Read more in the September 27 edition of Invert Insights.
A new report published by MSCI – Corporate Emissions and the Use of Carbon Credits – examines the relationship between corporate emissions performance and the use of carbon credits at over 8,800 companies in the MSCI ACWI Investable Market Index (IMI) to assess whether the use of carbon credits detracts from direct emissions reductions.
The report investigates whether companies that utilize carbon credits are less committed to reducing their own emissions—a criticism often levied against carbon credit users. The research, building on their 2023 study, found that carbon credit users, on average, perform better in reducing their emissions and setting climate goals.
The report also found that material users of carbon credits derived a higher share of revenue from low-carbon solutions compared to non-users (6.2% versus 4.8%). This suggests that these companies were more engaged in transitioning to a low-carbon economy, particularly in sectors like real estate and utilities.
The report concludes that the criticism that companies using carbon credits are “buying a license to pollute” is not supported by the data. In fact, credit users outperformed non-users in emissions reduction, transparency, and innovation. However, it acknowledges that some companies did increase their emissions, indicating that carbon credit use alone is not a definitive indicator of corporate climate performance.
Here’s what the report found:
There’s a limited use of carbon credits. Only 14% of MSCI ACWI IMI companies used carbon credits between 2017 and 2022, with 11% classified as “material users” (those using over 1,000 tCO2e of credits). For material users, carbon credits covered around 13% of their Scope 1 and 2 emissions.
Using carbon credits leads to faster emission reductions. Companies using carbon credits reduced their absolute Scope 1 and 2 emissions at a rate of 3.6% annually, more than twice the reduction rate of non-users (1.5% annually).
Carbon credit users set larger targets. Material carbon-credit users were more likely to set climate targets (92% of users versus 52% of non-users) and met target-credibility criteria such as external validation and short-term targets.
Carbon credits lead to increased transparency and innovation. Users of carbon credits were more transparent about their emissions and more likely to derive revenues from low-carbon activities, demonstrating a commitment to real-world decarbonization.
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💡The findings highlight the importance of considering carbon credit use as part of a broader climate strategy. Companies using carbon credits often attach a price to their emissions, which may drive internal reductions, but further research is needed to assess the long-term impact of carbon credits on emissions trajectories.
💡This research further dispels the myth that companies who use carbon credits will do so in place of decarbonization efforts and further solidifies that carbon credits plan an integral role in offsetting emissions that would otherwise be not abated.
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