Businesses all across the world are facing a significant problem as a result of climate change. As a result, many businesses are working to protect their assets and supply chains from hazards including heat waves, droughts, and fires.
Investors are also paying close attention as more corporations factor such as “climate risk” into their calculations. The influence of climate-change legislation on a company’s strategy and returns is a similar concern that many people aren’t fully aware of.
The government will develop numerous measures to make businesses pay for their carbon emissions as time goes on. These mechanisms have the ability to push unprepared to the sidelines.
In this article, we’ll look at some ways you can adequately prepare for future climate change concerns.
Measure Your Carbon Footprints
One of the ways you can future-proof your business against climate change strategies is to first gain a comprehensive picture of your emissions. You need to know the volume of direct and indirect CO2 emissions your company produces based on your geographical area because environmental and carbon rules vary.
Direct emissions also known as scope 1 emissions come from sources that are either owned or managed by your company such as your company’s boiler combustion or vehicle fleet.
Indirect scope 2 emissions are as a result of the usage of electricity, heat, steam, and cooling of your organization while indirect scope 3 emissions can be located in your company’s dealings in the supply chain such as manufacturing and transporting goods as well as your waste disposal.
Due to the differences in direct and indirect emissions, companies that aren’t particularly carbon-intensive may also be causing considerable emissions.
You need to reduce unnecessary flights and also charge an internal carbon fee which would cover the emissions related to the day-to-day activities of your workers. The way to ensure you’re within range is to partner with a company that provides emissions monitoring services.
Forecast Future Carbon Prices
Another thing you can do is to map out your emissions in tandem with the current and projected carbon prices. You need to also examine the present climate policies in your resident country or countries you have plans of operating in the future.
Carbon tax rates in various countries can be easily discovered by looking at national tax laws. A number of international organizations have also established explicit and implicit carbon prices based on current government policy.
In order to develop long-term goals, you need to look beyond current carbon prices and make your own forecasts about future carbon prices.
This is a tough task and can only be done through the collaborative efforts of everyone in the organization because of the lack of clarity and consistent data from the Government, and the doubts regarding technical and economic advancements that could affect carbon pricing regulations.
In 2017, The CDP together with the We Mean Business coalition came up with the Carbon Pricing Corridors initiative which helps various companies to easily pinpoint carbon prices related to their industries to achieve low carbon emissions targets.
For instance, In the automobile industry, a dollar increase in gasoline prices is approximately equivalent to a $100 per ton carbon tax, which would increase the fuel economy of new vehicles sold by 0.24 miles per gallon.
These figures highlight three key points concerning the impact of government policies on your industry:
First, businesses must consider alternatives to current rules; In 2020, the carbon pricing in the United States was significantly higher than the carbon prices imposed by other countries.
Second, as more harsh climate measures are implemented, the average price is likely to rise over time. Third, the price range will widen; the longer the time frame, the more unforeseeable it’ll be to predict the effects of policies and technological changes.
In order to predict carbon prices, you need to sort out and evaluate data from climate experts, research institutions, peer corporations, and environmental organizations. The need for these experts is important because forecasts made by academic institutions and the government are difficult to understand by non-experts.
Furthermore, depending entirely on peer company projections may result in groupthink and skewed expectations. Your company needs to either acquire in-house expertise or hire outside consultants to forecast the expected evolution of government regulations and carbon prices.
Set Internal Carbon Prices
You can also set the ICPs of your company after you have a sense of the anticipated direction of external carbon costs. This necessitates a thorough understanding of carbon economics as well as business operations and strategy.
One factor to examine is how long an internal carbon pricing is projected to last. It’s not unusual for a business to use different prices for decisions with distinct time horizons.
Some businesses have set specified emissions or carbon intensity goals. ICPs that have been well considered can assist them in meeting those goals. In most situations, these ICPs are portrayed as “shadow prices,” which means that the carbon price, like other expenses, is factored into the appraisal of investment possibilities.
Rather than reflecting current expenses, this price may reflect the costs your company expects to be charged on carbon emissions as public policy and legislation evolve during the lifetime of the business.
Many businesses have yet to factor carbon pricing into their long-term plans. Some companies may be relatively carbon-neutral, and hence do not expect new carbon guidelines to have a large impact on their cash flow. This is a common misconception.
From the scope 1, 2, and 3 emissions, you can clearly see that every company regardless of the industry could be a polluter. From source testing to emissions stack testing, there are various kinds of tests to help you figure out your emissions levels.
What’s more, the rapid adoption of internal carbon pricing demonstrates that your company recognizes the value that competitive climate strategies possess. However, only businesses that take the time to understand and actively manage carbon risks will reap long-term benefits. To save your future, get your team to embrace and practice these strategies right now.