Corporate Climate Progress Has Stalled. Carbon Pricing Could Be the Answer.

Ellie Read
May 24, 2024
At a moment when report after report shows the world is nowhere near its climate goals, the corporate climate movement is slowing down - not speeding up. For the past decade, thousands of companies raced to set ambitious, long-term targets for emissions reduction. But few if any are meeting those targets. 

The failure to reduce emissions may, ironically, may be the reason why companies are cutting sustainability budgets and walking back their climate commitments. This might seem counterintuitive: to close the gap, shouldn’t companies be investing more, not less?

That’s a hard sell to the corporate CFO who is feeling pressure from anti-ESG activists and hearing about new anti-greenwashing rules, which make it more difficult to talk about sustainability programs. 

As a result, investment is down and greenhushing is up.

It’s no wonder companies are having a hard time finding a path forward, when you consider the swirl of mixed signals about the “right” way for them to act on climate. We often find companies overwhelmed by options and worried any step they take could be called a misstep. They’re left uncertain about how and where to focus.

Our experience working with hundreds of brands has taught us that companies are more likely to fund climate projects if they can talk about them publicly, and more likely to maintain funding year after year if they have some flexibility to prioritize based on what is most available to them. The greenhushing movement is not conducive to climate funding. Neither is the conventional insistence that companies reduce all of their value chain emissions before deciding to invest in tools beyond the value chain, such as carbon credits.

A common concern is that companies, given flexibility, will always choose the cheapest route, such as low quality carbon credits, which will lead to suboptimal outcomes for the climate. But what if there were a way to encourage funding, make it easier to talk about climate actions, and take “cheap” off the table?

The answer may lie in a decades-old tool: carbon pricing. 

Academics have written about carbon pricing for years, politicians have (occasionally) advocated for it, and regulatory frameworks (CA Cap & Trade, RGGI, EU CBAM, etc.) have used it to produce emission reductions in hard-to-abate sectors. While there are a few notable examples of companies setting internal carbon prices (such as Microsoft and Seventh Generation), carbon pricing is still uncommon across the corporate sector.

It’s time to revisit internal carbon pricing, since it may be key to the next chapter of corporate climate mobilization. Admittedly, carbon pricing isn’t the first strategy that comes to mind for most companies when they begin to tackle their emissions, but the urgency and severity of the climate crisis are an ultimatum for that to change. 

The beauty of carbon pricing is it harmonizes across different schools of thought around the ‘ideal’ mitigation hierarchy, the ‘optimal’ technology, and the ‘silver bullet’ solution, and gets right to the important point: the money. Internal carbon pricing can catalyze investments in decarbonization projects by allowing sustainability managers to cut to the chase: measure annual emissions, refer to the carbon price, and calculate a climate transition budget. Then get to work on the highest impact ways to deploy capital, and reduce emissions.

Folks considering carbon pricing often get caught up trying to figure out the right price on carbon and right place to invest those dollars. But this can be addressed with a framework that removes guesswork and defines the carbon price for companies. Standardized carbon pricing should be clear and easy to implement, and the money should be set aside specifically for decarbonization projects. The money should fund value chain investments and beyond-value-chain mitigation. The prices should step up over time, pressing companies to transition to higher levels of climate funding. It should also be easy for a layperson to understand how the carbon price leads to new behavior at the company.

Companies may hesitate to adopt a carbon price because it feels like a voluntary tax. Why add costs, right? It’s time to re-evaluate that mindset and consider carbon pricing as a mechanism to unlock value. Seen another way, that “cost” can actually be a motivation to invest in the quality of your products, the strength and stability of your value chain, and the loyalty of your consumers. 

Ultimately, carbon pricing can spur reduction investments that lead to measurable climate progress and allow companies to: 

  • De-risk climate communications. By demonstrating to stakeholders that they are putting real dollars into action, and having reduction results to show for it, companies will want to shout their progress from the rooftops. 
  • Drive values-based customer loyalty. Consumer demand for climate action isn’t going away, and with greater confidence around climate communications, companies will be able to win and retain customers shopping with their values. 
  • Reduce cost of capital. Banks are rewarding companies that can demonstrate leadership on climate initiatives, such as use of lower-carbon materials or operational efficiencies that reduce emissions, allowing them to access lower interest rates when they borrow.
  • Motivate supplier engagement. A budget for climate investments incentivizes conversations about lower-carbon options, efficient manufacturing processes and equipment, energy use and renewable energy installation, and more. 

The theory of carbon pricing can work on the ground and animate a new wave of corporate funding for climate action. Lower-carbon solutions are available for almost every aspect of the economy today, just underfunded and needing investment to scale. It's time to get past the theoretical debate about what price is perfect and what type of investment is better, and start funding climate solutions that create value for companies and reduce emissions on our planet. 

Goodbye climate inaction, hello funding and progress!

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About the Author

Ellie Read
Certification Director

Ellie is an accomplished product manager with experience scaling tech solutions for impact. Ski fanatic, ocean lover, and passionate believer in the potential for corporate action against the climate crisis, Ellie has an MBA in Sustainable Solutions. She is always seeking ways to improve her impact, her team, and her dog's falsetto, and loves a good high five.

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