Carbon finance is a branch of environmental finance that covers financial tools such as carbon emission trading to reduce the impact of greenhouse gases (GHG) on the environment by giving carbon emissions a price.
Financial risks and opportunities impact corporate balance sheets, and market-based instruments are capable of transferring environmental risk and achieving environmental objectives. Issues regarding climate change and GHG emissions must be addressed as part of strategic management decision-making.
The general term is applied to investments in GHG emission reduction projects and the creation (origination) of financial instruments that are tradeable on the carbon market.