Ratings and price volatility: early insights from a maturing market

Here are some key takeaways

• This study is the first to investigate the link between ratings and price volatility in the Voluntary Carbon Market (VCM), demonstrating that lower-rated credits are significantly more volatile - mirroring patterns observed in traditional debt markets.

• Using AlliedOffsets’ historical price data, our analysis finds that credits rated ‘BB’ or below are about one-third more volatile than those rated ‘BBB’ or above. This correlation remains evident even when focusing on the most reliable prices or controlling for sectoral differences.

• Our findings suggest the VCM is evolving into a more mature, information-efficient market, where prices increasingly reflect underlying project performance. Integrating standardised risk measures such as ratings into the market’s core infrastructure will be key to supporting its next phase of growth and maturity.