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Chapter 1: Introduction
In recent years, the carbon emission market has grown to become a key mechanism for reducing greenhouse gas emissions around the world. Carbon offsetting strategies are gaining popularity as a result of the recent surge in zero-net-carbon commitments from governments, corporations, and financial institutions (Chaudhry et al., 2021). The projected doubling of the voluntary carbon credits market from 2020 to 2021 is indicative of this growth. Offsetting for carbon emissions has been around for a while and is supposed to make the battle against carbon emissions more adaptable and efficient, especially by giving institutions a way to finance emission reduction projects regardless of where they are located. The placement of this mechanism's contribution to the realisation of global net zero efforts by 2050, however, presents additional issues. Carbon offset schemes that rely on people's goodwill should be a last resort. This has the potential to make a meaningful contribution to the battle against climate change by providing resources to reduce remaining GHG emissions and fortify natural and/or technological carbon sinks (Chen et al., 2021).
The climate sciences confirm the necessity of keeping global temperatures below 2 degrees Celsius and making attempts to restrict the rise to 1.5 degrees Celsius over pre-industrial levels in order to prevent extreme climate threats. To do this, annual global GHG emissions must be cut in half by 2030 and eliminated completely by 2050 (IPPC, 2022). In response, governments throughout the world and across the country have launched initiatives to channel social and economic incentives towards the Paris Agreement's objectives A crucial part of achieving climate goals is the establishment of carbon markets, which put a price on carbon emissions and so internalise the climate externality into production and consumption decisions. By boosting efficiency improvements and decreasing the marginal cost of abatement, they also contribute significantly to the advancement of climate aspirations (IPPC, 2022). Carbon markets and carbon pricing boost investments in technology, infrastructure, and Nature-based Solutions, according to the G7 Climate, Energy, and Environment Ministers' Communiqué. These investments help achieve net-zero emissions, reduce greenhouse gas emissions cost-effectively, and match financial resources with Paris Agreement goals. G7 climate, energy, and environment ministers pledged to "expand the ambitious use of carbon markets and carbon pricing worldwide." Carbon markets expanded. This Oxford Energy Forum issue addresses current carbon market developments (Streck, 2021).
The global community's present level of action on climate change does not equal its intentions to confront the issue, nor do those ambitions currently meet the levels of action recommended by science. One solution advocated to reduce these inequalities is the use of voluntary carbon markets (VCMs), which have been both criticised and championed by different parties (Blaufelder et al., 2021). Opaque, flawed, and ineffectual are just some of the criticisms levelled at them. However, they show extremely high financial potential and unparalleled levels of effect. It is argued that the criticisms of these markets are not just manageable, but necessary obstacles that must be overcome on the road to mobilising ambition and accomplishing targets in the face of climate change (Miltenberger et al., 2021). Furthermore, it is anticipated that by the year 2050, the existing segmented market-based solutions in climate action will evolve into integrated components of the economies rather than stand-alone cures. To attain the goal of internalising the externalities that cause climate change, the global economy will undergo a rapid reorganisation, and extraordinary effort will be made to create, solve, and scale solutions that facilitate the shift. Putting a price on carbon today is a crucial step towards making that future a reality. Voluntary carbon markets are one approach to spur this action, and while they have room for development, they should be given the chance to grow into this role (Streck, 2020).
The Paris Agreement's climate change mitigation goals are still a long way off, and neither governments nor non-state actors have come close to achieving them. To accomplish these goals, the International Panel on Climate Change (IPCC) recommends significantly boosting greenhouse gas (GHG) reductions and growing global GHG sinks by 2050 (IPCC, 2022). The expansion of carbon markets and carbon levies has lagged behind the rate at which this demand has developed. As an alternative market-based approach, the voluntary carbon market (VCM) acknowledges and rewards GHG offsets (IPPC, 2022). The voluntary carbon market is projected to grow by a factor of 15 by 2030 to accommodate the increased demand for climate solutions in the private sector. Financial incentives are provided by voluntary carbon markets, which can be scaled to support substantial climate action (Streck, 2021).
There is a need for voluntary carbon markets due to the fact that the current set of carbon incentives does not adequately address greenhouse gas (GHG) reductions (Blaufelder et al., 2021). Corporate participants are increasingly taking the lead in climate action through promises in VCMs that reach or surpass the similar objectives of compliance markets, in part because regulatory actions are behind and in part because they wish to remain unregulated. However, there are a number of problems and criticisms with the development, operation, and expansion of VCMs (Blum, 2020). There are several problems with carbon markets, from the general public's comprehension of the economics involved to the basic defects in their design and administration. In addition to these observations, it offers two primary viewpoints in response to these criticisms. To begin, the potential danger of VCM defects that can be fixed ad hoc pales in comparison to the immediate need for massive climate action. It is argued that these criticisms will not matter by 2050 since carbon markets will mostly have disappeared if global responses to climate change are successful. Instead, carbon prices will be fully integrated into all elements of production and service, making incentives associated to GHG emissions reductions and removals entirely internalised by economic activities with GHG accounting (Umar et al., 2021).
Despite their flaws, VCMs can test new ideas and bridge the gap between present issues and a greenhouse gas (GHG)-conscious economy. Re-evaluating existing markets as problem-solving and catalytic capital is recommended (Blaufelder et al., 2021). Recognising VCMs' common challenges as crucial to climate change action is the key to meeting these demands. Organisations demand for governance frameworks that support connected, interoperable, and inclusive economies, revealing ignored issues, pressing concerns, and growth potential while addressing historical and current difficulties. The VCM sector's long-term goal is to create economies that battle climate change and promote regenerative ecosystems without external influences (Diluiso et al., 2021).
With the potential for rapid development that could generate billions of dollars in trading revenues and also help lenders decrease their own carbon footprint, banks are increasing their attempts to supply new financial products and services in the young - and still controversial - market for offsetting carbon emissions. Banks' roles in carbon offset markets are complex and need further study (Miltenberger, Jospe & Pittman, 2021). Banks' activities in carbon offset markets are unclear despite their growing importance in combating climate change. Understanding why banks participate in carbon offset markets is key. Banks' involvement also affects these markets' efficacy and integrity. Without understanding banks' roles, assessing their environmental sustainability and finding ways to improve is impossible (Pimonenko et al., 2021). The issue of climate change is the most extreme case of market failure in history. To achieve global zero-net-greenhouse-gas-emissions, carbon markets are essential. They provide options for when and where decarbonization can take place, directing investment funds towards the most effective strategies. Carbon markets allow for trading between parties if one seeks to cut emissions while another finds it easier to do so, resulting in cheaper mitigation. Thus, this research challenge must be addressed to inform policymakers, financial institutions, and other stakeholders on banks' role in carbon offset markets and study ways to increase their engagement to reduce climate change (Ummar et al., 2021).
The research aim is to evaluate the role of banks in carbon offset markets and provide recommendations based on it.
Carbon offset markets are crucial to addressing climate change. Banks as middlemen have garnered interest in these markets, along with governments and enterprises. This study examines banks' position in carbon offset markets, including their benefits, drawbacks, and contributions to the low-carbon economy (Pimonenko et al., 2021). Banks can mobilise climate project funding due to their expertise, infrastructure, and networks. Banks can help investors fund emission-reduction projects by leveraging their large client base. Their collaboration can advance climate-friendly projects, growing carbon offset markets. Banks' financial risk assessment and management expertise can boost offset project credibility and reliability. Banks can reduce the risk of investing in fraudulent or inadequate emission reduction projects by doing thorough due diligence (Blaufelder et al., 2021). Financial firms are developing new carbon-offsetting products and services. The rapid rise might generate billions in trading gains and help lenders lower their carbon footprints. These projects carry risks for financial institutions and enterprises. In a fragmented market that needs a solid decarbonization framework, significant growth is occurring (Michaelowa et al., 2019). People often accuse firms of greenwashing and question the efficacy of emissions-reducing items financial institutions wish to group and sell. Carbon trading and derivative financial techniques are attractive to banks. These banks include Barclays, Standard Chartered, Citigroup, and Goldman Sachs.
Banks' roles in carbon offset markets are crucial for stakeholders. Understanding banks' roles can help policymakers create regulations and incentives that encourage bank participation, boosting carbon offset markets (Park & Kim, 2020). Banks and financial institutions can use these insights to guide their decision-making and develop sustainable financial products and services that meet the demand for environmentally conscious investments. Understanding banks' role in carbon offset markets can help project developers navigate the financial landscape and successfully connect with banks to fund emission reduction projects. This expertise can help them scale and accelerate the low-carbon economy (Chen et al., 2021). Sustainable financing investors can also learn how banks evaluate offset project risks. This knowledge helps investors choose carbon offsets and allocate resources. Global emission reduction targets require successful carbon offset scheme execution (Chaudhry et al., 2021). The research helps carbon offset markets scale by studying banks' financing and evaluation of these projects. This aids climate change mitigation and sustainable development. This research could influence carbon offset market growth, legitimacy, and impact. By understanding the role of banks, policymakers, financial institutions, project developers, investors, and the global community working to mitigate climate change can make informed choices and help implement emission reduction projects for a more sustainable and resilient future.
Chapter 1 provides introductory information on the research topic and pertinent research. The chapter also presents the problem statement, the study's purpose, and the proposed research question. The chapter concludes with a discussion of the study's limitations.
Chapter 2 focuses on previous research in order to provide context for analogous studies and findings. The necessary study terminologies will be defined and explained in order to establish a theoretical framework for the study.
Chapter 3 presents the study's methodology, which includes the research context, research design, data acquisition, and data analysis. In addition, the chapter discusses the study's reliability, validity, and ethical implications.
This chapter 4 presents the study's results and findings in the form of descriptive statistics. This chapter discusses the analysis's results and conclusions.
Chapter 5 presents the conclusions derived from Chapter 4. In addition, theoretical contributions, managerial implications, and implications for sustainability will be presented. In addition, limitations and suggestions for future research are provided for the direction of future studies.
Chapter 2: Literature Review
As climate change and greenhouse gas emissions become more urgent, banks' roles in carbon offset markets have grown in importance. Organisations can offset their greenhouse gas emissions by investing in carbon offset schemes. These markets are increasingly crucial for meeting emission reduction targets and promoting the low-carbon economy (Chen et al., 2021). These marketplaces are shaped by governments, enterprises, and banks as intermediaries. The literature on banks' engagement, benefits, problems, and contributions in carbon offset markets is quickly evolving. This literature review summarises research on banks' roles in carbon offset markets. The assessment begins by assessing carbon offset markets' role in climate change mitigation and banks' role in funding emission reduction initiatives. Banks' financial experience, networks, and ability to raise finance for climate projects may improve carbon offset markets (Hu, Zhang, & Wei, 2022). The research also examines how banks improve carbon offset market efficiency and credibility by providing liquidity and standardisation. The literature review will also discuss bank carbon offset market difficulties. Offset projects' quality and validity, regulatory uncertainty, and reputational hazards may present these challenges. Understanding these obstacles helps banks participate in carbon offset markets by identifying solutions (Sipthorpe et al., 2022).
According to the Lejano et al. (2020), in carbon markets, carbon dioxide equivalents (CO2e) emissions are valued and traded like any other commodity. These emissions can be purchased or sold as carbon credits or carbon offsets on a carbon market. Both compulsory (compliance) and optional (free) carbon markets already exist. Since the government or regulators grant carbon credits to certain industries (such as aviation and industry in the UK), these credits are traded mostly among themselves on the ICE. The term "compliance market" is commonly used to describe this sector. However, in voluntary markets, only independent organisations and businesses engage in carbon offset trading. Moreover, as per Pearse & Böhm (2014), laws and credits are often granted under a "cap-and-trade" programme in compliance markets, which are established and managed by national, regional, or sub-regional governments. In this case, authorities impose a cap, or ceiling, on carbon output. These are similar to annual "permission slips" that allow a business to release a particular amount of CO2e into the atmosphere. The size of this market in 2020 was estimated at $261 billion by Refinitiv. There are cap-and-trade systems in place in a number of nations; the United Kingdom's version is known as the Emissions Trading Scheme (ETS). However, many other jurisdictions, such as a number of Asian countries, portions of the EU (European Union), ten states in the United States (including California and New York), Japan and Canada host regulated ETS and carbon markets. The countries of Mexico, Turkey, Ukraine, Brazil, Taiwan, and Thailand are all considering or developing their own systems (Lejano et al., 2020).
Businesses can buy and sell carbon offsets on voluntary carbon markets, which operate independently from compliance markets. The auctions are held by the Environmental Protection Agency (EPA). These compliance organisations would rather acquire derivatives through auctions or on the spot market as opposed to actual allowances because actual allowances are associated with higher capital expenses and restrictions on the availability of financial resources. Carbon offsets function marginally otherwise. Businesses can provide carbon offsets if they take part in projects that reduce the quantity of carbon in the atmosphere, such as boosting tree planting or using renewable energy sources (Schmidt, 2009). Voluntary markets are those in which participants choose whether or not to buy offsets. However, by acquiring these carbon offsets, firms can further reduce the amount of CO2e they produce. It is possible for enterprises to become "carbon neutral" by purchasing carbon offsetting to offset their CO2e emissions. Analysts agree that the voluntary carbon market is growing rapidly, despite the fact that it is mainly uncontrolled and difficult to assess. The voluntary carbon offset market is valued roughly $1 billion. Even at the above-described rate of expansion, the voluntary carbon market would not generate nearly enough investment to enable the world to fully meet the targets set forth in the Paris Agreement (Sipthorpe et al., 2022).
Customers of banks might be subject to emission reduction legislation or may seek involvement in greenhouse gas mitigation programmes that may provide opportunities to sell carbon offsets. The worldwide and domestic carbon markets present unique risks and opportunities, and banks may assist both existing and potential clients in mitigating those risks and making the most of those opportunities. Goldman Sachs' investment in two carbon-offset firms is the latest evidence of the growing interest of investment banks in this sector. Clean energy provider E+Co recently shared the news that investment firm Goldman Schs had acquired the bulk of its carbon-offsets portfolio. Goldman has invested in BlueSource and wants to promote its offsets to clients. BlueSource is mainly focused on the small offsets market in the United States (Chen et al., 2021).
Figure 1: Financial institutions' impact on carbon markets
From initial project funding to secondary market trading, the financial sector plays an integral role in the entire carbon market ecosystem, both mandatory and voluntary.
On the other hand, there are currently ongoing initiatives to circumvent this challenge. Project Carbon was established earlier this year by four major financial institutions (NatWest, NAB, CIBC, and Ita Unibanco) with the intention of facilitating price discovery for voluntary carbon credits. Similarly, CIX recently launched an auction to establish a competitive price discovery mechanism; this effort was supported by a number of financial organisations including DBS Bank, Standard Chartered, and the Singapore Exchange. Increased trading volume and market liquidity should result in clearer pricing and less price swings for buyers and sellers when existing projects and pilots are scaled up and new ones are made available.
According to the study of Streck (2021), compliance markets rely heavily on the participation of financial institutions. Since banks have access to cheap funding and may leverage their own balance sheet, they can create complex products with the goal of lowering their customers' exposure to risk. The EU ETS auctions, for instance, are held at the current market price, but energy providers must balance off their forward EUA purchases with sales of electricity. Due to this, there is a disconnect between present supply and future demand. In order to lessen the impact of this problem, financial institutions can dynamically hedge their exposure and reduce the transaction costs and future pricing and supply worries of compliance customers by selling carbon certificates in advance. As per Spilker & Nugent (2022), financial institutions may be able to offer hedging and derivative products inside the voluntary carbon market to manage future price risks as there is more consensus about future carbon credit values and trading becomes more liquid.
The increased interest among researchers in areas like bank marketing and carbon-free economic growth was revealed by an examination of scholarly papers presented in the Scopus database. According to Figure 1, between 2000 and 2020, there were 3,854 scholarly articles written about bank marketing, but only 2,556 were written for carbon-free economic growth. Scientists' focus on carbon-free economic concerns has increased in the new year. Amazingly, it may be triggered by the European Green Deal in 2019, which aims to make the EU carbon neutral by the year 2050 (Pimonenko et al., 2021).
Figure 2: The 2000–2020 publication activity dynamic on bank marketing and carbon-free economic growth.
According to Srinivasrao et al. (2021), the world is becoming more eco-friendly. The needs of "green" clients who are concerned with preserving the environment are being acknowledged by a growing number of businesses around the world (Pimonenko et al., 2019a). Therefore, the scientists concluded that the 'going green' movement in the financial industry might pave the way to a future free of carbon emissions. As a result, there have been numerous reports looking at how the banking industry may improve its "green" reputation.
Ibe-enwo et al. (2019), conducted research to investigate the effect that marketing has on fostering environmentally responsible banking practises. The authors found that green banking activities raised awareness of environmental issues and strengthened customer loyalty to banks. Abdur Rouf (2012) observed that a considerable increase in a bank's green equity could be achieved through the improvement of the three key components of the green marketing scale: green product creation, green corporate social responsibility, and green internal procedure. To learn more about how "green banking" affects environmental policy, read Nguyen & Nguyen's (2018) analysis. The author gave their word that the bank's move would be good for the planet. The study also categorised the fundamental phases of green marketing activities inside banking.
Singh (2015), found that programmes promoting the use of alternative energy sources and microfinancing both contributed to positive social and environmental outcomes. In turn, the study's author emphasised the need for improved marketing initiatives on the part of financial institutions to increase the availability of green micro-lending and the success of green small businesses. Initial examination of scientific treatises revealed numerous articles discussing carbon-free economies and banking marketing methods. However, research into the impact of banking sector financial marketing techniques on carbon-free economic growth is still lacking. Therefore, the purpose of this research is to undertake a bibliometric analysis of the literature concerning the relationship between green financing, carbon-free development, and bank marketing tactics.
The greenhouse gas emissions have reached a crucial point for the health of the environment and the ecosystem. Both air quality and human health are seriously compromised by excessive carbon dioxide emissions (Chaudhry et al., 2020). The economy is also affected by this phenomenon. According to Umar al. (2021), "sovereign risk is a function of carbon emissions." Caragnano et al. (2020), point out that carbon emissions can be a drag on economic expansion. Wang et al. (2020), found that the presence of carbon risk resulted in lower interest expenses. The environmental and social consequences of inaction make it imperative that we adopt sustainable development goals. The government and private sector alike need to lead the way here.
For global environmental health, the Paris climate conference marks a watershed moment at the national level. The essential efforts to attain carbon neutrality over time have been pledged by roughly 196 countries (Wu et al., 2021). Numerous studies have uncovered mechanisms that can aid progress towards the Paris conference's stated objectives. Bello et al. (2018), hypothesised that efficient use of power would promote development. According to the findings of Broadstock et al. (2021), carbon pricing may be an effective tool for assisting in the reduction of overall emissions. Wang (2021), argued that encouraging innovation in businesses as a whole can mitigate the damage done to the environment by carbon emissions. According to Wu, Tian & Guo (2022), who looked at the economy as a whole, lessening income disparity would aid in the pursuit of environmental sustainability. Chen et al. (2021), proposed a dynamic research and development regime as a means to mitigate global warming. In particular, banks' ability to mobilise resources from surplus to deficit units through financial intermediation can support a carbon-neutral organisational structure. To realise a carbon-free economy, it is crucial for financial institutions to lend to and invest in green assets. However, financial institutions need encouragement to broaden their investment portfolios beyond traditional carbon-based assets. While studies such as Umar et al. (2021), Rebecca & Steffen (2014), attest to the profitability of environmentally friendly investments, the effect on the lending portfolio is less well-studied.
Banks are the primary source of finance for corporations, therefore ensuring their participation is crucial for sustaining growth. This research makes an effort to close that knowledge gap by analysing how green lending changes banks' credit portfolios. In particular, the study examine how sustainable financing affects the credit risk of financial institutions (Bose et al., 2021). Using data from 344 financial institutions over a period of ten years, we show that green lending reduces banks' credit risk. We utilise a combination of pre- and post-default measures of credit risk, including a likelihood of default estimate and a credit infection ratio. Our results hold up similarly well for both of these metrics and for a wide range of sample sizes. Green financing reduces the credit risk for large, medium, and small financial institutions. These findings show that there is motivation for financial institutions to prioritise carbon-neutral lending, which aids in meeting sustainable development targets (Blaufelder & Levy, 2021).
Researchers have found extreme value theory (EVT) to be quite effective in a wide range of contexts. According to Zhao (2020), extreme value theory is an important instrument for measuring the performance of the tail end of the market. Additionally, Gkillas & Katsiampa (2018), utilised EVT to forecast the value of Bitcoin, Bitcoin Crash, and Litecoin, hence reducing the tail risks associated with each cryptocurrency.
Extreme value theory was applied to Bitcoin by Osterrieder et al. (2016) and Osterrieder & Lorenz (2017). Existing studies heavily rely on extreme value theory (EVT) for evaluating financial market "tail," "systemic," and "spillover" risks. However, there has been scant academic exploration of how different methods of environmental management affect the "tail risk" that banks face. Chen et al. (2017), research found that firms with a strong social track record tend to have less legal disputes, making them more attractive to investors. According to the research of Chan & Walter (2014), adhering to environmental standards has a positive impact on shareholder value in the long run by reducing the risk of costly lawsuits, public relations missteps, and natural disasters. As suggested by Henke (2016), socially responsible bonds outperform conventional bonds during economic downturns but underperform otherwise. Similarly, Nofsinger & Varma (2014) discover that social mutual funds outperform traditional funds during market crises but underperform otherwise.
The push to establish carbon markets is gaining momentum. The importance of these markets in pushing the net-zero transition in different regions and, of course, globally, is widely acknowledged. For instance, creating carbon markets is emphasised in the City UK and PwC study as crucial to achieving a net-zero transition (Michaelowa et al., 2019). It is the goal of "The Role of Financial and Related Professional Services" to provide guidance for the financial sector to aid in and contribute to the transition to a carbon-free economy. Banks play a crucial role in the compliance markets because they provide a liquid market with price certainty and transparency to businesses that are regulated by cap-and-trade laws (Pimonenko et al., 2019b). The involvement of banks is crucial in voluntary carbon markets as well. In an effort to help the Carbon place initiative grow and establish secure infrastructure, a few banks have recently joined as volunteers. In 2022, the financial institutions anticipate having it fully operational by year's end 2022. One of their goals is to strengthen the infrastructure supporting the offset market so that more high-quality carbon offset projects may be implemented. One alternative capital market technique that could attract new types of investors is repackaging carbon credits from regulated markets into structured notes. Some financial institutions are investigating sustainability-linked loans, bonds, and derivatives that incorporate voluntary carbon credits from the capital market (Hussain et al., 2020).
Some of the most important contributions that banks may make to the carbon market are listed below:
Even if it's debatable whether the market is mature enough for banks to effectively participate, it's evident that banks can play critical roles in improving the existing status of the market by providing essential and game-changing services. UK's recent market development efforts and look forward to market-wide developments that will allow banks and other stakeholders to participate (Ahonen et al., 2022). The London Stock Exchange has just created the voluntary carbon market to speed up the flow of financing to projects and promote a more equitable transition to a low-carbon economy. To build and promote local and global efficient carbon markets, the government of Ghana has initiated a wide range of activities, including the Carbon Market Development Roundtable, which was convened in conjunction with the government. Carbon markets (credits and offsets) are helpful, but they cannot be relied on solely to reach 'carbon neutrality.' However, more people and organisations need to put their resources towards developing and promoting efficient procedures and technologies that can cut down on emissions and bring about tangible results in the economic transformation (Benessaiah, 2012).
In recent years, carbon neutrality has gained popularity, and several companies have implemented policies to achieve it. In addition, several sectors are already employing a wide range of strategies to achieve carbon neutrality. There are numerous online calculators that may be used by businesses to estimate the size of their carbon footprints. Second, they can take use of emission reduction strategies to cut down on carbon emissions as much as possible before doing any kind of accounting for them (Miltenberger et al., 2021). In 2021, the top 10% of emitters produced approximately half of worldwide energy-related CO2 emissions, while the poorest 10% contributed 0.2%. The top 10% averaged 22 tonnes of CO2 per capita in 2021—200 times the bottom 10%. 782 million people, not only the wealthy, emit 10%. 46.8 million people—0.6% of the world—are millionaires or billionaires. Top 10% emitters are distributed globally. 85% live in advanced economies like the EU, Japan, Australia, Canada, Korea, the US, New Zealand, UK, and China (Cozzi, Chen & Kim, 2023). Russia, South Africa, and the Middle East have large income and wealth gaps and emissions-intensive fuel mixtures (Michaelowa et al., 2019). It is crucial to comprehend that carbon neutrality through environmental justice, establish the allocation of costs and benefits/ In terms of both social and economic progress, the banking system is crucial. That is why it is easy to accuse banks of doing their part to accelerate climate change, as they don't always factor in the carbon repercussions of lending (Ackerman, 2014).
Banks have been shown to utilise society resources, have depositors who anticipate climate consideration in lending decisions, and put banks at risk for both their reputation and their bottom line if they lend to carbon-intensive borrowers (Jung et al. 2016). Changes to carbon-neutral energy sources are a social, economic, and technological issue in developed nations. Using the existing financial, institutional, and infrastructure systems as a starting point, the process is intricate and fraught with lock-ins. Technology, consumer habits, cultural significance, and scientific knowledge are only a few examples of the many sociotechnical systems that could be influenced by such a system. More recently, Bigerna et al. (2021), showed that carbon neutrality could be better achieved by shifting resources away from fossil fuel power stations and towards domestic resources that can spur the repair of ailing infrastructure.
Chapter 3: Research Methodology
A research paper's methodology section is crucial because it provides the researcher with the motivation and direction necessary to create a sound theoretical and methodological basis for their investigation. Newman & Gough (2020), argue that researchers would gain immensely from generating a clear picture of the data in order to identify the most essential findings in light of a wide range of study aims and concerns. This strategy can help you map out your research project's various moving parts, from data collection and analysis to the conclusions you aim to draw from your findings. Careful administration of suitable research methodologies is essential for ensuring that the study is valid and reliable across the firm. Incorporating all of the measurements for reducing overall bias and other research problems into regular functions can be helpful as well. According to Pandey & Pandey (2021), a solid technique can help researchers lessen the odds of running into issues while they do their studies. Researchers' reputation and participants' faith in their studies are both boosted by standardising and streamlining data collecting. It can be a lot of work to extrapolate from a small set of database results to a larger conclusion. This factor could also improve the study's overall findings.
The researcher plans on using Saunders' Onion to compile a large amount of data and draw broad conclusions about research methodology. In order to further inform the researcher's formulation of the research process as a whole, this chapter will explore different research methodologies, including the philosophical approach method design and analysis. This chapter also details the researcher's code of ethics and the various sampling techniques used to obtain information for the study.
According to Saunders et al. (2007), a researcher's technique is the means by which they perform systematic research while adhering to a stated set of objectives. A look at the laborious processes that comprise genuine academic inquiry. Research methodologies will be explained in terms of the "layers" of an "onion," or research framework. It's possible to visualise the stages of a research endeavour as layers of an "onion," with each layer corresponding to a distinct part of the process. It was developed by Saunders et al. (2012), to assist researchers in comprehending the numerous procedures involved in conducting investigations.
Figure 3: Research Onion (Saunders et al., 2012).
The research philosophy dictates the procedures for gathering data and analysing the results. Saunders' Study Onion (2007) includes a diverse assortment of philosophical perspectives. A researcher's research philosophy shapes their approach to data gathering and analysis (Saunders et al., 2007). Positivists are scientists who use the scientific process and an objective perspective to gather evidence and evaluate hypotheses. Learn a worldview through studying philosophy. This research will employ positivism. Thakurta & Chetty (2015) claim that positivists are scientists who adhere to the principles of objectivity and empirical testing. The research philosophy, a fundamental perspective, provides the basis for all other assumptions. For this research, we'll be using a positivist approach. There is an objective, scientific reality that can be investigated and understood apart from one's subjective views and experiences. Since positivism permits an unbiased evaluation and interpretation of data, it was chosen as the theoretical framework for this study (Noordin & Masrek, 2016). The positivist method is useful for examining the role of banks in carbon offset markets.
In deductive inquiry, a theory or hypothesis is put to the test via analysis of observed facts. Specifically, it comprises formulating a research question in light of pre-existing theories or models, followed by data collection and analysis to verify or refute the hypothesis. Deductive reasoning is putting a hypothesis or theory to the test using empirical evidence. The deductive method was used to infer a study topic about the function of banks in carbon offset markets. Deductive reasoning makes use of one's existing knowledge. Starting with a solid hypothesis allows researchers to make educated predictions and design effective methods of collecting data. Research rigour and validity are enhanced by using this strategy to objectively analyse and verify the central notion (Woiceshyn & Daellenbach, 2018).
Understanding the function of financial institutions in carbon offset markets requires a deductive approach. The multifarious function of banks in carbon offset markets calls for a methodological framework that allows for in-depth research and comprehension, and deductive analysis, with its reputation for methodical and logical approach, is widely recognised as the optimum choice (Saunders et al., 2019). Researchers can get deep understanding of the complex dynamics, mechanisms, and implications of banks' participation in carbon offset markets by using deductive reasoning to examine and evaluate available data, theoretical principles, and well-established ideas. Through this method of rigorous analysis, researcher can see how banks affect the growth, development, and efficiency of carbon offset markets by identifying patterns, correlations, and causal connections. The inductive approach taken in this study can be shaped by several theoretical frameworks. It provides a foundation for the inquiry and a new contribution to the literature (Kim, 2021). Researchers might gather empirical evidence to test their theories using the deductive approach.
The premise of mixed-methods research is that integrating qualitative and quantitative approaches yields a richer picture of research challenges and complex systems than would be possible with each approach alone. The primary objective of this strategy is to facilitate the desired improvement of research outcomes. Descriptive research methods might serve as a blueprint for future investigations. That is why it is crucial to incorporate time-saving variables into the analysis to get a clear picture of the study's results.
The next layer in the research onion is the technique used to collect the data. Depending on the specifics of the investigation at hand, researchers can choose from a wide variety of methods (Gentles et al., 2016). In his "onion structure," Saunders combines many types of study. Randomised controlled trials, manipulated experiments, grounded theory, surveys, case studies, ethnographies, and archival material analysis are just some of the research methods (Saunders et al., 2014). A study's "research strategy" is its comprehensive plan for gathering and analysing data. The survey method was utilised to collect data for this study. Also, survey research is an effective method for delving into the norms, values, and perspectives of a population. Information about the respondents' backgrounds, attitudes, and behaviours will be gathered by a survey questionnaire (Saunders et al., 2007).
This survey study makes use of questionnaires. This study uses a questionnaire to collect quantitative data on the role of banks in carbon offset markets. It allows for systematic data collecting and research on a larger scale (Young, 2015). Various aspects of an organization's policies and procedures can be evaluated with the use of a survey. Survey questionnaires have the potential to collect data from a large sample of people, including those who were initially disqualified from participation in the study (Ponto, 2015). Information for this study will be gathered through the use of a questionnaire.
Time horizon refers to the period of time across which data is collected. This study uses a cross-sectional research design. The information will be collected all at once. A survey on Role of banks in carbon offset markets, will be administered using this method. In contrast to cross-sectional designs, longitudinal designs necessitate multiple data collectors at varying intervals in time. Cross-sectional studies are cost- and time-effective for researchers (Vasileiou et al., 2018).
The word "data collection" is used to describe the steps taken to amass evidence for or against a hypothesis or research question. According to Ajayi (2017), both primary and secondary sources were utilised during this investigation. The collection of data for cross-sectional designs only needs to be done once, whereas for continuous designs, data needs to be collected at many distinct points in time during the course of the study. The researcher will not only save time and money but also a significant amount of both when they conduct the study using a cross-sectional plan. In research parlance, "secondary data collection" means amassing data that is useful but peripheral to the primary data set. Secondary information was gathered for this research by looking through papers, journals, industry publications, and corporate reports (Jilcha Sileyew, 2020). These sources explain about the role of banks in carbon offset markets.
Sampling techniques are the procedures used to select members of a population or examples to study. The number of subjects or objects in the sample. Sampling is a methodology for selecting a representative sample of a population from which to draw inferences and draw conclusions. Probability sampling, which relies on random selection to reduce bias and broaden the applicability of study results, was chosen for the quantitative research study (Martínez-Mesa et al., 2016). The research will analyse role of banks in carbon offset markets using a survey of sample size around 10 European and American banks employees. Findings can be trusted if they are based on a large enough and well selected sample.
Data analysis is a vital aspect of the research process because it enables researchers to draw conclusions based on a variety of data collected from their surroundings. Quantitative analysis was applied to both the primary and secondary data for a thorough understanding of the results. Similarly, using thematic analysis to dissect the study's most important findings might yield a number of useful conclusions. Lester et al. (2020), show that using many themes is particularly helpful in elucidating the results as a whole. Updated information on how social media influencer marketing affects day-to-day operations can be gleaned through a combination of the Google form's theme analysis and quantitative analysis.
All participants' safety should be prioritised during the study, hence ethical considerations should be taken at all times. This investigation took into account a wide range of ethical concerns. After being informed of the purpose of the study, their rights, and the confidentiality of their responses, all participants gave their agreement (Manti & Licari, 2018). It was decided not to ask participants any questions that would have made them feel awkward or humiliated. The study's data were kept private by the researcher, who only allowed authorised personnel access to the data (Cacciattolo, 2015). Furthermore, the study had no unfavourable effects on the participants' mental or physical health. All subjects gave their informed consent before taking part, and nobody was kept in the study against their choice. All data collected will be utilised only in this study (Burles & Bally, 2018). The research was done with honesty, kindness, fairness, and respect, as outlined by the committee in charge of the study. Throughout the investigation, the researcher maintained an unbiased and dispassionate demeanour. The research was performed cautiously and ethically.
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