The CFO’s impact reporting – Climate change
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 true price for pollution.
(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 true 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 true 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 true 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 true 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.
- How 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.
I say: every financial on climate course!