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Carbon Finance
Financial Dimensions in Green Management – Understanding Carbon Finance

Sudha.S
Introduction

Environmental consciousness is taking its shape in various dimensions in today’s complex business world. The five mega issues which are impacting the behaviour of companies and in turn their strategies are the Climate Change, Polution/Health Consciousness, Globalization backlash, Energy Crunch and Erosion of Trust.[1]
The finance sector is impacted because the world commands a hefty price for Carbon dioxide emissions and greenhouse gases (GHGs). This is the major reason why today’s environmental issues elate to the level of corporate financial strategy and policy involving CEOs, CFOs and BOD of companies. Hence, an understanding of carbon finance (a specific dimension of environmental finance), role of the financial services sector (banking, insurance & investments) and carbon trading (as other commodity trading) in climate/commodity exchanges by environment-conscious stakeholders in various industry value chains assumes significance in the context of environmental risk mitigation and adherence to climate change policies.

Climate Change and Industry

Industries directly affected by climate change include Agriculture, Fisheries, Forestry, Health Care, Tourism, Water, Real Estate and Insurance[2]. GHG emissions from agricultural activities account for about 15% of global GHG emissions. Weather developments may also have negative consequences for carbon-regulated industries such as electric power, Oil and gas producers. The power industry contributes a major portion of the global CO2 production (Fig. 1.1).

Fig 1.1 Global CO2 production

[pic]
Source : World Business Council for Sustainable Development (www.wbcsd.org)

Climate Change – A Global political Overview

The United Nations Framework Convention on Climate Change (UNFCCC) Conference in 1997 produced the ‘Kyoto Protocol’(KP), under which 39 of the industrialized “annex 1” countries agreed


References: Sonia Labatt and Rodney R. White, 2007e, “Carbon Finance : The Financial Implications of Climate Change” Journals The Financial Express, April 3, 2008 Business Line, March 27, 2009
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