Carbon emissions are a global challenge, but the way each company responds to the risks and assesses new opportunities should be highly case specific. While compliance is critical, strategy should matter most of all. CFOs must ensure that their organizations meet customer priorities, adapt to regulatory changes, and develop an informed view of carbon management tools. Too often, companies can have multiple, inconsistent, and ineffective carbon data and analyses across their organizations—or lack meaningful emissions data entirely. The finance function is where carbon should meet numbers. In this article, we’ll discuss how CFOs can help their organizations assess carbon’s importance to strategy, and use emissions data to improve decisions.
Across industries, sectors, and company sizes, CFOs not only ensure effective compliance and reporting, but they also play a key role in realizing the organization’s core strategic objectives. Carbon management is no exception.
For some companies, tracking and reporting carbon emissions is mission essential, legally required, or both. In addition, particularly in Europe, regulators mandate that companies not only disclose their emissions but also increase their level of assurances—as they would for financial reports. Moreover, a failure to report emissions accurately can have financial and reputational consequences for companies worldwide.
Carbon management is highly context dependent: the challenges that a United States–based software or biotechnology company confront are clearly different from those faced by, for example, a steel, cement, or energy corporation based in Europe, or a media company in an Asian market. For a CFO—who is at the intersection of strategy, reporting, and resource allocation—it’s essential to ensure that the company’s carbon management initiatives are consistent within the company’s strategic and compliance needs—and attuned to the needs of key external stakeholders.
Many essential customers across borders do want to understand a product’s carbon footprint, and are beginning to demand greater transparency into underlying metrics. Businesses that use robust carbon reporting can provide their customers with greater transparency, as well as better inform their own opportunities to identify new, differentiated, green-product offerings. Compelling business cases become even stronger under rigorous regulatory frameworks that have global effects, such as the European Union’s Carbon Border Adjustment Mechanism (CBAM).
Finally, carbon compliance may be more complex than it initially appears. The implications can range beyond reporting emissions data to include carbon taxation, expenses under emissions- trading frameworks or carbon border adjustment mechanisms, and voluntary carbon mitigation costs such as carbon credits. Firms that lack detailed emissions data will need to fall back on generalized emissions factors to estimate emissions across scopes.
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By Hemant Ahlawat, Peter Spiller, and Tim Koller with Erik Ringvold / Courtesy of McKinsey & Company
