Implementing Internal Carbon Pricing for a Global Brand

Situation

The brand has ambitious sustainability aims and a strong drive for innovation. The company wanted to implement an Internal Carbon Pricing system that would materially impact business investment decisions to help the organisation achieve its Science Based Target (SBT) and Net Zero goals.

The aim was to start with internal projects and innovations, working towards exploring investment decisions related to the wider value chain and scope 3 emissions.

A key motivation for the Internal Carbon Pricing system was to drive behaviour change across the organisation.

Solution

Anthesis began working with the company to understand its drivers for implementing Internal Carbon Pricing, to gather the views of stakeholders, and to understand the key systems and processes that would be affected.

To assess how implementation would work at the company, Anthesis devised a pilot phase based on introducing a shadow price to the company’s existing business case approval process. This process was selected due to its potential to shape investment decisions and have a significant impact on reducing carbon emissions. We quantified the carbon impact of several live business cases and engaged with Project Managers to understand data availability, how the Project Managers can quantify carbon impacts themselves, and what tools and training they would require. We also looked at how decision makers would engage with the process, and how different carbon prices might affect the business cases put forward.

For each business case, we looked at the break-even cost, i.e., what cost of carbon might change a business case from having a negative to a positive NPV (net present value) or vice versa. During this stage of the project, we also investigated potential carbon prices and methodologies for setting and updating it. The carbon price used needs to be set at a level that will impact decision making, but also must be defensible, easy to communicate, and fit within governance structures for updating and monitoring. Naturally, this can vary between companies, and so bespoke analysis is important, but ultimately being able to tie the carbon price to an external benchmark that aligns with the results of internal analysis is beneficial. Finally, we developed bespoke tools and training materials that simplify the challenging task of carbon quantification.

As Internal Carbon Pricing is a process that can drive significant change within an organisation, Anthesis continues to assist the company through the implementation phase, supporting with internal communications, training, user support and buy-in.

Impact

The project resulted in the creation of a shadow price Internal Carbon Pricing mechanism and clear guidance on how this can be implemented across the business case approval process. Investment decisions will now have to demonstrate that the carbon impact has been factored into the financial decision, thus creating a greater incentive for carbon reductions and resulting in material savings in Greenhouse Gas (GHG) emissions towards the company’s targets.

Following this project, we have been engaged to support several other parts of the business, including procurement and design, to look at how Internal Carbon Pricing can be implemented within other processes to allow more sustainable decisions be made, such as localising the supply of materials to reduce transport emissions.

Insights

Internal Carbon Pricing Whitepaper