Full environmental costing would cut average earning 41%

New research from KPMG International has found that that if companies had to pay for the full environmental costs of their production, they would lose 41 cents for every USD in earnings on average.

The finding is contained in a newly released study by the firm, Expect the Unexpected: Building Business Value in a Changing World, which identifies 10 “megaforces” that will significantly affect corporate growth globally over the next two decades.

The KPMG study explores issues such as climate change, energy and fuel volatility, water availability and cost and resource availability, as well as population growth spawning new urban centers. The analysis examines how these global forces may impact business and industry, calculates the environmental costs to business, and calls for business and policymakers to work more closely to mitigate future business risk and act on opportunities.

“We are living in a resource-constrained world. The rapid growth of developing markets, climate change, and issues of energy and water security are among the forces that will exert tremendous pressure on both business and society,” said Michael Andrew, Chairman of KPMG International.

“We know that governments alone cannot address these challenges.  Business must take a leadership role in the development of solutions that will help to create a more sustainable future.  By leveraging its ability to enhance processes, create efficiencies, manage risk, and drive innovation, business will contribute to society and long-term economic growth.”

The KPMG research finds that the external environmental costs – which today are very seldom shown on financial statements – of 11 key industry sectors jumped 50 percent from USD566 to USD846 billion in eight years (2002 to 2010), averaging a doubling of these costs every 14 years.

Yvo de Boer, KPMG’s Special Global Adviser on Climate Change and Sustainability, said global sustainability megaforces will significantly increase the complexity of the business environment. 

“Without action and strategic planning, risks will multiply and opportunities will be lost. Corporations are recognizing that 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,” said de Boer.

According to the new study, the 10 global sustainability megaforces that may impact business over the next two decades are:

Climate Change: This may be the one global megaforce that directly impacts all others.  Predictions of annual output losses from climate change range between 1 percent per year, if strong and early action is taken, to as much as 5 percent a year—if policy makers fail to act.

Energy & Fuel: fossil fuel markets are likely to become more volatile and unpredictable because of higher global energy demand; changes in the geographical pattern of consumption; supply and production uncertainties and increasing regulatory interventions related to climate change.

Material Resource Scarcity: as developing countries industrialize rapidly, global demand for material resources is predicted to increase dramatically. Business is likely to face increasing trade restrictions and intense global competition for a wide range of material resources that become less easily available. Scarcity also creates opportunities to develop substitute materials or to recover materials from waste.