Identifying External Environmental Costs

by | Mar 6, 2012

KPMG recently released new research analysing a system of ten sustainability megaforces that will impact each and every business over the next 20 years.

The report, Expect the Unexpected: Building Business Value in a Changing World, examines the environmental and social changes that will bring both risk and opportunities for businesses in the search for sustainable growth.

Ranging from climate change and ecosystems decline to the growing middle class and urbanization, these megaforces are expected to significantly affect corporate growth over the next 20 years, says KPMG International.

KPMG used Trucost data to identify the external environmental costs of 11 key industry sectors (including upstream supply chain).  Based on this data, KPMG found that the external environmental costs of the 11 sectors rose by 50 percent between 2002 and 2010, from US$566 billion to US$854 billion.

The research finds that “external environmental costs could account for a considerable proportion of earnings (EBITDA) and thus represent significant business value potentially at stake: across the 11 sectors, the average environmental costs per dollar of earnings would have been approximately 41 cents in 2010.”

KPMG also examined the readiness of businesses to deal with this risk. “The two sectors perceived as being at highest risk from sustainability megaforces, but least ready are Food Producers and Beverages…the Automobiles and Telecommunications & Internet sectors are perceived as being the least at risk and the most ready.”

Regardless of the sector of operation, there is little doubt that those companies that achieve the fastest success in decoupling growth from natural resource dependency and environmental decline stand to achieve competitive advantage in today’s resource contrained and environmentally conscious era.

Those in the Food Producers and Beverages sectors appear to have the most significant first mover opportunity.

KPMG Risk and Readiness Matrix

Find out more Trucost services for companies and  Trucost services for financial institutions.

Sarah is responsible for Trucost’s events, press, website and marketing communications. She also runs Trucost’s information partner programme which aims to support organisations in providing environmental information and guidance to their stakeholders. Sarah holds a degree in Natural Sciences and Marketing from the University of Bath.

This article is reprinted from the Trucost blog with the permission of Trucost.

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