Investors care more about the quality than the quantity of carbon credits companies retire, while for companies, the strategic value of carbon credits ties more closely to their role in sustainability strategies than to their stand-alone financial impact.
Those are among the top findings from research by Firdowsa Ali and Hyunji Kim, recent master’s graduates of the University of Edinburgh Business School and members of the second cohort of MSCI Sustainability Institute climate scholars.
Their studies, conducted under the supervision of research analysts from MSCI Carbon Markets, explored how the use of carbon credits affects corporate performance.
Two views: Carbon-credit retirements and corporate financial performance
Student: Firdowsa Ali
Academic Supervisor: Shuo Wang, Lecturer in Financial Accounting and Programme Director for Master’s in Accounting and Finance, University of Edinburgh Business School
MSCI supervisors: Laura Buenaventura, MSCI Carbon Markets
Firdowsa Ali and Laura Buenaventura
Firdowsa’s research found that while using credits to compensate for emissions does not, by itself, affect financial performance, investors tend to reward companies that retired high-quality, removal-based, carbon credits of recent vintage.
The estimated value of credits (based on the monetary worth of a firm’s carbon credit portfolio) has correlated positively with corporate financial performance, according to her research, which examined use of carbon credits by 1,225 companies in 11 industry sectors based on data from MSCI Carbon Markets and other sources.
In addition to the estimated value of credits, her research considered firm size, the quantity and price of credits retired, leverage, credit age, and integrity scores from MSCI Carbon Markets.
The importance of these attributes varied by sector. In the emissions-intensive materials sector, both estimated value and integrity (a proxy for credit quality) correlated positively with returns, with estimated value also proved significant for companies in the energy and consumer discretionary sectors (such as travel and other discretionary goods and services).
“This indicates that, in some industries, verification quality and credibility carry weight with investors, potentially due to higher environmental scrutiny and reputational risk,” writes Ali, now an intern with the environmental projects team at BB Energy, a global energy company actively involved in carbon markets.
In financials, firm size was the only factor tied to positive returns, while in health care, leverage appeared to boost returns. Neither the volume of credits retired nor the price that companies paid for them showed significance in any industry.
The strength of estimated value as an indicator of returns across sectors further highlights the value of carbon-credit quality. While most credits retired over the period examined were reduction rather than removal credits, investors see removal credits as a stronger, more permanent action, and a stronger signal of quality than either the volume of credits retired or their price.
The findings also suggest steps for policymakers. Because credit quantity and price are negatively related to financial performance, mechanisms that reward quality rather than scale or cost may be more effective. “Minimum integrity standards, quality thresholds, and pricing structures that discourage reliance on low-grade credits could help reduce inefficiency and perceptions of greenwashing,” Ali notes.
Student: Hyunji Kim
Academic supervisor: Karishma Ansaram, Lecturer in Climate Finance and Investment, University of Edinburgh Business School
MSCI supervisor: Felix Hart, MSCI Carbon Markets
Hyunji Kim
Kim’s research, which examined firm-level data over four years ended 2023, considered whether the scale of carbon credit retirements affects corporate performance, financially and strategically, and whether those effects vary across regions and industries that differ by emissions intensity, regulatory structures and stakeholder demands. The study also explored whether firms with higher levels of retirements receive stronger responses from investors, regulators and other stakeholders compared with non-users or minimal users of carbon credits.
When controlling for differences across sectors, countries and company characteristics, Kim found that credits themselves don’t seem to drive profitability; that other factors, like industry type or regulation, matter more.
“These results suggest that carbon credits function less as direct profit drivers and more as instruments of transition, reputation and compliance,” writes Kim, who now works as an analyst for BeFLAT Services, a carbon project developer based on Seoul. “Their strategic value lies in how they are integrated with broader corporate sustainability strategies, governance practices and sectoral pathways, rather than in their stand-alone financial impact.”
Taken together, the research suggests that carbon credits should be viewed as transition tools, used alongside new technologies, cleaner supply chains and transparent governance. The findings further indicate that investors care about integrity as much as quantity. Companies that used high-rated credits performed slightly better, while those relying on cheap, low-quality credits didn’t see any benefit.
While both studies offer insight into the relationship between carbon credit use and corporate financial performance, the lack of a clear link between the two may reflect current limits in disclosure and transparency. Many companies still provide little or no information about their credit activity, making it difficult for investors to gain a complete view of corporate participation in carbon markets.[1]
That may change. Modeling by MSCI Carbon Markets suggests the global carbon credit market could grow to at least USD 7 billion, and potentially as much as USD 35 billion, by 2030, when many companies aim to achieve ambitious climate goals. At the same time, new initiatives are emerging to help companies and investors assess credit quality, which is increasingly seen as a key driver of price. In June, for example, MSCI launched 13 carbon credit price indexes to provide transparent pricing references and support the market’s development.
Taken together, these developments — along with emerging regulations aimed at enhancing corporate disclosure of credit usage — may heighten investor awareness and scrutiny, further underscoring the relevance of this year’s Climate Scholars’ research in the years ahead.
[1] MSCI Carbon Markets consolidates heterogeneous data from multiple sources to produce a consistent and comprehensive picture of corporate carbon credit activity.
