Carbon Pricing in the Boardroom

Businesses are directly and indirectly impacted by both mandatory (compliance) and voluntary carbon markets. These impacts apply across supply chains, where carbon pricing regimes and disclosure requirements can change the cost of emissive goods and services. As well as direct impacts from compliance markets, companies may also be indirectly affected where its competitors, suppliers or customers are subject to a carbon price. But there are ways to manage the risks and impacts and to potentially unlock a competitive advantage by acting early and decisively.

Board directors play a vital role in making sure their companies are taking informed and robust strategic decisions on carbon pricing. They should consider carbon pricing within their strategic, risk and audit remits for the company. Compliance with all mandatory carbon pricing requirements, and an understanding of best practice and transparency regarding any internal pricing and use of voluntary carbon markets, will be fundamental for boards in this regard.

There are opportunities to leverage internal carbon pricing as a key element of a company-wide approach to net zero. Board directors need to steer the direction on internal carbon pricing - what decisions are they looking to influence, and how? They can then provide guidance on how an internal carbon price is implemented and how it is communicated internally.

Carbon pricing is directly relevant to board directors who sit on the Audit Committees of their respective boards. The Audit Committee has responsibilities in relation to financial reporting, internal controls, risk management, compliance and audit. In the context of carbon pricing, the company audit - conducted to provide investors and other stakeholders with confidence that a company's financial reports are accurate – will need to accurately account for carbon pricing. The Audit Committee will need a detailed understanding of any potential material risks and opportunities to the company as a result of carbon pricing, now and in the future. It will need to consider how these are being reported to investors and other stakeholders.