Responsible Business, October 17, 2017
According to CDP, a global non-profit environmental disclosure platform, the number of companies that now factor an internal carbon price into their business plans has increased eight times since 2014 because they understand that carbon risk management is a business imperative.
Internal carbon pricing is the practice of companies applying a monetary value to their emissions, with prices allocated by companies ranging from less than $1 per tonne to over $800.
More than three quarters of the energy and utilities sectors’ market cap is currently pricing carbon internally, including industry giants like National Grid, EDF, Exelon Corporation, PG&E Corporation and E.ON SE.
Over half of the material and telecommunications sectors also intend to use an internal carbon price by 2019.
In China, the number of companies that internalise a carbon price doubled from 54 to 102 since 2015 and includes companies such as China Vanke, Shanghai Electric, and China Mobile.
In the US, despite current uncertainty regarding environmental regulation 96 companies are currently using an internal carbon price, up from 29 in 2014 and another 142 are planning to implement one by 2019.
Paul Simpson, CEO of CDP said: “Carbon pricing makes the invisible, visible. We’re seeing a significant rise over last year in the use of companies pricing their own carbon pollution in China, Mexico, Japan, Canada and the US”.
“Changing regulation is working on a global scale and in all regions, we are seeing many businesses fast-track the low carbon transition into their business plans”.
2017 saw over 40 national and 25 regional governments putting a price on carbon covering about 15 percent of global greenhouse emissions.
For example, since Canada introduced regional carbon pricing systems, Ontario will see $1.5 billion in clean investments.
According to CDP, 800 companies within these regions may be vulnerable to the effects of this regulation as the research finds that they have not complied with the trend.
Mark Lewis, Managing Director, Head of European Utilities Equity Research at Barclays and member of the Task Force on Climate-related Financial Disclosure commented: “The key question for investors should be: how can we know that companies are actually factoring environmental risk into their mainstream business strategies?”.
“Pricing carbon should play a vital role in helping companies do this – the price level, while important, is not the only key aspect. There needs to be more transparency as to how a company actually uses the price and whether it is seen as an important part of business decision-making and forecasting”.
However, only 15 percent of the companies that use an internal carbon price to stress test their investments and operations disclose assumptions that the price level will increase over time.
The rest 85 percent either predict a static price or do not disclose their practice.