As investors increasingly encourage companies to provide information on environmental risk, the number of companies that are doing so is rising. In fact, almost 1,400 major multinational companies are using some kind of carbon price assumption to inform business decisions, compared to just 150 companies in 2014. That’s an eight-fold leap in just four years, according to new research from CDP.
Making carbon price assumptions is a way of attaching monetary value to emissions. CDP reported that many companies link their internal price to current or expected market prices, with prices allocated by companies ranging from less than $1 per metric ton to over $800.
The report includes an extensive list of companies that use an internal carbon price. They are listed by country and by sector, and include the specific carbon price they are using.
Reasons to Price and Disclose
The relevance? Investors want information on the climate risk that companies face. Companies will benefit from reducing emissions wherever possible and factoring carbon prices into their projects – and pricing them accurately – as investors are less likely to invest in projects that result in higher emissions.
Currently, the use of carbon prices is most widespread among oil, gas and electricity companies, with more than 75% of those in the energy and utilities sectors using an internal carbon price. But the materials and telecom sectors are also heading in that direction, with more than half of companies planning to use an internal carbon price by 2019.
Despite current uncertainty around environmental regulation, the US saw 96 companies disclosing that they are now using an internal carbon price, up from 29 in 2014, with an additional 142 planning to implement one by 2019. Some top companies that were not using internal carbon pricing in 2014, but that have begun doing so this year, include: Cargill, Kellogg Company, Monsanto Company, Newmont Mining Corporation and Philip Morris International.
China is leading in the Asia Pacific region. The number of companies in China using a carbon price nearly doubled, from 54 to 102 since 2015. China’s plans to roll out the largest emissions trading system in the world by the end of 2017 is likely to send a ripple across regional and global markets, with the expectation that up to a quarter of global carbon emissions will soon be covered by a carbon price, CDP reports.
One Investor Weighs In
The report includes thoughts about internalizing carbon prices from an expert: Mark Lewis, managing director and head of European Utilities Equity Research with Barclays; Lewis is also a member of the Task Force on Climate-related Financial Disclosure.
Investors want more than just the carbon price a company is using. They also want answers to questions like: Are R&D decisions changing as a result of the internal carbon price? Are there hidden risks and opportunities lurking in the supply chain? Are assumptions about market demand for a product/service taking a carbon cost into account? Is the company embedding it deeper into its business strategy?
Details about how a company is using the carbon price is important. “The key question is, to what degree does it influence decision-making?” Lewis says.
Regulations Speed Carbon Price Adoption
Investor interest is clearly a major driver of companies beginning to incorporate climate risk into their business planning and reporting; government regulations are another key factor of growth. Companies that disclose the value of their emissions are more prepared for future regulatory changes, CDP says.
Currently, over 40 national and 25 regional governments have already put a price on carbon, covering about 15% of global greenhouse emissions. However, CDP finds that up to 800 companies may be vulnerable to the effects of this regulation as they disclose that they are still not using an internal carbon price despite these ongoing developments in carbon pricing policies.