Man Group releases risk assessment framework for carbon markets

Man Group has published a report aimed at assisting institutional investors in navigating the emerging carbon credit asset class. The study introduces a risk assessment framework designed to evaluate financial, structural, regulatory, and reputational risks associated with participating in both regulated cap-and-trade systems and the decentralized voluntary carbon market.

By employing a traffic-light rating system, the framework categorizes the stability and operational integrity of various carbon markets. Man Group suggests that while institutional demand for carbon offsets is rising, the heterogenous nature of these markets requires rigorous due diligence. The report underscores that current market structures—designed to reduce the supply of allowances over time—are intended to drive up carbon prices as decarbonization becomes more expensive.

Looking ahead, the firm notes that the long-term viability of carbon trading as an investment depends on evolving policy frameworks and the marginal abatement cost of emissions. The analysis highlights that while price increases are anticipated, potential technological breakthroughs could provide low-cost mitigation options, altering the future pricing landscape.