Internal carbon pricing - Climate ambition to financial strategy

Climate targets for large corporate organisation are more clear and publicly visible than ever before.

Net zero by 2030...

Supplier decarbonisation by 2040...

Fully climate-neutral operations by 2050...

The pledges are ambitious and sustainability professionals are working incredibly hard to make these ambitions a reality.

But when the CFO asks “what does this actually cost us?”, many companies are still searching for clear answers.

Here's one.

An internal carbon price (ICP) can assign a monetary value to each tonne of emissions, allowing businesses to translate climate goals into budgets, anticipate regulation and make more disciplined investment choices.

It's one of the most strategic ways to move from ambition to action.

Yet the reality is that for many organisations, internal carbon pricing is still in its early stages. A number might be published in sustainability reports or shared with investors, but it often does not yet reach the teams making day-to-day financial decisions.

Procurement may still default to the lowest cost supplier, and offsets may still be purchased reactively. The opportunity is to take, what is today a signalling tool, and turn it into a true driver of business strategy.

Adoption is growing, but depth varies

Momentum is building.

In 2023, 1,722 companies globally reported to CDP that they had implemented an internal carbon price, and another 3,070 said they intend to adopt one within two years.

Together, almost 40% of reporting companies are either using or planning to use this tool. (CDP, Abatable 2025)

But how companies apply ICPs varies widely.

KPMG’s 2024 analysis of the chemicals sector found that 44% of firms report having or planning an ICP, yet most are still at the stage of using a shadow price, a theoretical cost used in modelling.

Only about 7% have introduced internal charges to business units, which is where carbon starts to be felt in real budgets. (KPMG, 2024)

This reflects a wider pattern.

Research shows that firms which only disclose a carbon price see little measurable impact on emissions, while those that integrate the price into operational targets and investment choices are more likely to deliver reductions in carbon intensity. (SSRN, 2024)

The message is clear...declaring a price is a starting point, not an end point.

The real value comes when the price influences choices across the organisation.

What makes an internal carbon price effective

The companies that turn ICP into strategy usually take three important steps:

Finance leadership

When the CFO and treasury team own the number, it carries weight across the business. Procurement and investment teams then feel carbon as a real cost.

Integration into decisions

A supplier or project that looks attractive on cost alone may be reconsidered once carbon is factored in. The ICP becomes a filter for decisions, not just a figure in a report.

Budget activation

Applying the price across a footprint creates a carbon budget. That budget can then be allocated across efficiency measures, new technologies and, where appropriate, carefully chosen carbon credits.

This is where an internal carbon price moves from a symbolic statement to a financial tool that drives change.

Why this matters in today’s market

The voluntary carbon market is evolving quickly.

Integrity initiatives are tightening definitions of quality, new disclosure rules are raising expectations, and corporates are more cautious about making claims that might be challenged.

Many companies are holding back from offsetting unless it sits within a credible internal framework.

An internal carbon price provides that framework.

It allows companies to plan their approach: what portion of a carbon budget should go to internal reductions, and what portion can responsibly support external projects. It ensures that credits are procured deliberately, with quality and co-benefits assessed alongside price.

In this way, ICP reduces reputational risk.

Offsets become part of a planned investment portfolio rather than a reactive purchase.

And stakeholders can see that climate commitments are underpinned by financial discipline.

A path from ambition to action

Seen this way, internal carbon pricing is not just about compliance readiness or ESG disclosure. It is about giving corporates a practical pathway from ambition to execution.

· It creates clarity by putting a number on the cost of climate pledges.

· It drives discipline by embedding that cost into procurement and capital decisions.

· It builds credibility by showing stakeholders that climate strategies are budgeted, not aspirational.

For corporates, the opportunity is to move beyond early-stage shadow prices and embed ICP across their decision-making.

Those who do will be better prepared for compliance costs, better positioned to manage reputational expectations, and better equipped to act confidently in the voluntary carbon market.

For partners, the role is to support that journey: benchmarking and setting credible prices, identifying where to integrate them into financial decisions, and helping activate budgets into structured actions, including investment in high-quality credits.

Final word

Internal carbon pricing is not simply an ESG exercise.

It is a financial discipline that links climate ambition to business reality.

Companies that embed it fully will not only navigate regulatory and reputational pressures more effectively, they will also gain a competitive edge by turning climate strategy into financial strategy.

The difference lies in how the price is used: as a disclosure, or as a decision driver.