a bonus for less-polluting businesses

The core international efforts outlined in the Kyoto Protocol are carried out by each country at a national level. The Protocol includes “flexible mechanisms” which act as a support system at an international level. These mechanisms promote technologies that produce less greenhouse gases. The best-known is the global market for emission permits, or “credits”. A company that reduces its greenhouse gas emissions can resell its credits and make a profit. This system encourages companies to implement less-polluting production processes. A true “carbon trade” has emerged where the “carbon stock markets” are the financial operators, similar to the European Climate Exchange in London.   

Beyond the Kyoto Protocol, other "voluntary” trading systems have been developed to contribute additional financing for projects that reduce greenhouse gas emissions, most notably, BlueNext in Paris and the Chicago Climate Exchange. These markets function according to the principle of “voluntary carbon compensation.” Carbon emission reduction credits are traded and treated as real financial products. They are issued by companies that want to finance projects to reduce their emissions. Through this voluntary compensation mechanism, a company can then be partially or entirely compensated for its emissions by purchasing “carbon credit” units. Companies involved in these trading systems are not subject to any formal requirement; their initiative stems primarily from ethical concerns and a strategic choice.

the growing importance of “carbon accounting”

It is likely that all businesses, regardless of industry, will eventually be required to disclose aspects of their carbon accounting. The Kyoto Protocol’s regulations regarding CO2 emissions have provided a foundation for such a shift.

The development of carbon accounting can also be explained by the increasing pressure exerted by institutional investors. For example, the members of the Carbon Disclosure Project (CDP) encouraged 1,550 of the largest international companies to publish reports on their greenhouse gas emissions. The objective is to provide investors with a clear view of each company’s efforts and a big picture of the environmental risks that their portfolios represent. The CDP unites over 384 institutional investors that manage $57 trillion in assets.