The third article of the series De maatschappelijke jaarrekening van de CFO – The CFO’s impact reporting is out now. Michel Scholte talks about climate change, CO2 prices and the real price for pollution.

For the original article (in Dutch) click on the link.

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(Only) 90 euros for a tonne of CO2

The three largest investors in the world talk about climate change, but when it comes down to it, they do not use their influence to encourage CO2 emitters to become more sustainable.

At the majority of shareholder meetings, Blackrock, Statestreet and Vanguard vote against climate-friendly resolutions. And while there are plenty of examples where investors are showing climate leadership, there is still too often a gap between what financial professionals say and what they do. What can financials and in particular financial directors do?

83 million deaths

Unfortunately, something goes horribly wrong in boardrooms. Because despite all the words, there is no improvement in reducing global greenhouse gas emissions. That’s quite frightening, and climate scientists are rightly cynical. Especially now that the most advanced models make the possible consequences so crystal clear: more than 83 million deaths as a result of warming by 2100.

An important reason for this is that a globally mandatory CO2 price applies to far too few sectors. For example, not only ports and aviation are excluded from the climate agreements in many countries, but also food and electronics. In fact, the real price of pollution is almost never paid

The European market price for a tonne of CO2 emissions is only 90 euros, which is only about half of the real costs. And the yields are not used for a proportional reduction of gases in the atmosphere. KLM’s compensation scheme, for example, is also insufficient to really settle the climate costs, both now and in the long term.

In addition, there is insufficient transparency from companies about their emissions throughout the entire value chain. Shell, for example, reports on greenhouse gas emissions from oil extraction, refining, transport and sales, but is not clear about the emissions and reductions in combustion by their customers. The court recently ruled that this is unlawful.

Subsidies for climate damage

Yet the biggest problem is that governments worldwide give some $4.6 trillion in subsidies for the use of coal, gas and oil. For the Netherlands only if this is 17.5 billion euros. Every professional – and the CFO in particular – should advocate universal, correct pricing of CO2 emissions and for the immediate abolition of all subsidies and fossil benefits. Every professional and every CFO should support the reduction targets and support for adaptation and mitigation, sparing the less wealthy . After all, they have the greatest consequences and least share in the cause.

Climate cost on the balance sheet

No CFO will not be busy calculating costs due to climate change. Globally, several large emitters already have to pay millions annually for emission rights and CO2 taxes. Or they get money if they stay below the emission standard. Tesla earned 150 million dollars and made a record profit thanks to the sale of emission rights.

What is still too little realized: the consequences of climate change are also financial. The recent floods in Germany, Belgium and the Netherlands are not only extremely tragic because of the large number of victims, it also costs companies billions of euros. In fact, the ECB predicts thousands of climate failures in the coming decades.

Voluntary real prices

Worldwide, there is a group of CEOs that strives for a fair pricing of CO2 emissions. But in fact, every company should already want to pay the real price for climate damage as much as possible. There are several providers of CO2 compensation services – for example, through landscape restoration and tree planting. At the True Price Store in Amsterdam, the café in Breukelen or at Deloitte you can pay for the groceries via LandLife Company or Fairclimate Fund.

The question that financial professionals should ask themselves is: which model do you use to calculate damage and regulatory risks? And what do you do with this?

There are a lot of standards available.

  • To map your footprints: the Greenhouse Gas Protocol, the Gold Standard, Protocol for Carbon Accounting for Financials.
  • How you publish it; Carbon Disclosure Project.
  • How to price it; True Price Standard
  • How to integrate it into the annual financial report – GRI, CDSB, the Impact Weighted Accounts Framework.
  • Hoe you set goals; via Science Based Targets.

And finally, there is data, more and more – for consumers and for companies.

How to choose? The many frameworks may seem overwhelming, but if you dive into them, you will see that each framework has its own usefulness. Therefore: do not bet on a horse. But learn to ride a horse.

And if you can’t figure it out, there are countless courses on climate science, frameworks and measuring and valuing climate impact.

I say: every financial on climate course!

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Michel Scholte is an entrepreneur, director and cofounder of True Price and Impact Institute. True Price focuses on calculating and improving the true price of products, including social and environmental costs. Impact Institute provides data, software, (digital) education and advice on impact measurement and management. In addition, he is a founding board member of Impact Economy Foundation. He is a frequently asked key-note speaker and frequently publishes columns on the daily news and sustainability via LinkedIn. He holds a master degree in Sociology from VU University Amsterdam, where he specialized in social research, agent-based modelling and living wages.

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