Business Impact

Hidden environmental costs equal 41% of earnings

In a report called Expect the unexpected: Building business value in a changing world, published on the 14th of February, KPMG explores the impact of resource scarcity and environmental pressures on companies.

The report identifies 10 trends, dubbed 'megaforces', that will impact every business in the coming twenty years: climate change, more volatile fossil fuel markets, material resource scarcity, water scarcity, global population growth, growth of the middle class, urbanization, pressure on food security and higher food prices, ecosystem decline, and deforestation.

Governments will have to act to address the impact of these trends. As a result, products and services will increasingly be priced at 'full cost', including the environmental cost that is currently borne by society. Analysis by the environmental data firm Trucost reveals which sectors are likely to be most affected by this development. Across the 11 industrial sectors included in the analysis, the average external environmental cost per dollar of EBITDA in 2010 is an impressive 41 cents. However, this number varies strongly by sector, ranging from 2.5% for Telecommunications to 224% for food producers. See the graph below, from the executive summary.

Environmental cost by industryThe report confirms that companies face a tremendous challenge to reduce their environmental impact, in order to avoid future cost increases.