CDP: Huge leap in multinationals adopting internal carbon price

The study found that almost 1,400 major firms have put an internal price on carbon, up from 150 in 2014. These include more than 100 Fortune Global 500 businesses with collective annual revenues of €7trn.

Around a quarter of global emissions will be subject to carbon trading by 2019, as more companies seek to manage risks and transition to low-carbon business models. The rise has been driven largely by progress in Latin America and the Asia Pacific, and in particular China, which plans to roll out the largest Emissions Trading System (ETS) by the end of 2017.

Almost 150 US firms plan to implement a carbon price by 2019, despite uncertainty around green regulation, while California is seeking to extend its emissions cap-and-trade system to 2030.

“Carbon pricing makes the invisible, visible,” said CDP chief executive Paul Simpson. “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.”

Investor focus

CDP has warned that many companies may not be prepared for the carbon pricing revolution. The report notes that nearly 500 companies are potentially vulnerable to the effects of carbon pricing regulation through their failure to internalise the cost into their business.

Meanwhile, only 15% of companies that use an internal price believe that the price level will increase over time, while very few disclose price assumptions past 2025. CDP notes that, with the ROI period for assets of certain energy-intensive sectors set to extend far beyond this period, investors should seek for more disclosure and better practice in the future.

There is an increasing investor focus on how carbon pricing is being integrated into business planning, driven by the recent issuance of recommendations by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).

CDP says it is committed to implementing the TCFD’s recommendations by facilitating the enhanced disclosure of carbon pricing. The organisation has stressed that businesses should examine not just if, but how, the system is impacting their business decisions.

“The key question for investors should be: how can we know that companies are actually factoring environmental risk into their mainstream business strategies?,” Barclays head of European utilities equity research and TCFD member Mark Lewis said.

“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.”

Price is right

Seven of the world’s 10 largest economies, including Britain, have introduced a price on carbon. The business sector has taken up a leadership role on the issue in recent times, with a collation including the likes of BT and Coca-Cola calling for an international carbon pricing system to put the world on the path to meet a 2C climate change target.

In May, financial heavyweights including Bank of America, Barclays and Hermes Investment Management have teamed-up to introduce the world’s first investment-grade carbon pricing system for the power sector. Consumer goods brand Unilever, meanwhile, implemented an internal price on carbon last year of €30/tonne for significant capital expenditure projects.

George Ogleby