Investment data and research provider MSCI announced today the launch of MSCI Carbon Project Ratings, aimed at enabling carbon market participants including buyers, investors, and developers to assess the quality and integrity of carbon projects.

The new ratings come as demand for carbon offset projects and related credits is expected to increase significantly over the next several years, as companies and businesses increasingly launch net zero ambitions, and turn to offsets as a bridge to their own absolute emissions reduction efforts, or to balance difficult to avoid emissions. The unregulated and rapidly growing market faces a series of challenges, however, with market participants unable to differentiate between high and low quality projects with insufficient or inconsistent data to assess the effectiveness of the projects.

Guy Turner, Head of MSCI Carbon Markets, said:

“Carbon markets are critical to accelerating decarbonization and meeting net-zero goals, but only 5% of projects on the market are considered to be of very high integrity. Lack of confidence in the quality and integrity of projects is causing some buyers, investors and developers to hesitate.”

Forming part of MSCI’s suite of Carbon Markets solutions, the new ratings will assess more than 4,000 projects, considering criteria ranging from the projects’ impact on climate, environment and society, to legal and ethical risks, such as financial crime, fraud, and sanctions.

Under the new ratings, projects will be assessed scores on two primary categories, emissions impact and implementation integrity, grading each on a seven-point letter rating scale from AAA to CCC, with AAA indicating a high likelihood of achieving a 1 tonne emissions impact per credit and being implemented in a way that supports positive social and/or environmental outcomes, while upholding legal and ethical standards.

Turner said:

“MSCI Carbon Project Ratings give clients the confidence to stake their strategies, capital and reputations on carbon credits while allowing them to compare credits across the entire market, mitigate risks from investment decisions, and fulfill disclosure requirements.”