Commissioned by FSD Africa and the UK Foreign, Commonwealth & Development Office (FCDO); authored by Agora Global in collaboration with the Institute of Development Studies, University of Sussex

This landmark publication presents a comprehensive realist systematic literature review examining the social and economic effects of carbon market participation on local communities in low- and middle-income countries (LMICs). As carbon trading becomes an increasingly important tool in global climate mitigation efforts—particularly through voluntary carbon markets—there is growing scrutiny over whether these mechanisms deliver tangible benefits to communities where projects are hosted.

Drawing on 52 empirical studies spanning Africa, Asia, and Latin America, the report sheds light on both the opportunities and the risks that carbon projects pose for community livelihoods. It categorises impacts across economic outcomes (such as revenue sharing, employment, and farm productivity), social dimensions (gender equity, food security, empowerment), and environmental benefits (soil quality, air quality, biodiversity). The review also exposes systemic challenges including delayed payments, lack of inclusion in governance, land tenure inequalities, and increased workload for women—often without commensurate compensation.

The findings reveal a stark reality: while carbon markets hold potential to generate co-benefits alongside emissions reduction, this promise is highly contingent on project design, governance structures, and enabling policy environments. For example, agricultural and clean energy projects demonstrate stronger positive community impacts than many forest conservation efforts, which may restrict access to vital natural resources and exacerbate social tensions.

Importantly, the study explores enabling factors that can transform carbon markets into engines of inclusive development. These include transparent benefit-sharing models, adherence to high-integrity standards, premium pricing for social impact, and meaningful engagement of local communities—particularly women and marginalised groups. The publication also highlights critical knowledge gaps in the evidence base, particularly around long-term impacts, equity outcomes, and the scalability of community benefits.

At a time when the carbon market faces intense criticism for failing to deliver on its sustainability promises, this review brings a balanced and evidence-informed perspective to the debate. It underscores the need to reimagine how carbon projects are designed and financed, especially in LMICs, to ensure that carbon trading is not just a climate mitigation tool—but a catalyst for equitable, locally owned development.

This publication is a valuable resource for carbon market stakeholders including project developers, policymakers, investors, regulators, and civil society actors who are committed to ensuring that carbon finance supports both climate goals and community well-being