First came the anti-ESG backlash. Then U.S. investors withdrew money from ESG funds. Then regulators and lawyers set their sights on exaggerated sustainability claims, at times with divergent goals, but together creating a culture of fear among sustainability teams and their marketing peers. And all of this was before the current assault on recent climate policies that, despite being good for business and the planet, were deemed too ‘woke’.
And yet – sustainability folks are a determined lot. The research suggests companies will continue to invest in sustainability, or even increase their commitment to it. This is not just a convenient refrain for sector advocates. It is a data-driven truth that sustainability is a long term trend and a competitive advantage.
While companies are not backing down from sustainability, they are not entirely immune to the many disruptive forces in the market. This is a year of strategic realignment, and companies are rethinking how they prioritize, communicate and approach climate strategy.
One important and rapidly growing trend is enthusiasm for internal carbon fees, which have the potential to smooth over many bumps in the road. Unlike regulatory carbon prices, set through policy, or shadow carbon prices, used quietly by companies to model risk, internal carbon fees are self-imposed and assessed on every ton of GHG emissions. Properly applied, internal carbon fees create climate transition budgets, and are a proven way to prioritize climate actions across a business.
Internal carbon fees are nothing new. As one example, Microsoft implemented such a fee in 2012 and continues to use it to drive decision-making and fund its significant investments in carbon removals. But now internal carbon fees are making new waves.
Today The Climate Label announced the first 16 companies to receive its new certification, which evolved from and replaced the previous Carbon Neutral Certified label. REI, Reformation, Blueland, Vuori, and a dozen others all implemented a carbon fee and now have an active climate transition budget. Nearly 200 other companies are also in the process of certification.
1) Targets Aren’t Cutting It
More than 10,000 companies have developed climate targets, but report after report highlights widespread failure to meet them. According to Accenture, only one in six of the world’s largest companies are on track to reach net zero by 2050, and new Harvard Business School research finds a “troubling gap between corporate pledges and real action.”
Reductions targets were a pivotal leap forward for corporate sustainability. They created a shared standard and rigor that was desperately needed. But consumers and investors are responding with skepticism. According to PwC, only 30% of consumers say they trust the companies they buy from. That’s because so many companies set lofty targets without ever backing them up.
Climate targets are all but theoretical without real financial and operational changes to drive progress. Internal carbon fees put climate costs into budgets, and make emissions a line item that companies must reckon with.
2) Companies Need an Antidote to Greenwashing
Fear of greenwashing keeps CMOs awake at night. Unfortunately, many climate strategies are built on far-off targets – lofty future claims that are rarely funded or backed by an implementation plan. This is precisely the wrong way to construct a credible climate claim.
Internal carbon fees create a system, rather than a slogan. Companies can measure and disclose recent past and present actions in place of future claims. The actions are auditable and verifiable by third parties. The result is a more compelling, higher integrity claim – just what’s needed to move climate action past the “greenhushing” phase that is stifling action.
3) The Era of Tonne-For-Tonne Climate Strategies is Over
Carbon credit purchases through the voluntary carbon market (VCM) have long been a pillar of many companies’ climate strategies. But even as the VCM seeks to escape its own shadow by defining higher standards for integrity, standard-setters and advocates have all but declared a permanent end to the conventional practice known as “tonne-for-tonne mitigation.” This was the practice of tallying carbon emissions and buying carbon credits in equal amounts to compensate for climate damage.
This leaves a gap in the playbook: if tonne-for-tonne approaches are off the table, how should companies now frame up their climate strategies? Advocates are embracing the money-for-tonne approach, which involves accounting for emissions on a dollar-per-tonne basis. It’s a shift that leads companies directly toward internal carbon fees.
4) Simplicity is Good for Business
The gap between intent and action on climate suggests that many companies are sitting quietly on the sidelines, weighing whether and how to deploy climate actions within their sustainability portfolios. As they do so, they will look for frameworks that are appropriate to the market in 2025 – not 2015.
This means they will favor approaches that are operationally strategic, immune to greenwashing, and, even for companies new to climate, easy to implement. Internal carbon fees offer an accessible onramp for new initiatives.
5) The Outcome: Improved Alignment with Climate Goals
Internal carbon fees can be powerful in the hands of a sustainability professional looking to build support across their teams. They are also a powerful tool to bridge the massive climate finance gap. The World Economic Forum notes that “The financing of a lower-carbon economy is one of the defining challenges of our era.” The climate transition is estimated to cost $125 trillion by 2050 – and to mitigate the worst impacts of climate change, current investment levels must increase at least five-fold.
Sustainability may face fierce headwinds and market volatility, but also has strong signs of durability. If companies move to adopt internal carbon fees, climate progress may never stall – staved off by a proven climate tool that builds both credibility and momentum.
Stay up to date with Climate Neutral!
Subscribe to the latest news and announcements from our team.
Austin Whitman is CEO and co-founder of The Change Climate Project. For more than two decades he has worked to create new markets and demand for climate solutions. He believes companies and individuals can make a huge difference for the climate if they're just shown how. Outside of work, he is a dad, a woodworker, and spends a lot of time in New England's great outdoors.
%20(1)%20(1).svg)
Planet FWD and the The Change Climate Project are teaming up to help brands transform climate ambition into measurable impact.
TCL incorporates many best practices that are expected within CSRD, CTAPs, and ISO Net Zero, particularly with regards to GHG measurement, setting near-term emissions reduction actions, investing in the net-zero transition, and performing public disclosure.
Sustainability leaders will need to get more familiar with using discomfort as a tool, if they are to be successful at maintaining their roles and responsibilities. But this can create productive conversations that keep business leaders focused on the business opportunities that grow out of sustainability initiatives.
Sign up to receive the latest news and announcements from the Climate Neutral team.
Sign up to receive the latest news and announcements from the Climate Neutral team.
