Net Zero Business Models

3APPLYING A CARBON SHOCK TEST

“We need carbon pricing.”¹

—Anne Simpson, Global Head of Sustainability, Franklin Templeton

Companies with higher carbon intensity are more vulnerable to potential carbon shocks from a prospective carbon tax and have greater climate risk exposure than companies with lower carbon intensity. Once a company has performed a comprehensive analysis of its overall GHG emissions, it can determine its carbon intensity with a relatively straightforward metric: metric tons of CO₂e emissions per million dollars of revenue. Knowing a company's overall GHG emissions enables it to estimate the magnitude of its potential liability exposure resulting from hypothetical carbon taxes.

The general rule is that the complexity and cost of conforming a company's current business model to a net zero emissions economy increases with its carbon intensity. Companies with higher carbon intensity generally will have a higher transition burden to achieve a net zero business model than companies with lower emissions.

For example, Duke Energy, which produces approximately 4,022 metric tons of Scope 1 and 2 GHG emissions per million dollars of revenue, has a higher transition burden than Ontario Hydro (Hydro One), which produces 69 metric tons of Scope 1 and 2 GHG emissions per million dollars of revenue.² Knowing its carbon intensity helps a company determine the appropriate business strategy, the four Pathways discussed in Chapters 5 through 10, needed to conform its business ...