbon credits as securities in the classical sense, such as shares or bonds. However, in practice, they can be viewed as a tradable economic right—with a market price, supply, and demand—that can be incorporated into established financial structures.
Rather than waiting for specific legislative regulation, carbon credits can already be integrated into contractual agreements, investment instruments, and existing financing structures. In these arrangements, the credits themselves serve as the underlying economic asset on which the financial instrument is based.
The Regulatory Framework: The Supervision of Financial Services Law
The Supervision of Financial Services (Regulated Financial Services) Law, 2016, defines what constitutes a “financial asset” for the purpose of providing regulated financial services. Although carbon credits are not explicitly mentioned, the law recognizes a wide range of financial instruments that are based on various underlying assets.
When carbon credits are packaged within structures such as investment funds, structured products, forward contracts, or special purpose vehicles (SPVs), the financial instrument itself falls under the supervisory framework—while the credits serve as the underlying asset. This enables activity within the existing legal framework, without the need for separate, dedicated regulation.
Accounting Treatment Under IFRS Standards
In Israel, IFRS standards are applied, providing a clear basis for presenting carbon credits as assets in financial statements.
IAS 38 – Intangible Assets
Applicable when credits are held for long-term use or strategic purposes and meet the criteria of control, future economic benefit, and reliable measurement.
IAS 2 – Inventories
Applicable when credits are generated or acquired for sale and are presented as current assets.
IFRS 9 – Financial Instruments
Applicable when there is a contractual right to receive cash flows, for example under forward or offtake agreements, such that the contract itself may be considered a financial instrument or derivative.
This combination allows carbon credits to be recognized as assets in financial statements, reflect liquidity, and support financing and investment structures.
How Carbon Credits Become a Financial Asset in Practice
In practice, carbon credits become a financial asset through several commonly used structures.
Signing forward or offtake agreements that create a clear contractual right to future cash flows.
Transferring existing and/or future credits to a special purpose vehicle or fund that issues investment units to investors, with the credits serving as the underlying asset.
Pledging carbon credits as part of financing agreements, allowing them to serve as recognized collateral for a financing party.
In all cases, legal infrastructure, documentation, and robust analytics are fundamental prerequisites for recognition and financial use.
Implications for Developers and Project Owners
For developers and project owners, formalizing carbon credits as a financial asset goes beyond accounting presentation. It enables access to financing sources, improves financial metrics, and allows value to be realized earlier over the life of the project.
Through informed use of existing frameworks, an abstract environmental outcome—carbon credits—can be transformed into a clear, measurable, and financeable financial asset, without dependence on future regulatory developments.
The Role of CarbonWorld
The approach presented here is not theoretical. It reflects the way CarbonWorld actually structures projects, financing mechanisms, and investment models—bridging environmental performance, professional analytics, and financial reality.