Written on 30 Jan 2024.
We are delighted to announce that EDHEC Professor Gianfranco Gianfrate’s academic research paper "Determinants of Internal Carbon Pricing," published in Energy Policy, has been Highly Commended in the FT Responsible Business Education Awards, in the category “Best business school academic research”.
The FT Responsible Business Education Awards were created in 2021 to go beyond the business school rankings, to “ensure a wider variety of activities are analysed qualitatively to showcase, reward and incentivise individual examples of best practices”, says the Financial Times. The research awards distinguish publications addressing societal challenges whose associated outreach/engagement has delivered positive impact on policy or practice.
The following three categories highlighted for 2024 are:
This year’s winners looked at improving reporting of domestic violence or creating cooperation between child abuse activists and the police; at measuring the costs for US municipalities of anti-ESG actions imposed by State-legislators; have applied large language model (LLM) to measure the gap between climate finance pledges and actions or to document that the “life below water” UN Sustainable Development Goal was a blind-spot in terms of adverse impacts by companies.
View the official announcement of all award winners here: Academic research award: problem solvers for the planet.
Companies are increasingly called upon to collaborate in the fight against climate change in the context of emerging global climate governance and rising public awareness for the need to accelerate decarbonisation.
Corporate involvement in climate mitigation is crucial as over two thirds of global emissions since the start of the industrial revolution are attributed to companies and pledges by national governments in the wake of the Paris Agreement cannot be delivered without material changes in the activities of major sources of emissions such as companies. For the same reason, corporates are particularly exposed to the risk that government at different levels will impose policies and regulations aimed at reducing emissions.
New tools are emerging to assist with the delivery of corporate greenhouse gas (GHG) emissions reduction objectives, with internal carbon pricing (ICP) becoming a widespread practice globally. ICP is a voluntary method for companies to internalise the social cost of their GHG emissions, even when all or part of their operations are out of the scope of external carbon regulations.
The author has pioneered academic research into the application of internal carbon pricing by corporations and promoted its real-world uptake through contributions to trade magazine and business and management publications such as Harvard Business Review, presentations, and engagement with standard setters and other influential bodies.
His latest contribution (co-authored with IUL Nuno Beto) explores the factors that explain the adoption of internal carbon prices among global companies. Results show that the prices depend on the national climate policy, home country's development, industry, and corporate governance. However, national context has higher explanatory power than industry and firm-specific characteristics indicating that climate policy uncertainty hampers carbon pricing by businesses. Firm-level internal carbon prices are significantly higher in countries explicitly pricing carbon through tax and/or cap-and-trade programs. These findings shed light on how companies are factoring climate change in their decision-making and on the drivers that can contribute to the generalisation of climate pricing in the global economy.
The efforts of the researcher have arguably had a global impact on policy and practices.
Harvard Business Review has included the ICP work of the author in a book collection of ten articles of material relevance to corporate risk management (“10 Must Reads on Managing Risk”, paperback and ebook, reference: 1102BN-BUN-ENG), which reflects its high impact and relevance.
The 2021 update to the implementing guidance of the recommendations issued by the Task Force on Climate-related Financial Disclosures (TCFD) introduces a requirement to disclose metrics (and where relevant, targets) consistent with seven cross-industry categories, including Internal Carbon Prices. The intention is to provide users with an understanding of the reasonableness of an organisation’s risk and opportunity assessment and strategy resilience and specifically to help identify which organisations have business models that are vulnerable to future policy responses to climate change, and which are adapting to ensure resilience.
One should remember that multiple jurisdictions (including the United Kingdom) and some thirty stock markets worldwide are already requiring companies to disclose against the TCFD framework and that the framework will now be the global baseline for climate change disclosures as part of sustainability reporting. This is because the recommendations of the TCFD have been fully incorporated into (i) the International Financial Reporting Standards (IFRS) Foundation International Sustainability Standards Board (ISSB) standards, which are endorsed by IOSCO, the International Organisation of Securities Commissions; and (ii) the recently adopted European Union Environmental and Social Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD).
The Guidance on Metrics, Targets, and Transition Plans issued by the TCFD in October 2021 references the author’s work.
The TCFD 2023 Status Report (published on 10 October) chronicles the uptake of TCFD recommendations and provides several illustrations of advanced usage of ICP.
The chapter on “Climate Resilient Development Pathways” in the 2022 contribution of Intergovernmental Panel on Climate Change (IPCC) Working Group II to the IPCC Sixth Assessment Report recognises that “the financial system could play a key role in pricing carbon and in allocating capital towards low-carbon emission companies” and cites several articles by the researcher. Consistent with the researcher’s latest work, it also states: “Stable and predictable carbon-pricing regimes would significantly contribute to fostering financial innovation that can help further accelerate the decarbonisation of the global economy, even in jurisdictions which are more lenient in implementing climate mitigation actions.”
About Gianfranco Gianfrate:
Gianfranco Gianfrate is Professor of Finance at EDHEC Business School and Research Director at EDHEC-Risk Climate Impact Institute. He writes and researches on topics related to innovation financing, corporate valuation, and climate change finance. Prior to joining EDHEC Business School, he held teaching and research positions at University of Cambridge (UK), Erasmus University (Netherlands), Harvard University (USA), and Bocconi University (Italy). Gianfranco also has extensive experience in the financial industry, having worked, among others, for Deloitte Corporate Finance (Italy), Hermes Investment Management (UK), and iStarter (UK). Gianfranco holds a BA and a PhD in Business Administration from Bocconi University and a Master in Public Administration from Harvard University.