Carbon Credit – Yay or Nay?

【意見交流園地 Idea Exchange】Karen Ho

A carbon credit is a paper security representing one ton of CO2 reduced or removed from the atmosphere, generated by projects like wind farms or planting trees. Buyers can trade the units or use them to offset their own emissions, in which case they must retire the credit to avoid it being used twice.

The recent independent scientific analysis of a project’s CO2 reduction claims often lags behind the issuance of the corresponding carbon credits, leaving buyers in the $2 billion market exposed to losses.

Unlike its regulated equivalent in the compliance market, the voluntary carbon market lacks oversight, and buyers can find that promises made by sellers don’t always hold true.

Corporations relying on carbon credits to support their green claims now face “robust and credible” proof that the vast majority of such securities aren’t fit for purpose, according to a study published in the journal Science, by a team of researchers from the Universities of Amsterdam (Netherlands) and Cambridge (UK).

The research, which analyzed 18 carbon-offset projects across Peru, Colombia, Cambodia, Tanzania and the Democratic Republic of Congo, found that only 5.4 million — or 6% — of a potential 89 million credits were linked to additional carbon reductions through preserved forests. More than 60 million carbon credits originated from projects that barely reduced deforestation.

“There has been a suspicion that these carbon credits lead to greenwashing,” said Andreas Kontoleon, the study’s senior author and a professor of environmental economics and public policy at the University of Cambridge. “We now have robust and credible evidence that offset programs have deficiencies”

A number of major carbon traders are finding that offsets they bought may now have no value. Trafigura Group, the world’s largest trader of carbon-removal credits, has suspended a consignment as it awaits the results of a probe into the forestry project behind the units. The situation has led the company to replace the offsets in a contract with a corporate client and instead keep the stranded credits on its own books.

Since the first carbon credit was traded roughly 35 years ago, the market has been hit by a steady stream of scandals that have led to wild price swings and even collapsing valuations. That has implications not just for firms trading such credits, but also for companies that use them to underpin green claims to customers and regulators.

All the projects studied offsets detailed in Science are overseen by the NGO Verra, which dominates the sector. These programs are part of the “Reducing Emissions from Deforestation and Forest Degradation” (REDD+) system, developed by the United Nations but organized by private institutions. The standard setter said it has “significant concerns” about the study’s methodology because of the small sample size. Extrapolating the study’s conclusions to all carbon offset projects is unwarranted when only about one out of four projects have been examined, Verra said. “We recognize the areas for improvement in the current system and are committed to fostering that ongoing evolution,” Verra added in a statement on its website.

September 2023 Events on Green Finance / 2023年9月綠色金融活動一覽

Check out the above calendar for the fantastic green finance events for Sep 2023! Interested to join and know more about the events? Click the links below for details:


[1] Transition Finance: Navigating Opportunities and Challenges Amid Market Uncertainties

[2] Climate Lobbying Assessment Tools and Their Application to Methane Emissions

[3] Reassessing the Global Climate Policy Landscape: Policy Priorities for Investors

[4] How investors can assess nature now

[5] Human rights due diligence: how should investors identify and prioritise risks?

[6] Re-Think HK: Sustainable Business Forum & Solutions Expo

[7] TNFD Recommendations Launch

[8] Biodiversity and TNFD development: building corporate engagement on biodiversity

[9] Accelerating the Transition to a Net-Zero Global Economy, Regulatory Climate Disclosure and Risk Analysis

[10] Climate data and net zero commitments: does the market meet investors’ needs?

[11] Deep Dive into ESG Ratings and Scores – Opportunities to Enhance Investment Decisions

ESG Investment Trend and Sustainability Rating

【Certified ESG Analyst Insights Sharing】Delton Lau, CESGA

Sustainable Investment Remaining Valued

The three-year COVID-19 pandemic once sent global asset prices plummeting. However, in terms of the annualized rate of return of the market during the three years, the Dow Jones Sustainability Index (the index was set up in 1999 as the world first to track ESG Enterprise Financial Performance) outperformed the Dow Jones Global Index. The Dow Jones Sustainability Index covers the leading sustainable enterprises around the globe identified by S&P Global and represents the top 10% of the largest 2,500 companies in the S&P Global BMI based on long-term economic, environmental, and social criteria. It achieved a return of approximately +7%, compared to approximately +6% for the Dow Jones Global Index. Therefore, it can be seen that enterprises with a sustainable business model are better at mitigating the impacts of market risks on business and profits, thus improving the resilience of stock prices.

Capital inflow also reflects an increase in investors’ interest in sustainable investments. According to the latest report ‘Global Sustainable Fund Flows: Q2 2023 in Review’ published by Morningstar, despite inflationary pressure, increased interest rates, worries over a global economic recession, and the war in Ukraine, global sustainable funds still registered $18 billion in net capital inflow during the second quarter. Although this reflects a slight decrease from $31 billion in the previous quarter1, developed countries and regions with a leading position in sustainable investment, such as the U.S., Europe and Japan, still reported growth in capital inflow during this period with full of uncertainties. This demonstrates that investors still recognize the importance of ESG investment. Global enterprise management will continue to increase investment in ESG to improve businesses’ ability to handle sudden changes in the economy. By doing so, management can strengthen their positive image and maintain a relatively stable level of medium to long-run enterprise development, thus winning the favour of more investors.

Continued Evolvement of Sustainability Rating

Investors, in general, have difficulty assessing the ESG levels of enterprises objectively and need to rely on ratings issued by reputable organizations. These organizations have been actively revising ESG criteria to provide investors with a simple and direct approach to measure the ESG performance of enterprises.

In March 2016, Morningstar rolled out the Morningstar Sustainability Rating, the first sustainability measure for mutual funds. This rating facilitates investors’ assessments and comparisons between various funds based on the principles of sustainable investment. The Morningstar Sustainability Rating is applied by Morningstar’s sustainability assessment body, Morningstar Sustainalytics, to assess companies based on ESG factors, including the environmental, social and governance. It also takes into account issues that may impact company values, such as climate change, environmental performance, labour policies, and the composition of the board of directors. The rating calculates and rates fund positions and compares their sustainability scores with those of similar funds in Morningstar. Funds are eventually classified into five ratings, with one ‘globe’ representing the fund with the highest ESG risk relative to similar funds, and five ‘globes’ representing the fund with the lowest risk.

Hong Kong is making efforts to catch up in this area. In August 2021, the Hong Kong Securities and Futures Commission (HKSFC) concluded its consultation in respect of amending the Fund Manager Code of Conduct. The amendment requires fund managers responsible for managing collective investment schemes to consider climate-related risks in their investment and risk management processes and make appropriate disclosures to investors. When formulating the relevant rules, HKSFC personnel also considered international regulatory developments and measures, such as those adopted by the European Union and the Task Force on Climate-related Financial Disclosures (TCFD). They outlined the criteria for managing climate-related risks and provided examples of industry practices. The new rules came into effect on August 20, 2022, and local investors can identify green funds certified by the HKSFC. As of August 2023, the number of listed and unlisted ESG funds recognized by the HKSFC has already reached 2002.

Prospects for Sustainable Development as an Important Issue for Global Enterprises

Climate change is the greatest challenge facing by the Earth, and requires to be addressed through transformation towards a low-carbon economy. What sets apart the current developments in climate change from 10 years ago is the increasing participation of policymakers and enterprises. Governments and businesses have implemented policies and made commitments to address climate change. One prominent example is the Paris Agreement signed by world leaders in 2015, which spurred the adoption of national policies aimed at combating global warming. These world leaders agreed to collectively take action to limit global temperature increases to around 2°C compared to pre-industrial levels in the 1800s.

The difference in climate change developments from 10 years ago also lies in the recognition by enterprises of the risks and opportunities associated with climate change. Climate-related investments now less reliant on government support than they did a decade ago, but policy support still plays a crucial role in accelerating climate developments, especially in heavy industries. Without government intervention, decarbonization technologies would not attract enterprise investments due to low economic efficiency, which is not conducive to climate developments. Climate change was not even listed as one of the five major global risks a decade ago. The impacts of global warming on the economy and companies are profound, far-reaching, and significant. Companies that are aware of these threats and actively address them at an early stage, or incorporate climate change-related issues into their solutions, will ultimately emerge as winners.

In summary, with the world working together towards promoting “carbon neutrality” and addressing climate change risks, there will be extensive commercial opportunities for exploration by Hong Kong and global asset management organizations.



【ESG分析師洞見分享】Delton Lau , CESGA


持續3年的新冠肺炎疫情曾令全球資產價格急挫。不過,若以3年年度化收益率巿期間表現作比較,道瓊斯可持續指數 (Dow Jones Sustainability Index,創立於1999年,為全球第一個追蹤ESG企業財務績效的指數,道瓊可持續世界指數包括由瑞士蘇黎士可持續資產管理公司確定的全球可持續領導企業。該指數代表了基於長期經濟、環境和社會標準,在標普全球BMI指數中排名前10%的2,500家最大公司。) 為約+7%,表現優於道瓊斯全球指數的約+6.6%。可見具備可持續發展營運模式的企業,較能緩減市場風險對業務及盈利帶來的衝擊,以提升其股價的抗跌能力。

叧ー方面,資金流入反映了投資者對可持續投資的興趣增長。根據晨星(Morningstar)最新發布的《2023 年第二季度全球可持續資金流動報告》顯示,儘管存在通脹壓力、利率上升、對全球經濟衰退和烏克蘭戰爭的擔憂,全球可持續基金2023 年第二季度仍録得180 億美元資金淨流入。雖然較上一季度的 310 億美元略有下降1, 但在這個充滿不確定性的時期,在可持續投資領域處於領導地位的已發展國家,如美國、歐洲和日本等,第二季度仍録得資金流入增長, 反映投資者仍認同 ESG 投資的重要性。而全球企業管理層將持續加大ESG方面的投資,以提升其業務應對經濟突變的能力,不僅能進一步提升正面形象,亦能令企業中長線發展處於較穩定水平,從而獲得更多投資者垂青。



晨星於2016年3月推出業內首個對互惠基金(Mutual Fund)的可持續性評級(Morningstar Sustainability Rating),以供投資者基於可持續性投資原則對基金進行評估和比較。晨星可持續性評級主要基於旗下國際永續評鑑機構Morningstar Sustainalytics根據環境、社會及治理等ESG因素來評估公司,同時納入潛在影響公司價值的議題,例如氣候變化、環境表現、勞工政策以及董事會成員的組成等等,對基金持倉進行計算和打分,再將其可持續得分與晨星同類的基金進行比較。最終將基金劃分為五個等級,在同類基金中ESG風險等級最高的基金將獲得1個“地球”的評級,而同類中ESG風險最低的基金則會獲得5個“地球”的評級。

香港亦努力從後趕上,香港證券及期貨事務監察委員會 (HKSFC) 於2021年8月就修訂《基金經理操守準則》發表諮詢總結。該等修訂要求管理集體投資計劃的基金經理在投資及風險管理流程中考慮氣候相關風險,並向投資者作出適當的披露。為協助基金經理遵從新規定,證監員亦在制定有關規定時,考慮到國際的監管發展及措施,例如歐洲聯盟及氣候相關財務披露工作小組(Task Force on Climate-related Financial Disclosures, TCFD)採納的方針,列明在管理氣候相關風險方面應達到的標準,並列舉了一些業界實務運作的例子。有關新規定已於由2022年8月20日起實施。故本地投資者可留意獲證監會認證的綠色基金。截至2023年8月,獲證監會認可的上市及非上市ESG基金已達200項2


氣候變化是地球將要面臨的最大挑戰。如要應對此挑戰,便需要向低碳經濟轉型。當前氣候變化發展與十年前相當不同的是,有越來越多政策制定者及企業加入,政府及企業政策涵蓋對氣候發展的承諾,例如,全球領導人於 2015年簽署《巴黎協定》,為應對溫室效應達成協議,隨後又制動更多國家政策來應對氣候變化。當時,全球領導人同意採取集體行動,將全球長期溫度上升幅度限制在攝氏2度左右,此為1800年代工業化前的水平。

當前氣候變化發展與十年前相當不同的是至於企業界,大部分企業已意識到氣候變化帶來的企業風險和機會。氣候相關的投資不再像十年前那般仰賴政府支持,然而政策支持對於加速氣候發展仍然相當重要,特別是在重工業領域,如果沒有政府介入,脫碳技術(decarbonisation technologies)將因經濟效益低落而無法吸引企業投資,不利氣候發展。氣候變化問題在十年前甚至未列為全球五大風險之一。全球暖化將對經濟及公司產生深遠而重大的影響。那些能夠一早意識到威脅並積極應對挑戰的公司,或者在解決方案中考慮氣候變化相關問題的公司,將成最終贏家。