CDP’s 2016 Climate Change Information Request
Question Guidance: effectively answering the internal carbon pricing question
CC2.2c Does your company use an internal price on carbon?
This question should be answered by selecting one of the three options available:
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Yes
No, but we anticipate doing so in the next 2 years [this choice is for companies that are planning to
establish and implement an internal carbon price]
No, and we do not currently anticipate doing so in the next 2 years
If you select “Yes” you will be directed to question CC2.2d; if you select “No, but we anticipate doing so in the
next 2 years” or “No, and we do not currently anticipate doing so in the next 2 years” you can proceed to the
next question (CC2.3).
CC2.2d Please provide details and examples of how your company uses an internal price on carbon
This question only appears if you answer “Yes” to question CC2.2c (see above).
Please respond using the text box provided, where possible detailing
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Scope that the emissions pertain to [i.e. Scope 1, Scope 2 and/or Scope 3]
Type of internal carbon pricing (See Below)
Rationale for employing a price (See Below)
Actual price(s) used and variance by time and region
Price discovery mechanism and business division responsible for setting internal price
Examples of how carbon pricing has affected investment decisions
Challenges with this process
Question Pathway: Management, Strategy, Business Strategy
CC2. Strategy
CC2.2 Business Strategy
CC2.2c Does your company use an internal price on carbon?
Yes
CC2.2d Please provide details and
examples of how your company
uses an internal price on carbon
No, but we
anticipate doing so
in the next 2 years
No, and we do not
currently anticipate
doing so in the next 2
years
You can proceed to the next question (CC2.3)
CDP’s 2016 Climate Change Information Request
How do companies use internal carbon pricing?
Global companies may use several types of carbon pricing depending on geography, business units, and goals.
Examples are outlined below, including extracts from past CDP disclosures.
Shadow Prices let companies test planned projects under a range of potential carbon prices, policies and caps.
Just as they forecast fuel prices, many companies, such as ones in the energy sector, model carbon prices to
lower the risk of stranded assets.
The U.S. industrial conglomerate Owens Corning places an economic value of $10 -$60/metric ton
on carbon emissions “to help frame the challenges and opportunities in monetary terms, more
broadly understood than simply tons of emissions….”
Statoil ASA of Norway applies an internal price of at least $50/metric ton “to all project investment
decisions and which we use for portfolio management and strategic considerations.”
Internal Prices, a fixed value assigned to each metric ton of emissions, reveal hidden carbon risks. When
emissions bear a cost in profit-and-loss statements, it helps to uncover inefficiencies and differentiate business
units within a company that use innovative design, processes, and sourcing to cut energy use and carbon
pollution.
Within Goldman Sachs, “all relevant business units factor an Internal Price on Carbon into energy
efficiency, renewable energy and other emission reduction activities through the use of a Return on
Investment model… [as part of a] carbon reduction framework which prioritizes internal reduction
measures across both our data centers and offices….”
Internal Taxes go a step further to actually charge business units for their emissions, collecting fees that can
support investment in clean technologies, to help the entire company transition to low-carbon.
In 2012, Microsoft began charging its business groups for emissions from offices, labs, datacenters,
and air travel. A central fund invests those fees, which last year were $4.40 per metric ton, in energy
efficiency, green power, and carbon offsets to ultimately enable Microsoft to become net carbon
neutral.
Adobe does, indeed, charge each business unit for costs associated with resource consumption. The
goal being to implement resource efficiency projects to reduce costs, mitigate business risk, and
implement new technologies…
Companies that set a goal of cutting emissions or going carbon-neutral can calculate their effective or implicit
carbon price by dividing cost of achieving these reductions by the number of tons saved. This is how Unilever
calculates an Implicit Price of doubling its use of renewable energy to 40% by 2020.
Common rationales for employing an internal carbon price include:
1. Navigate regulation and sourcing requirements [i.e. assess risk of existing or future emissions limits,
emissions trading systems, and carbon taxes].
2. Drive efficiencies throughout the company.
3. Better forecast capital investments to avoid high-carbon projects that may become stranded as
regulations limit emissions levels.
4. Encourage investments in low-carbon and clean energy technologies, projects, and products.
5. Collect revenue, by charging carbon fees, to fund low-carbon projects.
CDP’s 2016 Climate Change Information Request
Why is CDP asking this?
Companies leading on climate, social, and governance factors relevant to their industries outperform their
peers over the long term in both profits and returns, according to a suite of studies from CDP, Harvard
Business School and research firms.1 Investors are paying attention to such companies planning for the lowcarbon economy, and channeling increasing investments toward them.2
Funds with environmental, social or governance (ESG) mandates represented 30% of the world’s invested
capital in early 2014, according to the Global Sustainable Investment Alliance. And funds based on climate
and other sustainability themes outperform traditional funds in most cases, according to research from Morgan
Stanley.3 These developments are making it easier for investors to channel their assets to vanguard
companies, including those using carbon pricing as a tool to manage and gauge climate change risk.
Additional Resources:
Putting a price on risk: Carbon pricing in the corporate world. CDP, 2015
Executive Guide to Carbon Pricing Leadership. Caring for Climate and WRI, 2015
Statement: Putting a price on carbon. The World Bank, 2014.
Carbon Pricing Pathways Toolkit. CDP, 2015
Commit to Action, CDP
Contact: [email protected]
1
Khan, Mozaffar and Serafeim, George and Yoon, Aaron, Corporate Sustainability: First Evidence on Materiality (March 9, 2015). The Accounting Review,
Forthcoming. Available at SSRN: http://ssrn.com/abstract=2575912 orhttp://dx.doi.org/10.2139/ssrn.2575912; Eccles, Robert G. and Ioannou, Ioannis and Serafeim,
George, The Impact of Corporate Sustainability on Organizational Processes and Performance (November 23, 2011). Available at
SSRN: http://ssrn.com/abstract=1964011 or http://dx.doi.org/10.2139/ssrn.1964011;
22
Eccles, R. G., Serafeim, G. and Krzus, M. P. (2011), Market Interest in Nonfinancial Information. Journal of Applied Corporate Finance, 23: 113–127.
doi: 10.1111/j.1745-6622.2011.00357; Cheng, Beiting and Ioannou, Ioannis and Serafeim, George, Corporate Social Responsibility and Access to Finance (May 19,
2011). Strategic Management Journal, 35 (1): 1-23.. Available at SSRN: http://ssrn.com/abstract=1847085 or http://dx.doi.org/10.2139/ssrn.1847085
22 We Mean Business, calculated from World Bank State and Trends Report 2015 and national commitments made at COP-21.
33
Morgan Stanley’s “Sustainable Reality” report found that sustainable equity mutual funds met or exceeded median returns of traditional equity funds
during 64% of the time periods examined. From 2008-2014, sustainable equity funds met or exceeded median returns for five out of the six different equity
classes examined (e.g., large-cap growth) 9. http://www.morganstanley.com/ideas/sustainable-investing-performance-potential/