27 February 2024


Felipe Del Corral, Lee Evans


Emissions Economics: Understanding the Financial Implications on your Business

From regulatory compliance to ESG initiatives, the financial impact of the evolving energy landscape on your business is important. The balancing act between doing what's right for the future of your business, your clients, and our planet is not a simple decision, but an important one to get right.


The environmental sector is complex and constantly evolving but monitoring how changes could financially impact businesses is a critical step. We help business leaders and CFOs to better understand the landscape, to not only mitigate financial risk but also unlock fiscal opportunity through their energy transition journey. These lessons are valuable to everyone so we have prepared this short guide to share insight and information that can also benefit your future business decisions.

Emissions: The hidden liability in your balance sheet.

Emission liabilities exist in your balance sheet, driven by both top-down changes and bottom-up pressures.

From a top-down perspective, international climate commitments, government legislation, new industry standards, and investor demands all compound to change the energy landscape, and there is more to come. Further legislation around emissions tracking and reporting will also drive significant costs for many businesses. These - and many other net zero targets - are not going away. If anything, we see the opposite happening. Most businesses have started to take steps to report emissions but understanding the imminent financial impact is the best way to mitigate the risk.

Bottom-up pressures are a slightly different story. Markets and clients are changing in line with a new positive environmental consciousness impacting all industries. That means low emissions certificates are becoming key tender criteria whilst end-customer behaviour is also shifting towards purchasing sustainable products. This purchasing behaviour is driving the need for a brand to demonstrate their emissions reductions and commitments.

If it affects you, then it also impacts the supply chain and the end customer, so don’t be surprised to see those questions coming back up the chain.

Emissions is a new barrier to access capital.

If your supply chain is considering emissions, so are your investors. We see a change in leading banks and investment firms classifying emissions risk as financially material, impacting how they deal with stakeholders and customers and where they invest funds, both globally and locally.

The environmental agenda is fast becoming a prerequisite for dealing in capital markets and managing this risk is imperative to gain access to key financial partners.

Finding cross-border emissions requirements.

Border adjustments are likely to play a key role in global and governmental solutions to reach net zero targets more quickly. The latest example is the recently launched Carbon Border Adjustment Mechanism (CBAM) in Europe, which introduced a carbon fee on certain imported goods.

Now more countries/regions are following Europe and creating their own version of CBAM, and we expect to see further carbon fees implemented across the globe. Under this direction, your emissions could drive new costs within your business. As you continue to transport and import goods from around the globe, the impact on your bottom line will change, and new environmental questions will be asked.

The time to act is now.

Early action leads to more emissions risk management options and opportunities. We can help you better understand the financial implications of your business’ emissions, so you can effectively navigate the evolving energy sector and make informed decisions about your energy transition journey. For more information or to chat with our Risk Management team, you can contact us below.

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