Carbon reduction is not just good for the planet, it is good for business.

Research has revealed that independent verification of carbon reporting has a positive impact on firm market valuations and enables higher ratings on voluntary disclosure platforms such as the Carbon Disclosure Project (CDP) and EcoVadis.

There are also financial incentives for companies with a credible carbon reduction programme. It builds confidence with investors tasked with mitigating risk in their portfolios and also for banks when awarding preferential rates for sustainable finance.

Additionally, objective assurance of claims reduces concerns over greenwashing, a major obstacle to awarding transitional finance.

This white paper explains the link between business performance and verified carbon reduction. It provides evidence that credible carbon claims can increase valuations and unlock green finance, and creates a compelling argument for independent verification.

(Box out) - "Decarbonization provides a host of financial and non-financial rewards to businesses. A growing number of companies recognize this, citing the following as top benefits: reputational value, lower operating costs, greater regulatory compliance, higher valuations, increased revenues, improved attraction and retention of talent, and tax savings. When asked to quantify, 40% of respondents estimated an annual financial benefit of at least $100 million for meeting emissions reduction targets". Report by Boston Consulting Group

1.0 Carbon reduction as an indicator of business performance

Greenhouse gas emissions (GHG) caused by the excessive use of energy, unregulated travel, and escape of by-products into the air or water, can be seen as an indication of wasted resources and inefficiency.

Investors expect that corporate management will take strategic actions to reduce exposure to climate risk and assure a stable stock market performance and competitive advantage over time.

So, if an organisation has a higher carbon footprint than other companies in the same industry sector, this is increasingly being considered a sign of poor governance.

With the rise of voluntary disclosure platforms, such as CDP and EcoVadis, it is becoming easier for the financial, insurance, and legal sectors to benchmark companies against others in their industry.

This was why the CDP platform was established, it aimed to address the climate concerns of institutional investors and the need for a consistent framework to determine exposure to risk.

CDP currently represents 534 investors with combined assets of more than US$64 trillion and 94% of the FTSE 100 and 86% of the S&P 500 are now reporting voluntarily on the CDP platform.

Similarly, EcoVadis has grown into a globally trusted provider of business sustainability ratings, with a network of more than 150,000+ rated companies.

2.0 The role of independent verification

Gaining high ratings on CDP and/or EcoVadis is considered a major endorsement by financial institutes, and achieving this requires independent verification.

When starting its carbon footprinting journey, a company gives a baseline for its Greenhouse Gas (GHG) emissions, defines its targets, and proposes an action plan for achieving a reduction.

GHG emissions fall into three categories, known as 'Scopes'. Scope 1 and 2 are those generated by the company and Scope 3 are those generated by its supply chain.  

To reduce Scope 1 and 2 emissions the company can review its processes and purchases and look for efficiencies, for Scope 3 it needs to collaborate with its wider ecosystem to affect change.

However, finding the raw data and then extracting the information needed for carbon reporting can be complex. This is where the oversight and feedback of an experienced carbon expert can help refine and improve the reporting process and provide actionable insights that will accelerate progress toward the goals.

It is the role of the independent verifier to audit the information collated, and the methodology used, to confirm that it is 'materially correct' and aligned with international standards such as EN ISO 14064.

There are two levels of verification. Companies on their first steps towards Net Zero, or those with complex structures, may select 'limited assurance' which concludes that there are no significant issues. But for those looking to provide the highest level of confidence to their stakeholders, the best option is 'reasonable assurance'.

For this, the verifier digs deep, challenges assumptions, and provides a comprehensive review of the GHG data and the processes that led to the report.

How to achieve an A-List status on CDP

To achieve an A score companies disclosing to CDP must verify the environmental data they provide, and this process must be completed by an accredited third-party provider.

Requirements include:

• The verification of Scope 1, 2, and Scope 3 emissions
• Gross Scope 1, and 2 emission figures
• Near-term emission targets validated by the Science-Based Targets Initiative
• A transition plan that is publicly available and is aligned with the Paris Agreement‍

3.0 Unlocking green finance

3.1 Carbon assurance increases market valuations

Greater financial disclosure increases investors' awareness, improves risk-sharing, and reduces the cost of capital and a similar response is being seen for carbon information.

Financial markets have started to reward companies that are moving ahead with a transition to the low-carbon economy as they now have a mechanism for doing so.

The format and contents of the CDP reports are accepted and adopted by more than 4,000 large global firms, making them comparable.

It is the consistency of the CDP disclosure that is also making it possible to investigate the impact that transparent carbon reporting, and effective communication with stakeholders, has on business valuations.

A study, by Yu He et al, of S&P 500 corporations, that present their reports on the CDP website, investigated the interactions between carbon disclosure, carbon performance, and cost of capital. It found that companies were motivated by a potential reduction in the cost of capital and the benefits included greater investor confidence and preferential finance.

Interestingly, the researchers found benefits even for companies with a lower carbon performance.

When these companies presented a credible reduction plan, they gave confidence to stakeholders that there was a strategy in place that would reduce emissions and mitigate any future negative impacts.  

Although this disclosure may have a short-term impact on market value, if investment is needed to pursue the transition, the longer-term benefits were found to far outweigh these initial readjustments.

(Quote to stress) A further study by Abubakar S.et al (2021) of the world's 500 largest firms  found that firms adopting a stringent global environmental standard have higher market values.

A similar study in the UK, of the top FTSE350 companies between 2007 and 2015 also found that voluntary carbon disclosure is positively associated with financial performance.

3.2 Accessing Green Finance

Some banks and financial institutes are using verified carbon reduction plans and progress against targets to offer Green Loans and Sustainability Linked Loans.  

Speaking at EDIE 2025, Sherry Madera, CEO of CDP commented that companies can unlock new investment opportunities by aligning financial growth with environmental stewardship: "European companies disclosing through CDP have identified €3.47trn in climate-related opportunities that could drive economic benefits."  Madera adds that the cost associated with these opportunities is in the region of €620bn.

The commitment of a company to identify where improvements can be made in its processes - to improve efficiencies, mitigate exposure to climate risks, and reduce adverse impacts to the environment - are all signs of good corporate governance.

Depending on the sector this would include improving production processes to reduce pollution, eco-friendly manufacturing, deployment of clean technologies, and the adoption of renewable energy.

For UK companies providing technologies and services to support this transition, McKinsey estimates that the global market opportunity could be worth more than £1 trillion by 2030.

Financial institutions are linking this trajectory to debt finance, to offer companies on the road to Net Zero preferential terms.

Recently the Loan Market Association (LMA) has created guidelines for the financial services industry, including the Four Core Principles of Green Loans and this has increased confidence in the sector.

There are two main types of green finance.

• Green Loans – these are kept separate and only used for financing environmentally sound and sustainable projects that foster net-zero emissions and/or circular economy.

• Sustainability- Linked Loans - these are loans where the margin is linked to a sustainable performance target. For example, if the borrower meets certain ESG targets tailored for that company, the interest payable on the loan will reduce.  

Independent verification by a specialist is essential for accessing both categories of loan. For sustainability-linked loans, verification enables the bank to confirm that the targets are relevant and beyond those that could be achieved from 'business as usual' and makes it feasible to offer this finance.

(For more information watch the Carbonology webinar "Unlocking Sustainable Finance."

Green Loan Principles

Where companies, including professional services, have finance linked to sustainability goals then an external audit by a specialist in carbon reporting provides the endorsement required by banks.

1. Purpose – the Green Loan is only to be used for 'green' purposes, eg transition to renewable energy, green buildings or vehicles, water management, pollution prevention
2. Intent - the sustainability objectives of the project and the relevance to the business should be clearly communicated
3. Ring fenced – the investment should be tracked and accounted for through a separate account.
4. Reporting – annual reports of progress against objectives should be submitted and independently verified.

Loan Market Association

4.3.Overcoming greenwashing to build confidence

The transition to a low-carbon economy presents a major opportunity to deliver sustainable growth.

The benefits of Net Zero are already being seen according to research commissioned by the Energy and Climate Intelligence Unit (ECIU). Between 2023 and 2024, the sector grew 10.1% and now generates £83.1 billion in Gross Value Added (GVA).

So, there is an opportunity for the UK to become a global hub in financing the transition to a low-carbon economy.

According to a recent CBI report,  net zero businesses attracted £23 billion in funding, with £20.1 billion coming from foreign direct investment (FDI). A growth of 47% compared to 2022/23.

However, an obstacle to this ambition identified by the Transition Finance Market Review

and others is a concern over credibility and integrity.

In particular, it highlights greenwashing – unsubstantiated claims of sustainable and environmental performance – as a major challenge.  

Illustrating the seriousness of these concerns, the Competition and Markets Authority (CMA) has included green claims within the Digital Markets Competition and Consumers Act 2025, and it can now issue fines of up to 10% of annual turnover for breaches of the law.  

Verification ensures compliance with green claims directives

The CMA guidance sets out six principles to help businesses comply with the law, it states that businesses must ensure that their environmental claims:

• are truthful and accurate
• are clear and unambiguous
• do not omit or hide important relevant information
• comparisons must be fair and meaningful
• must consider the full life cycle of the product or service
• are substantiated.

This makes carbon reporting to internationally recognised standards crucial to give confidence to the market.

The most widely used are ISO 14064, and the GHG Emissions Protocol Accounting Standard – these corporate standards are used by businesses globally. By completing an audit and reporting via these standards – businesses can demonstrate accurately and transparently, how their emissions have been calculated, and so avoid misleading claims to stakeholders.

However, self-reporting can become 'green masking' if claims are not independently scrutinised.

So, firms and their supply chains are increasingly looking for independent verification to ensure the transparency and credibility of their claims.

Verification combats green masking

Independent verification demonstrates that the GHG inventory, assertions, and reports conform to the ISO 14064 standard and are free from errors, omissions, or misstatements.

This combats green masking in four ways:

1. Highlights integrity
2. Validates Net Zero goals
3. Assures carbon footprint declarations and progress
4. Gives stakeholders confidence in the authenticity of claims

4.0 The benefits of independent verification can be substantial

As the trend continues towards mandatory reporting, the competitive advantage of being an early adopter will increase. This is supported by a growing body of evidence that suggests that firms that successfully integrate climate change risk into their business strategy enjoy higher stock returns.

For example, a landmark study by Shen et Al of the largest 367 companies that were indexed on the S&P 500 from 2011–2018 revealed that the market value of those companies that practiced external assurance over their carbon emissions was 10% higher than those that failed to assure their value of emissions with third parties.

Furthermore, external assurance of carbon emissions makes a greater contribution to market value than carbon targets (5%) and carbon communication (4%).

5.0 In conclusion

• Independent verification of progress against carbon-reduction targets should be included within financial reporting.
• Independent verification can unlock green finance such as sustainability-linked loans and transitional finance by providing confidence in carbon claims.
• Gaining the highest rating on internationally recognised voluntary disclosure programmes EcoVadis and CDP requires independent verification.
• Firms that voluntarily disclose their carbon emissions and have external assurance, gain higher market valuations.

6.0 Next steps

Find out if you are ready for verification with a free readiness review (link).

Carbonology is a CDP accredited verification solutions provider. Its Carbonologists are experts in carbon standards and provide consultancy and training to enable clients to improve the quality and efficiency of their carbon reporting and to build capability within their in-house teams.

When it comes to independent verification and assurance, against a range of GHG standards including ISO 14064 and Net Zero transition (ISO14068), Carbonology’s in depth knowledge and friendly approach is highly respected and trusted by its clients, the financial and legal sectors, and leading disclosure platforms.  

About the Author: Melanie Blackmore, entrepreneur, CEO, podcaster, and author

Melanie Blackmore is the founder and CEO of Carbonology, a leading specialist in carbon standards.

Through consultancy and independent verification, Carbonology helps companies embrace the opportunities of the low-carbon economy, by substantiating their environmental credentials for stakeholders including regulators, customers, banks, and investors. It is a CDP verification solutions provider.

Melanie is a passionate advocate for – and communicator about – sustainability. She has led award-winning environmental projects, created a popular podcast 'The ISO Show' and hosts a webinar series featuring leaders in sustainability. She is currently conducting interviews with captains of industry as part of her Masters by Research (MRes) to deepen the understanding of the role of carbon standards in supporting businesses to achieve Net Zero.

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Melanie Blackmore of Carbonology is passionate about reducing greenwash and says verification is essential to ensure companies are not 'marking their own homework'.

Verification provides significant endorsement of a company's commitment to achieving Net Zero and increasingly the carbon standards company has seen sustainable finance linked to disclosure.

Awareness of the reputational and economic benefits has increased the numbers of professional services practices, and others, adopting ambitious climate goals and seeking 'reasonable assurance' to evidence their claims.

Further desk research of academic literature has revealed that independent verification of carbon reporting has a positive impact on firm market valuations (up to 10% increase) and enables higher ratings on voluntary disclosure platforms CDP and EcoVadis - key indices used by investors to mitigate risk and by banks when awarding preferential rates for sustainable finance.

Some of this research is captured in the white paper.