Stockholm (NordSIP) – The use of carbon credits to offset corporate greenhouse gas (GHG) emissions has been a controversial subject over recent months. Closer scrutiny by investigative journalists of the underlying carbon-related projects has revealed numerous instances of double counting, inconsistent methodologies, and allegations of deliberate over-selling. Critics also maintain that some high-emitting companies are simply using carbon credits to continue business-as-usual rather than to complement genuine emissions reduction efforts. However, a new report from MSCI indicates that companies making use of carbon credits tend to demonstrate better all-round climate performance than those that do not.
The research presented in this new report focused on the 8,844 constituents of the MSCI All Country World Index (ACWI) Investable Market Index (IMI). Of these companies, 1,227 used carbon credits between 2017 and 2022, with 970 of these considered material users. The investigation sought to identify any significant links between carbon credit use and levels of climate action, transparency and emissions reduction performance. Are carbon credits being used as a de facto license to pollute?
Although companies are not typically obliged to disclose their use of carbon offsetting, the researchers found sufficient levels of voluntary reporting via CDP and other platforms to build a representative picture of the most active users. Roughly half of the carbon credits in the survey were used by the high-emitting industrial and energy sectors, although these offset a very low percentage of these companies’ GHG emissions. Financial institutions were relatively heavy users, with 22% of companies qualifying as heavy users of carbon credits. The result for these firms was the total offsetting of their Scope 1 and 2 emissions, but an insignificant impact on Scope 3 such as financed emissions. Technology companies were also found to be active users of credits to offset their Scope 1 and 2 emissions.
Evidence of genuine climate action
The MSCI research ultimately contradicts the notion that carbon credit users are using them as convenient tool to avoid climate action. The take-up of carbon offsetting is still low among listed companies, with only 11% of the MSCI ACWI IMI having used more than 1,000 tCO2e of credits during 2017-2022 and therefore qualifying as material users. However, the report’s authors observe that companies that do make use of carbon credits are at the very least demonstrating awareness of the climate change and the need to take some sort of action. MSCI found that carbon credit users had reduced their absolute Scope 1 and 2 emissions more than twice as non-users. Material users had also reduced their levels of carbon intensity faster over the same period, and 92% of them had put in place climate targets as opposed to just 52% of non-users.
Given the relatively small number of listed companies making active use of carbon credits, the report cautions that the level of data is insufficient to determine causality. Nevertheless, it provides a useful insight into the reasons behind the use of carbon credits, and challenges some of the assumptions made about these companies. While carbon offsetting remains imperfect and does not offer a core solution to GHG emissions, companies making use of it do seem to demonstrate an awareness of climate related issues and are likely to have put a price on carbon in place. This is reflected in real-world reductions in absolute emissions. MSCI urges investors to examine investee companies’ climate actions on a case-by-case basis, keeping in mind that carbon credit use if not necessarily an indication of a weaker approach.
