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Having a dedicated decarbonisation budget builds a financial case for companies investing in carbon projects, writes Valerio Magliulo in Environmental Finance.
The focus of last year's annual United Nations (UN) climate conference was on setting a new climate finance goal, which will enable the mitigation activities needed to protect society against the worst impacts of climate change.
But how do we tread the line between the private sector committing vast sums – in the billions – to climate action, whilst also funding its own decarbonisation efforts?
Setting an internal carbon pricing (ICP) is a proven and effective route. It can not only create a budget for internal decarbonisation activities, earmarking funding for external climate action projects, it allows companies to hedge against future climate risk.
Internal price of carbon: An untapped opportunity
Though an ICP comes in many forms, at its core it is a financial value placed on a company's emissions. By assigning each tonne of emissions a carbon price, companies can understand the risks and costs associated with their environmental impact and factor this into strategic decision-making.
This is an important step forward for climate action at a company level. It brings sustainability under the jurisdiction of financial directors. It enters carbon onto the balance sheet and out of traditional corporate social responsibility.
Image: Environmental Finance
Read the full opinion piece on the Environmental Finance website.
