1. Why Has Carbon Strategy Become a Key Factor in Corporate Valuation?
1.1 Global Investment Trends Shift Toward Climate Risk Disclosure
Driven by the rise of climate change awareness and sustainable finance, carbon emissions are no longer viewed merely as an environmental issue but as a critical indicator of corporate financial risk. According to a 2024 Bloomberg report, more than 230 financial institutions worldwide—managing a combined total of USD 40 trillion in assets—have publicly committed to supporting climate-related disclosures and incorporating them into their investment decision-making processes.
Investors are no longer focused solely on revenue and profit. They now evaluate a company’s capacity to adapt to climate risks, including:
Investors are no longer focused solely on revenue and profit. They now evaluate a company’s capacity to adapt to climate risks, including:
- Has the company established a carbon inventory or tracking system?
- Does it have a strategy for green electricity procurement and renewable energy deployment?
- Has it disclosed specific carbon-reduction goals and implementation plans?
1.2 Carbon Emissions Are Not Just an Environmental Issue but a Financial Risk
According to the latest IFRS S2 standard issued by the International Sustainability Standards Board (ISSB), companies are required to disclose how climate-related risks affect their business models, strategies, cash flows, and capital expenditures. This means that carbon risk is now recognized as a potential cash flow impairment factor, which can directly influence the discount rate used in valuation models.
2. What Types of ESG and Carbon Disclosures Do Investors Focus On?
2.1 TCFD and ISSB Have Become the Global Common Language
Currently, the two most internationally recognized frameworks for climate-related disclosure are:
- Task Force on Climate-related Financial Disclosures (TCFD)
- International Sustainability Standards Board (ISSB)
These standards require companies to disclose the following information:
- Scope 1, 2, and 3 carbon emissions data
- Financial impacts of transition and physical risks
- Carbon-reduction targets, pathways, and execution strategies
- Governance structures and risk management processes
If a company fails to provide concrete data and management mechanisms, it risks being excluded from sustainable investment funds and may also face lower ESG ratings and diminished investor confidence.
2.2 Investors Focus on the Quality of Disclosure, Not Just Its Existence
According to statistics from the CDP (Carbon Disclosure Project), more than 18,000 companies worldwide reported their carbon information in 2023, but fewer than 20% achieved a rating of B or above. This demonstrates that disclosure alone is not sufficient — what matters is providing accurate, verifiable, and financially relevant information.
3. How Do Carbon Strategies Affect Corporate Valuation and Discount Rates?
3.1 Carbon Costs Are Gradually Internalized as Capital and Operating Expenses
As carbon taxes, carbon fees, and carbon credit markets take shape, companies are beginning to treat carbon costs as fixed operating expenses, incorporating them into financial forecasts and profit-and-loss statements. For example:
- The EU’s Carbon Border Adjustment Mechanism (CBAM) will begin full carbon fee collection in 2026, affecting all products exported to Europe.
- Taiwan will also introduce a carbon fee in 2025, with an estimated rate of approximately NT$300 per metric ton.
Without proactive carbon strategies, companies may face pressure from shrinking gross margins and rising capital expenditures—ultimately increasing their Weighted Average Cost of Capital (WACC).
3.2 Green Power and Carbon Credit Deployment as Indicators of Capital Market Competitiveness
International decarbonization initiatives such as RE100 and the Science Based Targets initiative (SBTi) require companies to use renewable energy and establish clear decarbonization pathways—criteria that have become important reference factors for investors.
Companies that can:
Companies that can:
- Secure stable green power procurement (e.g., Taipower contracts, T-REC, I-REC),
- Participate in international carbon markets or purchase Verified Carbon Units (VCUs),
- Establish carbon neutrality goals and provide corresponding financial disclosures,
will enhance their corporate credibility, strengthen competitiveness in the capital market, and benefit from a lower cost of capital.
3.3 How Investors Use Discount Rates to Assess Climate Risk
Many investment institutions apply a risk-adjusted discount rate in their ESG analyses to evaluate the level of climate-related risk. Companies with high carbon risk and poor disclosure transparency are viewed as having unstable future cash flows — leading to a higher discount rate and consequently lower valuation.
Conversely, companies that can demonstrate strong execution in their decarbonization strategies and quantify their financial impacts are granted lower risk adjustments, resulting in higher valuations.
Conversely, companies that can demonstrate strong execution in their decarbonization strategies and quantify their financial impacts are granted lower risk adjustments, resulting in higher valuations.
4. Practical Insights: How Is Carbon Disclosure Reflected in Investment Valuation?
4.1 The Correlation Between ESG Ratings and Corporate Valuation
According to MSCI’s 2024 report, companies with leading ESG ratings (AAA or AA) outperform average firms by 15–20% in both market performance and capital inflows. This is not merely a result of “image marketing,” but rather a reflection of investors’ perception of risk controllability. When a company discloses its climate risks and carbon management strategies—and institutionalizes these through third-party assurance and financial reporting—it significantly reduces investors’ perceived uncertainty, thereby improving its valuation and investment attractiveness.
4.2 What Investors Value Is Not Emission Volume, but “Management Capability”
Interestingly, high-emission industries such as cement, steel, and shipping have not been universally excluded from capital markets. In fact, some companies within these sectors have become new ESG investment favorites due to their proactive efforts in carbon capture and hydrogen energy transition. This demonstrates a key insight: “What matters is not how much you emit, but how well-prepared you are to manage it.”
5. Conclusion: Financial Systems as the Key Defense Line for Implementing Carbon Strategies
For corporations, carbon strategy should not be viewed merely as the responsibility of the sustainability department—it must encompass the entire financial system. Only with the active participation of accounting and finance teams can carbon costs be properly classified, green electricity and carbon credits be reasonably recognized, and risk provisions and capital expenditures be aligned and adjusted accordingly. As emphasized in IFRS S2, climate risk affects not only environmental reporting but also the overall financial soundness of a company.In an era where investors increasingly value transparency and tangible action, Taiwanese enterprises can only secure influence in the capital market by establishing a trustworthy financial carbon strategy.
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