The carbon-credits market has its fair share of critics, and winning them over will require integrity

Combating climate change  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ 

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Curbing carbon The news • Credibility in carbon markets. Although the market for emission allowances is growing, the efficacy of using offsets to reduce emissions remains somewhat contentious. Some argue that companies might purchase offsets only to delay kick-starting their carbon reductions. There are also concerns—outlined in a newly published report—about “hollow offsets,” referring to credits given for emission-curbing activity that may have never happened. [Conversation] • Cash for carbon offsets. As pressure mounts on companies to operate sustainably, spending on carbon offsets is increasing. From January to August 2021, companies paid out $107 million for carbon offsets, outpacing spending for all of 2020. Firms are buying offsets to minimize their carbon footprint as they develop longer-term sustainability policies and demonstrate accountability to their stakeholders. [WSJ] As the drive to curb global warming gathers pace, carbon markets have become increasingly fundamental to achieving net-zero greenhouse-gas emissions. Our insights • Why it matters. As pressure mounts on companies to swiftly limit emissions, many are finding that using carbon credits can help offset emissions that can’t be reduced any other way. In response to heightened interest, carbon has quickly become a viable asset class. Institutional investors could play a central role in driving funding to climate-action projects (while also fulfilling their own mandates) but currently participate in a limited way. • Invest wisely. For institutional investors, allocating a small part of their portfolios to carbon allowances could enhance their risk-adjusted returns while protecting them against climate-transition risks. In a 30-year scenario, portfolios that included a 5% allocation to carbon allowances outperformed returns of a reference portfolio (comprising 60% equities and 40% bonds) by up to 70 basis points. For more on the risks and benefits of investing in carbon markets, read our report. — Edited by Arshiya Khullar    Make allowances Was this forwarded to you? Sign up here. Or send us feedback — we’d love to hear from you. Follow our thinking This email contains information about McKinsey’s research, insights, services, or events. By opening our emails or clicking on links, you agree to our use of cookies and web tracking technology. For more information on how we use and protect your information, please review our privacy policy. You received this email because you subscribed to the On Point newsletter. Manage subscriptions | Unsubscribe Copyright © 2021 | McKinsey & Company, 3 World Trade Center, 175 Greenwich Street, New York, NY 10007