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Placing a Value on Carbon Risk

28th Jan 2014 | Internal carbon pricing becomes part of business planning

Large US corporations are beginning to integrate an ‘internal carbon price’ into their business strategies and planning according to a December report issued by the CDP.


The analysis identified 29 majors that disclose a specific carbon price or identify that they have a shadow price as part of their internal processes. The report was complied from account filings by S&P 500 companies and international research. Varying terminology was adopted with corporations using terms like ‘internal carbon price’; ’shadow price’; ‘internal carbon fee’; ‘carbon adder’; or ‘carbon cost’.


Amongst the 29 indentified were consumer giants like Wal-Mart and Con-Agra, industrials and IT firms.


Energy and utilities companies were well represented with long life assets and high exposures to fossil based energy production models prompting the highest figures. Exxon Mobil had set the highest price: it assumed a carbon cost of $60 per metric ton by 2030 whereas Xcel Energy used $20 per metric ton. Royal Dutch Shell and BP both nominated $40 per tonne. Household names like the Walt Disney Company placed their pricing from $10 to $20. Google's metric of $14 was based on the prices that have emerged under California's cap-and-trade program and Microsoft's range was assessed at $6 to $7.


According to the CDP the findings indicate a business assumption that addressing climate change will be both a business cost and possible business opportunity, regardless of the regulatory environment. Most companies covered in this report stated they expect an eventual regulatory approach in some form to address climate change with companies that had international operations especially sensitive to changes in regulatory environments and local conditions. The companies cited use of a carbon price as a planning tool to help identify risks and revenue opportunities, and as an incentive tool maximise energy efficiencies, cost reductions and assist in guiding longer term capital investment decisions.


‘This is the first time we have specifically pulled out this data point,’ said Tom Carnac, president of CDP North America, quoted in But the issue has become "permanently disruptive" to the methods by which companies handle strategic planning and risk management, ‘In that sense, we believe it's an interesting and positive trend.’


For asset owners with diverse shareholdings across the major global indices there is a simple question to be asking ‘Are our underlying companies assessing and incorporating a realistic carbon price in their risk management and forward business strategy plans? And if not, why not?’

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