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Business Leadership Criteria on Carbon Pricing

While the world is facing unprecedented environmental challenges such as climate change, clean water scarcity, and energy crises, the private sector is required to accept responsibility for environmental degradation. According to the United Nations Global Compact's Seventh Principles, businesses must support a precautionary approach to environmental challenges, leading to various business adoption of planet-oriented initiatives. One of the cost-effective policies is "carbon pricing," which shifts the impact of greenhouse gas emissions to those who can either allow or avoid carbonization.


"Carbon pricing" is a scheme started by the World Bank to calculate the cost of carbon dioxide (CO2) emissions and their effects on profit, people, and the environment. As the government is responsible for covering the costs of natural disasters, carbon pricing aids in tracing back to the root causes of carbon emitters and allows it to internalize the perceived public cost of climate change. With the public sector being able to do this, businesses—which are responsible for most emittance—must choose whether to continue their practice and get fined or change their activities.

The Carbon Pricing Business Leadership Criteria are divided into three distinct but overlapping dimensions. These include incorporating carbon pricing into long-term strategies and investment decisions, responsible policy advocacy, and progress communication. All criteria agree on limiting global mean temperature rise to 2° C above pre-industrial levels, and companies are invited to indicate their compliance.


Companies must do three things to achieve this: price it, support it and report on it. Firms must set an internal carbon price high enough to influence investment decisions to reduce greenhouse gas emissions materially. Then, they should publicly advocate for the importance of carbon pricing through policy mechanisms that account for country-specific economies and policy contexts. Finally, businesses must report and communicate progress over time on the two criteria mentioned above.

Above all, with climate change's unavoidable impact, taking the initiative to enact change is critical. Implementing carbon pricing on companies or producers, in particular, could potentially lower greenhouse gas emissions overall.

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