A powerful tool for businesses

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Euro Day 08/04/2024


The role of business in the global effort to combat climate change is becoming increasingly essential. And for good reason: since the start of the industrial revolution, more than two thirds of global emissions have been produced by large companies.

In this context, companies face the risk of changes in government policies aimed at reducing emissions. To deal with these complex changes, a tool has emerged (following the Kyoto Protocol signed in 1997 which laid the foundations for carbon pricing): the internal carbon price (ICP), also known as the price fictitious carbon. Our research, carried out within the EDHEC-Risk Climate Impact Institute, focuses on the application of internal carbon pricing, the modeling of the pricing method and its precise use in the private sector.

As climate change policies and carbon prices evolve rapidly, businesses have no choice but to go further and measure their exposure to carbon risks. Carbon risk management should be treated with as much importance as any other traditional risk within the business, such as compliance risk or foreign exchange risk. To prepare, the best thing to do is to work out different scenarios. This instrument is crucial for business decision-making, risk assessment and financial evaluation, but also strategic planning. However, there is a limit to the diffusion of this powerful tool in more than one way: the models necessary for the calculation are complex.


Influence future decisions

Indeed, first and foremost, companies must assess their direct and indirect carbon emissions, whether from their own sources, their energy consumption, their supply chain operations or waste management. By “direct emissions” we mean those resulting from sources owned or controlled by the company, such as emissions produced during combustion in a company’s boilers or its vehicle fleet. Indirect emissions come from the consumption of energy purchased by the company, such as electricity, heat or cold. Finally, other indirect emissions come from the supply chain, during the transport of materials or the elimination of waste.(...)"


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a powerful tool for businesses