Environmental Impacts Cost 41 Cents for Every $1 of Revenue, Report Finds

by | Feb 16, 2012

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If companies had to pay for the full environmental costs of their activities, they would have lost 41 cents out of every dollar earned in 2010 – and these costs are doubling every 14 years, according to a Trucost analysis for a KPMG report.

The environmental profit and loss-style analysis for 11 key sectors found the cost to global society of environmentally-sensitive corporate activities for food producers actually outweigh the sectors’ entire earnings, at a whopping $200 billion, and in five other sectors – electricity, industrial metals, mining, marine transport, and airlines – environmental costs could account for more than half their earnings.

In reality, these costs are not borne solely by companies but are passed on at least partially to end-users, KPMG said in the report, Expect the Unexpected: Building Business Value in a Changing World.

But it said the data gives an indicator not only of industries’ impact, but of the potential value at stake. And companies should expect to pay a rising proportion of these costs, posing a near-future financial risk, KPMG said.

Trucost says that environmental costs across the 11 sectors – which also include automobiles, beverages, chemicals, oil and gas, and telecommunications and internet – rose by 50 percent between 2002 and 2010, from US$566 billion to US$854 billion. It says the projected doubling of costs every 14 years is unlikely to be sustainable, even in the medium term.

For the report, Trucost provided a data set based on the operations of over?800 companies between 2002 and 2010 (2010 being the most recent available data), converting 22 key environmental impacts into financial value. These impacts cover water abstraction, wate generation and greenhouse gas emissions, including carbon dioxide, HFCs, nitrous oxide, methane, perfluorocarbons and sulphur hexafluoride. These indicators represent the bulk of the environmental footprint for most companies, KPMG said.

The research also included a meta-review of more than 60 sector reports, from investments banks, business associations, insurers, consultancies, rating agencies and NGOs, addressing the risks and opportunities of the ten global sustainability “megaforces” that will affect every business over the next two decades. According to KPMG, these megaforces are climate change, energy and fuel, material resource scarcity, water scarcity, population growth, urbanization, wealth, food security, ecosystem decline and deforestation.

Trucost said the data is not exact and its estimates should not be taken as absolute. But it said the data does indicate growth in environmental footprints relative to earnings; potential vulnerability to environmental cost; and progress in reducing environmental intensity.

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