Offsetting Carbon Emissions

Stanley Myint and Fabrice Famery

Contents

Foreword

Introduction

1.

Theory and Practice of Corporate Risk Management

2.

Theory and Practice of Optimal Capital Structure

3.

Introduction to Funding and Capital Structure

4.

How to Obtain a Credit Rating

5.

Refinancing Risk and Optimal Debt Maturity

6.

Optimal Cash Position

7.

Optimal Leverage

8.

Introduction to Interest Rate and Inflation Risks

9.

How to Develop an Interest Rate Risk Management Policy

10.

How to Improve Your Fixed-Floating Mix and Duration

11.

Interest Rates: The Most Efficient Hedging Product

12.

Do You Need Inflation-linked Debt?

13.

Prehedging Interest Rate Risk

14.

Pension Fund Asset and Liability Management

15.

Introduction to Currency Risk

16.

How to Develop Currency Risk Management Policy

17.

Translation or Transaction: Netting Currency Risks

18.

Early Warning Signals

19.

How to Hedge High Carry Currencies

20.

Currency Risk on Covenants

21.

Optimal Currency Composition of Debt 1: Protect Book Value

22.

Optimal Currency Composition of Debt 2: Protect Leverage

23.

Cyclicality of Currencies and Use of Options to Manage Credit Utilisation

24.

Managing the Depegging Risk

25.

Currency Risk in Luxury Goods

26.

Introduction to Credit Risk

27.

Counterparty Risk Methodology

28.

Counterparty Risk Protection

29.

Optimal Deposit Composition

30.

Prehedging Credit Risk

31.

xVA Optimisation

32.

Introduction to M&A-related Risks

33.

Risk Management for M&A

34.

Deal-contingent Hedging

35.

Introduction to Commodity Risk

36.

Managing Commodity-linked Revenues and Currency Risk

37.

Managing Commodity-linked Costs and Currency Risk

38.

Commodity Input and Resulting Currency Risk

39.

Offsetting Carbon Emissions

40.

Introduction to Equity Risk

41.

Hedging Dilution Risk

42.

Hedging Deferred Compensation

43.

Stake-building

The focus of this chapter is carbon emissions and the steps that companies can take to reduce their carbon footprint. Climate change caused by greenhouse gas (GHG) emissions is a critical environmental topic, and as such it is increasingly becoming central to the corporate social responsibility (CSR) goals of many companies.

The issue of reducing carbon emissions is becoming more urgent, as shown by the conclusions of a major UN report11 Source: Special Report on Global Warming of 1.5°C (SR15) of Intergovernmental Panel on Climate Change (IPCC) (see https://www.ipcc.ch/). released in October 2018. This report highlighted a number of climate change impacts that could be avoided by limiting global warming to 1.5°C compared to 2°C. For instance, by 2100, the global sea level rise would be 10cm lower with that level, and coral reefs would decline by 70–90% at 1.5°C rather than the 99% expected with a 2°C rise. To limit the global warming to 1.5°C requires “rapid and far-reaching changes in the way we deal with our environment”. Global net human-caused emissions of CO2 would need to fall by about 45% from 2010 levels by 2030, reaching “net zero” around 2050.

BACKGROUND

Figure 39

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