The cost of pollution and other
damage to the natural environment caused by the world's biggest companies would
wipe out more than one-third of their profits if they were held financially
accountable, a major unpublished study for the United Nations has
found.
The report comes amid growing concern that no one is made to
pay for most of the use, loss and damage of the environment, which is reaching
crisis proportions in the form of pollution and the rapid loss of freshwater,
fisheries and fertile soils.
Later this year, another
huge UN study - dubbed the "Stern for nature" after the
influential report
on the economics of climate change by Sir Nicholas Stern - will
attempt to put a price on such global environmental damage, and suggest ways to
prevent it. The report, led by economist Pavan Sukhdev, is likely to argue for abolition of
billions of dollars of subsidies to harmful industries like agriculture,energy and transport, tougher
regulations and more taxes on companies that cause the damage.
Ahead of
changes which would have a profound effect - not just on companies' profits but
also their customers and pension funds and other investors - theUN-backed
Principles for Responsible Investmentinitiative and the United Nations
Environment Programme jointly ordered a report into the activities of the 3,000
biggest public companies in the world, which includes household names from the
UK's FTSE 100 and other major stockmarkets.
The study, conducted by London-based consultancy Trucost and due to be
published this summer, found the estimated combined damage was worth US$2.2
trillion (£1.4tn) in 2008 - a figure bigger than the national economies of all
but seven countries in the world that year.
The figure equates to 6-7% of the companies' combined
turnover, or an average of one-third of their profits, though some businesses
would be much harder hit than others.
"What we're talking about is a completely new
paradigm," said Richard Mattison, Trucost's chief operating officer and
leader of the report team. "Externalities of this scale and nature pose a
major risk to the global economy and markets are not fully aware of these
risks, nor do they know how to deal with them."
The biggest
single impact on the $2.2tn estimate, accounting for more than half of the
total, was emissions of greenhouse gases blamed for
climate change. Other major "costs" were local air
pollution such as particulates, and the damage caused by the over-use and
pollution of freshwater.
The true
figure is likely to be even higher because the $2.2tn does not include damage
caused by household and government consumption of goods and services, such as
energy used to power appliances or waste; the "social impacts" such
asthe migration of people driven out of affected areas, or the long-term
effects of any damage other than that from climate change. The final
report will also include a higher total estimate which includes those long-term
effects of problems such as toxic waste.
Trucost did not want to comment before the final report on
which sectors incurred the highest "costs" of environmental damage,
but they are likely to include power companies and heavy energy users like
aluminium producers because of the greenhouse gases that result from burning
fossil fuels. Heavy water users like food, drink
and clothing companies are also likely to feature high up on the list.
Sukhdev said the heads of the major companies at this year's
annual economic summit in Davos, Switzerland, were increasingly concerned about
the impact on their business if they were stopped or forced to pay for the
damage.
"It can make the difference between profit and
loss,"Sukhdev told the annual Earthwatch Oxford lecture last week. "That
sense of foreboding is there with many, many [chief executives], and that
potential is a good thing because it leads to solutions."
The aim of the study is to encourage and help investors
lobby companies to reduce their environmental impact before concerned
governments act to restrict them through taxes or regulations, said Mattison.
"It's going to be a significant proportion of a lot of
companies' profit margins," Mattison told the Guardian. "Whether they
actually have to pay for these costs will be determined by the appetite for
policy makers to enforce the 'polluter pays' principle. We should be seeking
ways to fix the system, rather than waiting for the economy to adapt. Continued
inefficient use of natural resources will cause significant impacts on
[national economies] overall, and a massive problem for governments to
fix."
Another major
concern is the risk that companies simply run out of resources they need to
operate, said Andrea Moffat, of the US-based investor lobby groupCeres,
whose members include more than 80 funds with assets worth more than US$8tn. An
example was the estimated loss of 20,000 jobs and $1bn last year for
agricultural companies because of water shortages in California, said Moffat.
(from Guardian, 18/2/2010)