The carbon challenge: offset financial planning

Climate change is no longer the preserve of environmental scientists. Mounting evidence of the link between carbon emissions and global warming has triggered demands for businesses to be more transparent about their impact on the environment and to take steps to minimize it. If companies today are to maintain market-leading positions, they cannot afford to ignore the challenge of carbon offsetting.

It is almost inevitable that regulation on emissions reduction will become more stringent in the coming years. By planning for the costs of carbon offsetting now, companies can position themselves to thrive in the tougher regulatory environment we are likely to see in the near future.

For any company, the process of monitoring, projecting and reducing emissions levels starts with a “greenhouse gas emissions inventory.”

If companies today are to maintain market-leading positions, they cannot afford to ignore the challenge of a low carbon economy.

The company can then use the outcome to carry out two parallel processes: the first is to estimate future emissions based on a combination of current levels and the company’s business plan; the second is to identify opportunities to reduce emissions through internal operational changes.

Once targets have been set, a financial analysis kicks off. The objective of this analysis is to model different cost scenarios for carbon offsetting. The scenarios will vary according to when and how the investment for carbon credits acquisition is going to occur. This allows the company to compare the investment volume between a purchase of carbon credits over the counter and on a long-term investment agreement – and plan for it.

Carbon emissions can become an asset or a problem, depending on how each company decides to manage them. As with any business decision, it comes down to forward planning and strategic thinking.

The complete article was written by:

  • Diogo Negrão
    Senior Advisor, Climate Change and Sustainability Services, Ernst & Young, Brazil

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