Global data and research provider aims to drive growth of voluntary carbon market by helping to overcome integrity and transparency concerns.
Global data and research provider MSCI intends to expand its climate solutions offering and bolster its voluntary carbon market (VCM) expertise with the acquisition of UK-based Trove Research.
Founded in 2015, Trove is a source of intelligence across carbon markets that combines sector knowledge with proprietary data and models. For the past three years, the company has focused on tracking corporate climate commitments and providing data and insights into VCMs through a single, platform.
Oliver Marchand, Head of Climate Research at MSCI ESG Research, told ESG Investor that VCMs are an “essential component” of financing the low-carbon transition and supporting companies in reaching their net zero goals.
However, he acknowledged that the market faces issues that need to be overcome, including a lack of reliable data, concerns over credit integrity, and an evolving policy environment.
“As regulators bring clarity to this market’s rules, there will be increased demand for robust, clear and effective decision-making tools,” Marchand said. “Businesses are likely to accelerate purchasing offsets in their journey to net zero, as they gain confidence in the integrity of the credit offsets.”
He added that the integration of Trove’s global carbon credit market expertise with MSCI’s end-to-end climate solutions will accelerate the expansion of the firm’s climate proposition and meet demans from corporates, institutional investors and other capital market participants for “transparent and credible insights” on VCMs.
VCMs facilitate the trading of carbon credits that don’t count towards companies’ mandatory decarbonisation obligations, such as those under the EU’s Emissions Trading Scheme (ETS). In 2019, the majority of the carbon credits purchased from VCMs were from projects in developing countries, with the value of the market reaching almost US$2 billion in 2022.
The Integrity Council for the Voluntary Carbon Market (ICVCM) is the body responsible for the supply side of VCMs, while the Voluntary Carbon Markets Integrity initiative (VCMI) is introducing demand-side rules for entities using carbon credits.
Marchand described the two companies as having “complementary strengths”, with the acquisition of Trove expected to assist MSCI in creating more products for the broader carbon market ecosystem, including banks, exchanges and project developers.
He added this will position MSCI to offer insights into companies’ transition plans, the quality of existing carbon credits, and the carbon credit pricing outlook. It will also allow them to examine the feasibility, credibility, and the cost-effectiveness of firms’ decarbonisation strategies.
Guy Turner, CEO at Trove, said that combining the company’s carbon market data and analytics with the “scale and breadth” of MSCI’s sustainability and financial data will enable the creation of “world-leading climate solutions”.
According to a recent study by Trove, investments in carbon credit projects have surged over the past decade. Trove’s research found that between 2012 and 2022, US$36 billion was invested in such projects, with half of this amount issued in the last three years. Currently, 246 VCM projects cover an area equivalent to Italy’s landmass and industry experts forecast between US$10-60 billion of growth by 2030.
Research conducted by Forest Trends’ Ecosystem Marketplace found companies participating in VCMs typically demonstrate leadership in climate action, accountability, and ambition.
According to the study, companies that purchase carbon credits are surpassing counterparts that do not and are actively reducing their emissions at an accelerated pace compared to their peers. The research suggests that carbon credit purchasing firms are nearly twice as likely to be decarbonising year-over-year, indicating a strong commitment to carbon reduction.
MSCI will also use Trove’s data and analytics to help develop new quality criteria for VCMs. This data will contribute to fostering and shaping emerging mechanisms such as corresponding adjustments and border carbon taxation rules, as well as new standards and guidelines.
Marchand said that MSCI clients will be able to access and benefit from more “extensive and consistent” datasets, tools and reports, which can “enhance their ability to make informed investment decisions as well as manage risks and capitalise on investment opportunities”.
In September, Trove launched its ‘VCM Country Opportunity and Risk Index’ to help buyers and sellers of carbon credits to assess market-related risks. The index offers a detailed analysis of climate policies, regulations, and political risks in 20 countries hosting over 3,400 voluntary carbon projects, which represents more than 80% of all carbon credit issuance.