Full environment costs can cut earnings by 40%

13th March 2012

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Companies would lose 41 cents, on average, in every $1 they earn if they had to pay the full environmental costs of production, claims new research for KPMG.

The accountancy firm also reveals that the environmental costs on business are doubling every 14 years.

The figures are contained in a report from KPMG called Expect the unexpected. It predicts that the pressure on businesses to pay the full cost of their environmental impacts will increase over the next two decades as governments address the effects of 10 so-called “sustainability megaforces” (see below).

These are the significant environmental and social changes – such as climate change, water scarcity, population growth and ecosystem decline – that will provide both risks and opportunities.

KPMG warns that the removal of subsidies on input commodities, such as fossil fuels and water, and demands on companies to pay for the costs of environmentally damaging outputs, will inevitably increase the cost of actually doing business.

Research for the report by Trucost reveals that such costs are already rising significantly. The data analysts looked at the operations of 800 companies in 11 sectors between 2002 and 2010 and found that external environmental costs rose by 50%, from $566 billion (£356 billion) to $854 billion (£538 billion).

According to KPMG, profits will fall unless companies do more to reduce the environmental intensity of their businesses. It says that food producers and the beverage industry are most at risk.

The report advises business leaders to put long-term objectives ahead of short-term performance and adopt stretching targets if their organisations are to remain viable.

KPMG’s 10 global sustainability megaforces

  • Climate change – directly impacts all other megaforces.
  • Energy and fuel – fossil-fuel markets will become more volatile.
  • Resource scarcity – demand for resources will rise dramatically.
  • Water scarcity – global demand for water will exceed supply by 40%.
  • Population growth – 8.4 billion people by 2032.
  • Wealth – the global middle class will have grown 172% by 2030.
  • Urbanisation – by 2030, most people will live in urban areas.
  • Food security – pressure on global food production system will rise.
  • Ecosystem decline – making natural resources scarcer, more expensive and less diverse.
  • Deforestation – forest areas will decline globally by 13% by 2030.

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