Bill for environmental impact would hit earnings

15 February 2012

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15 February 2012 | Adam Leach

Businesses would lose 41 cents for each dollar earned if they had to pay for the full impact their supply chain and production processes had on the environment, according to a report.

Expect the Unexpected: Building Business Value in a Changing World, published yesterday by accountancy firm KPMG, argues businesses need to increase efforts to account for their environmental and sustainability performance because “corporate behaviour is increasingly held to account in the court of public opinion”.

The report, which used data from environmental research group Trucost, assigned a monetary value to factors such as greenhouse gases and waste generation. It estimated that if companies had to pay for their environmental impact, it would cost them 41 cents for each dollar earned.

The quantitative finding was based on figures gathered from 800 leading corporations between 2002 and 2010. During that period, environmental costs increased from $566 billion (£360 billion) to $846 billion (£539 billion).

While the report conceded that the data is not 100 per cent accurate, it argued the findings acted as an “indicator of growth in environmental footprints relative to earnings”.

Based on the results, and the increasing pressure on companies and governments to push sustainability up the agenda, the report recommended it was “prudent” for businesses to expect to have to pay more for environmental costs in the near future. It said: “External environmental costs could represent near-future financial risks for companies.”

Michael Andrew, chairman of KPMG International, said: “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 growth.”

Commenting on the report, Alan McGill, partner in sustainability and climate change at PwC, said: “Assigning economic values to the environmental impact of a company’s operations enables a business to tackle vital questions now, not just about environmental impact, but business risk, cost savings and finding new ways to become more effective. Without measuring them, impacts cannot be managed or reduced.”

Last week, sports brand Puma published the full results of its environmental profit and loss account. The report calculated the environmental cost of its operations in 2010 at $145 million (£92.4 million), with 94 per cent coming from contractors and suppliers in its supply chain.

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