Megaforces Doubling Environmental Costs on Businesses, Equal 40% of Profits

Ten global energy and climate “megaforces” are doubling the costs of environmental impacts on businesses every 14 years, currently equal 40 percent of average profits, and could significantly affect corporate growth by 2030, says KPMG International.

This rapid acceleration of external environmental costs is detailed in a new study, “Expect the Unexpected: Building Business Value in a Changing World.” KPMG says the megaforces often do not show up on financial statements and thus may not be factored into corporate business plans because they are often borne by individuals or society as a whole, and can be non-monetary in nature.

External environmental costs across 11 industry sectors jumped 50 percent from $566 billion in 2002 to $846 billion in 2010, meaning costs double on average every 14 years. According to the report, if companies had to pay full environmental costs of their production, it would decrease profits by 41 cents per every dollar of earnings.

“We are living in a resource-constrained world,” said Michael Andrew, chairman of KPMG International. “ 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.”

The ten megaforces businesses need to plan resiliency against are climate change, energy and fuel, material resource scarcity, water scarcity, ecosystem decline, population growth, wealth, urbanization, food security, and deforestation. The common thread across all ten threats to business success is a shift away from abundant, cheap resources to a tighter market for raw materials with greater demand for affordable products while the cost of business continues to increase.

Food production represented the largest environmental cost, at $200 billion in 2010 alone. Energy and fuel also constituted a large portion of the growing business costs, with $195 billion in undeclared environmental costs for electricity generation and more than $150 billion for the oil and gas industry.

However, while the outlook seems dire, KPMG also identifies opportunities for businesses to grow through adaptation to each megaforce. These opportunities include developing and maintaining low-carbon and zero-waste cities and infrastructure, improving and managing biodiversity and ecosystems, and promoting sustainable lifestyles and livelihoods. Efforts to achieve these goals creates opportunity for finance, information and communications technology, said the report.

“The link between sustainability and financial results is becoming increasingly clear,” said John Vehimeyer, CEO of KPMG LLP. “Companies that recognize the external influences on their organizations and leverage them as opportunities are realizing a competitive advantage.”

The megaforces outlook and cost impact report was compiled through analysis of more than two dozen outlooks from governmental agencies, think tanks, and analysts across the globe.

Article by Silvio Marcacci, appearing courtesy Earth & Industry.

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