According to CDP, the global non-profit climate research provider, almost 1,400 multinational companies now factor an internal carbon price into their business plans. That number is an impressive leap, as it amounts to an eight-fold increase from 2014. Three years ago, only 150 such companies reported that they considered the price of carbon into their overall financial strategic planning. Compared to last year, this is an increase of over 10 percent.
The roster of companies includes 100 of the Fortune Global 500 companies, as well as utility companies including PG&E, Exelon, E.ON, France’s EDF and the U.K.’s National Grid. Furthermore, this is hardly a trend relegated to either side of the pond: companies in Asia are also adopting carbon pricing, including at least 102 in China.
CDP’s researchers have identified three overarching reasons why companies are launching carbon pricing procedures.
First, internalizing the price of carbon helps companies manage risks as it can help them gauge their vulnerability to regulations that could leave an impact if they do not reduce their carbon emissions. Companies that have disclosed this reason to CDP as motivation to adopt carbon pricing include Air Canada, LG Electronics, PG&E, Tata Steel and Volkswagen.
In addition, an internal price on carbon can actually help companies unveil opportunities in the wider marketplace. As policies evolve and more countries accelerate their transitions to more of a low-carbon economy, new business ventures could emerge. Therefore, an internal carbon price can be a factor in a company’s research and development strategy, or develop new products and services that are more relevant in a low-carbon economy. CDP cited Hitachi Chemical Company, Owens Corning and Royal DSM as examples on this front.
Finally, carbon pricing can serve as an effective transition tool to nudge a company to become more efficient and reduce emissions. An internal fee or “tax” can drive companies to invest in renewables, find ways to become more energy efficient, develop new goods and services or participate in voluntary carbon markets. Microsoft, which launched an internal carbon fee a few years ago, offers one such case study. Other companies that disclosed similar reasons to CDP include Natura, LafargeHolcim and Unilever.
Here in the U.S., the research indicates that more companies are forging ahead with such plans despite the uncertainty that keeps bubbling out of Washington, D.C. The number of U.S.-based firms incorporating carbon pricing has more than tripled since 2014, and CDP claims another 142 companies will launch such plans by 2019.
Depending on their home base, more companies may want to adopt carbon pricing as a hedge against climate change-related regulations. As of this year, over 40 national and 25 regional governments have imposed a price on carbon. As a result, at least 800 companies that have not adopted any sort of carbon pricing plan could be vulnerable over the next few years.
Image credit: Michael Mees/Flickr