Warrington professors win PRI’s Outstanding Paper Award

Warrington Assistant Professor Sehoon Kim, Bank of America Professor Tao Li and Assistant Professor Yanbin Wu received the PRI’s Outstanding Paper Award for their paper “Carbon offsets: Decarbonization or transition-washing?”

Kim’s paper was selected among over 120 papers by academic members of the Principles of Responsible Investments (PRI), the world’s largest group of asset managers committed to responsible investing. The research is the first of its kind to provide systematic evidence and insights into companies’ carbon offset worldwide. 

The research focuses on understanding how and why publicly listed companies around the world engage with voluntary carbon markets to purchase and redeem carbon credits, which allow firms to compensate for their greenhouse gas emissions by funding projects that reduce, avoid or remove an equivalent amount of carbon dioxide from the atmosphere. The paper specifically included insights on whether carbon offsets genuinely help firms achieve meaningful decarbonization. 

The paper’s key insights are based on two important tradeoffs in decarbonization strategies:

1. Outsourcing: Firms weigh the costs of decarbonization through direct internal abatement against the costs of buying and retiring carbon offsets. 
2. Transition-Washing: Firms weigh the cost-advantages of purchasing cheap, low-quality credits instead of meaningfully reducing emissions against the penalties from investors and regulators who inspect their climate-claims.  

After empirically analyzing a sample of nearly 1,400 publicly listed companies across 1,800 carbon projects, the research concludes that the global voluntary carbon market is currently dominated by companies using low-quality offsets and that many heavy-emission firms choose to decarbonize in-house rather than use offsets. Kim argues that the discussion of the carbon market should be more nuanced than what’s in the public domain. 

“Carbon offsets are not inherently good or bad,” Kim said. “The growth and integrity of carbon markets depend on the cost-effectiveness of high-quality carbon offset projects, which in turn depend on technological progress, and also on the proactive role of responsible investors in engaging firms and promoting good climate-governance mechanisms.”

As the recipient of the award, Kim was invited to present his findings at the PRI in Person Conference, one of the world’s largest gatherings of investors and practitioners focused on sustainability, in São Paulo, Brazil. This year, the conference had over 1,300 attendees from more than thirty different countries. 

“My coauthors and I are deeply honored and humbled [to present the award-winning paper at such a prestigious conference],” Kim said. 

The presentation was held on the community stage at the center of the conference venue, attracting a significant audience and translated in real-time into English, Spanish and Portuguese. 

“It couldn’t have been a better setting to disseminate our research to a broader audience beyond academia.”