Market News

 February 16, 2012
KPMG: Hidden environmental production costs equal 41 per cent of earnings

 Climate change, energy volatility and water availability have been identified on a list of 10 "megaforces" that could potentially derail business growth over the next two decades, according to a major new report by KPMG.

The accounting giant this week launched a report that aims to put a financial value on the environmental pressures businesses are likely to face in an increasingly resource-constrained world.

The report lists 10 connected "megaforces" that could have a significant impact on businesses: climate change, water scarcity, growing populations, deforestation, energy supply volatility, material resource scarcity, wage inflation, urbanisation, food security and ecosystem decline.

It warned that many businesses will have to take account of the external environmental costs on their balance sheets, particularly if governments make good on pledges to scrap certain fossil fuel and water subsidies and roll out carbon pricing schemes.

Analysis by Trucost that contributed to the report predicted that if companies had to pay for the full environmental costs of their production now, they would lose 41 cents for every $1 in earnings.

The research found that the external environmental costs of 11 key industry sectors jumped 50 per cent in the eight years to 2010 -- from $566bn to $846bn.

Food production had the largest environmental cost footprint of the 11 sectors studied, with costs hitting $200bn in 2010. Meanwhile, the electricity sector faced undeclared environmental costs worth $195bn, and the oil and gas industry's costs topped $150bn.

Yvo de Boer, KPMG special global adviser on climate change and sustainability, and former head of the UN's climate change secretariat, said businesses will experience an increasingly complex relationship with the environment over the next two decades, and as such will need to develop business plans that take account of climate change and other environmental pressures.

"Without action and strategic planning, risks will multiply and opportunities will be lost," he said in a statement.

"Corporations are recognising there is value and opportunity in responsibility beyond the next quarter's results -- that what is good for people and the planet can also be good for the long-term bottom line and shareholder value."