The ‘Embedding a carbon price into business strategy’ report published earlier this month by CDP provides investors, companies and Governments with a detailed overview of how companies are responding to signals regarding the pricing of carbon in the global economy – signals that are growing stronger every year. CDP is a not-for-profit organisation that runs environmental impact disclosure systems for investors, companies, cities, regions and states around the world. CDP surveyed 5,759 companies around the world on whether they use an internal price on carbon. If a company did use a price on carbon, CDP asked them to provide examples of how they use that price. Of the 5759 companies, 1249 informed CDP that pricing carbon emissions was either current practice or was planned in the next two years. The survey results show that the number of companies pricing carbon has risen by 23% globally since 2015.
According to CDP, it is critical that companies demonstrate how they are managing their climate change risks. In order to appropriately manage climate change risk, companies need to consider their risk exposure and determine how they can grow their businesses within the reality of increasingly stringent Government climate regulations in coming years. Companies that can show investors they have a strategy in place to manage their climate change risk are more likely to be able to access capital at a lower cost than companies that can’t.
The key findings of the ‘Embedding a carbon price into business strategy’ report are as follows:
- The number of companies that currently price carbon or plan to do so increased by 23% between 2015 and 2016 – Pricing carbon enables these companies to increase their resilience to a carbon constrained global future
- A carbon price is now identified as a mechanism that can facilitate emissions reductions – Pricing carbon provides incentives to reallocate resources to low carbon initiatives and invest in research and development activities
- Carbon pricing is already delivering tangible benefits – Companies are reporting shifts towards investments in low carbon initiatives and energy efficiency measures
- Investors are continuing to question the preparedness of companies with respect to climate change regulations – Companies not planning to implement carbon pricing could be vulnerable from market positioning and long term economic viability perspectives as the number of countries implementing carbon pricing grows
- The number of companies implementing carbon pricing has increased markedly in some parts of the world – The increase in the number of companies implementing carbon pricing has been most noticeable in Brazil, China, India, Japan, Mexico, Korea and the United States
- The carbon price varies significantly by region – The price currently ranges from less than US$1 to more than $800 per tonne. Typically, the internal price companies use will be closely aligned with the price set by Government regulation (e.g. the South African Carbon Tax, provincial carbon pricing policies in Quebec, Alberta and British Columbia Canada)
- The carbon price varies by sector – Of the companies that reported a carbon price to CDP or were planning to do so, the highest percentage were in the Utilities (63%) and Energy (53%) sectors. These percentages are far higher than for the health care, information technology, consumer staples and industrials sectors (19-25%).
Those of you who regularly read my posts will know that I have written a number of articles on carbon pricing. These articles have addressed three themes: the steps involved in carbon pricing; the pace at which Governments are implementing carbon pricing to lower their carbon emissions; and how businesses are using carbon pricing as a means of decarbonising their operations while maintaining, and in some cases significantly growing, their profitability.
In addition to noting the dramatic increase in the number of companies around the world that are pricing carbon, the other important message of the CDP report ‘Embedding a carbon price into business strategy’ is that Governments, companies and investors must continue to play their respective roles in carbon pricing. Governments must continue to consider carbon pricing as a means of lowering carbon emissions and fighting global climate change. Governments must also provide strong, clear signals to companies that incorporating carbon pricing into their long term operations can lower their carbon emissions without placing their market position or long term financial viability at risk. Investors must continue to question the ability of companies to manage their climate change risk and adapt to increasingly stringent climate change regulations in the future.
the number of companies pricing carbon globally since 2015 is an impressive result
A 23% increase in the number of companies pricing carbon globally since 2015 is an impressive result. However in order to maintain the fight against global climate change, Governments, companies and investors must continue to play their respective roles in growing this figure year after year as the reality of business competition in a carbon constrained world becomes apparent. Without such a collaboration, not only will company financial viability and peoples’ livelihoods be put at risk as a result of job losses – the global impacts of climate change will also inevitably become harder and harder to fight.