5 reasons to boost your Carbonary rating
1.
Investor confidence
2.
Investment opportunities
3.
Decreased regulatory risk
4.
Brand reputation
5.
Market perception
1. Improved investor confidence
A lack of transparency in financial markets and corporate reporting can erode investor confidence - and the same goes for non-financial reporting. Without access to carbon data, investors may be uncertain about the company's environmental impact and its ability to manage and mitigate climate-related risks.
As the focus on sustainable investing continues to grow, investors are increasingly demanding more comprehensive and transparent information from companies regarding their environmental impact, making carbon data disclosure an essential aspect of maintaining and building investor confidence. A company's failure to disclose carbon data can be perceived as a lack of commitment to environmental responsibility and a lack of accountability. Transparent reporting on carbon emissions and carbon offsetting programs signals responsible corporate governance and long-term planning, making the company a more attractive investment option for stakeholders who prioritize ESG considerations.
2. Improved investment opportunities
Uncertainty can lead to reluctance to invest in a company. Investors may become hesitant to invest, or demand higher risk premiums to compensate for the uncertainty regarding climate risks. In fact, a study carried out by Schroders demonstrates that a lack of transparency and reported data is the second biggest challenge to sustainable investments after greenwashing.
As investors increasingly consider environmental performance and management in their decision-making, they may use carbon data as part of their screening process. Companies with insufficient or non-disclosed carbon data might be excluded from investment portfolios, limiting their access to capital.
Society’s transition to limit carbon emissions is certainly a challenge - but it also brings many investment opportunities. The world is adapting and new opportunities are opening up as emerging markets adapt to a world moving towards sustainability.
3. Decreased regulatory risk
Companies face regulatory risks regarding carbon emissions in the context of increasing government and regulatory scrutiny on climate change and environmental issues. These risks can take various forms and can have significant implications for a company's operations, compliance, and financial performance. These risks include the following:
Emissions Reporting and Compliance: Many countries and regions have implemented or are considering mandatory carbon emissions reporting and reduction targets, and an increasing number are clamping down on greenwashing by imposing limits on companies claiming to be carbon neutral/net zero. Companies may be required to disclose their greenhouse gas emissions and demonstrate progress toward emission reduction goals, justifying any climate claims they have made. Failure to comply with reporting requirements or meet reduction targets could result in fines, penalties, or reputational damage.
Carbon Pricing and Taxes: Some jurisdictions have introduced carbon pricing mechanisms, such as carbon taxes or cap-and-trade systems. Companies emitting significant amounts of carbon dioxide may face increased operating costs due to these pricing mechanisms, affecting their profitability and competitiveness.
Environmental Regulations and Permits: Companies that are significant emitters of greenhouse gases may face stricter environmental regulations and permitting requirements. This could impact their ability to expand operations, undertake certain projects, or obtain necessary permits, leading to delays or increased compliance costs.
Legal Actions and Lawsuits: Companies with high carbon emissions may face legal challenges from governments, environmental organizations, or affected communities seeking accountability for environmental damages or climate change impacts. Such lawsuits can lead to substantial financial liabilities and reputational harm.
Investor and Shareholder Pressure: Institutional investors and shareholders are increasingly concerned about the financial risks posed by climate change. They may demand more transparent reporting on carbon emissions and climate-related risks or even initiate shareholder resolutions to push for more climate-conscious corporate practices.
Supply Chain Risks: Regulatory actions taken in response to climate change may also affect a company's supply chain partners. Companies may face risks related to supplier compliance, availability of raw materials, and changing regulations in the regions where their suppliers operate.
Trade Barriers: Some countries and regions are considering implementing carbon border adjustment mechanisms or tariffs on imports based on the carbon footprint of products. This could impact companies exporting goods from countries with less stringent emission regulations.
Market Access and Reputation: Companies that are perceived as insufficiently addressing carbon emissions and climate-related risks may face challenges in accessing certain markets or securing contracts with environmentally-conscious clients.
Embracing sustainable practices not only helps companies comply with existing regulations but also positions them favorably in a changing regulatory landscape and addresses growing investor and consumer demands for environmental responsibility.
4. Enhanced brand reputation
Differentiation
A strong carbon rating can help a company differentiate itself from competitors and position itself as a responsible and ethical brand, potentially attracting new customers and business opportunities.
Consumer Perception
As environmental issues gain prominence, consumers are becoming more environmentally aware and are increasingly making purchasing decisions based on a company's sustainability practices. Consumers are more likely to support brands that align with their values and a favorable carbon rating can attract environmentally-conscious consumers, leading to increased brand loyalty and positive word-of-mouth recommendations.
Stakeholder Trust
Transparency and accountability in environmental practices build trust with stakeholders, including customers, employees, and partners.
Media and Public Attention
Companies with poor carbon ratings or those involved in environmental controversies may attract negative media coverage and public scrutiny. This can damage a company's brand reputation and lead to loss of market share.
5. Better market perception
Market valuation
The perception of a company's approach to sustainability and climate-related matters can influence its market valuation. A lack of carbon data disclosure leads to a negative perception among investors, analysts, and the general public, impacting the company's stock price and overall market performance.
Higher premiums
Investor sentiment can also play a role. If there is a general shift toward valuing companies with strong climate risk management practices, it could result in a market-driven demand for higher premiums from companies perceived as lagging in this area. Climate risks can vary significantly across industries and sectors. Investors might apply varying premiums depending on how exposed a particular industry is to climate risks and how well companies within that sector are addressing those risks.
Benchmarking
Improves overall market transparency as companies and other stakeholders can benchmark their performance alongside their peers.
How can you improve your Carbonary rating?
We rate companies based on their residual emissions, which are emissions that a company cannot operate without after all efforts have been made to decarbonise. We take into account the following criteria:
Transparency of carbon reporting (completeness, verification, etc.)
% of core residual emissions offset (core residual emissions = Scope 1 + Scope 2 + Business travel + Employee commuting)
% of total residual emissions offset (Scope 1 + Scope 2 + full Scope 3)
Financial ability to progress further by purchasing additional carbon credits
We encourage companies to offset their residual emissions with high quality carbon credits.
Achieved
How to improve
A
All residual emissions offset. Excellent transparency.
B
At least 50% of residual emissions offset, companies with high financial ability are excluded from this category as this should, arguably, enable them to offset more. Good transparency.
Reduce residual emissions by decarbonising, offset more residual emissions.
C
Core* residual emissions offset. Good transparency.
Reduce residual emissions by decarbonising, ensure carbon credits are high quality and disclose all relevant information relating to the carbon credits that have been retired/cancelled.
Reduce residual emissions by decarbonising and begin offsetting Scope 3 emissions.
D
At least 50% of core* residual emissions offset. Companies with high financial ability are excluded from this category as this should, arguably, enable them to offset more. Good transparency.
E
Minimal to no residual emissions offset. Poor transparency.
F
Little to no disclosure.
Reduce residual emissions by decarbonising and focus on offsetting all core residual emissions. Focus on improving transparency .
Focus on improving transparency - disclose all required information and get external verification. Reduce residual emissions by decarbonising and begin to offset them.
Focus on improving transparency - disclose all required information and get external verification. Reduce residual emissions by decarbonising.
*Core residual emissions include:
Direct emissions (Scope 1)
Indirect emissions (Scope 2)
Limited part of value chain emissions (Scope 3 - Business travel + Scope 3 -Employee commuting)
They do not include the vast majority of Scope 3 emissions.
What is transparency?
-
Reporting completeness
Has all emissions data been fully disclosed?
Scope 1
Scope 2 (market-based and location-based)
Scope 3 (all 15 categories)
-
External verification
Has all reported data been verified by a third-party?
What type of assurance has been obtained?
Limited
Moderate
Reasonable
Absolute
-
Carbon offsetting
If the company has offset any of its residual emissions:
Have all carbon offsetting projects been disclosed in detail?
Have all the dates carbon credits have been retired/cancelled been noted?
Has the price the carbon credits were purchased for been disclosed?
Submit data
We encourage companies to reach out if any of our data needs to be updated or if you would like to submit data for a company that is not currently included on our tool.
Simply fill and submit the form below and our team will review your request. Once it has been validated, the tool will be updated.