KPMG Says Environmental Costs Average 40 Percent of Corporate Earnings

If companies had to pay for the full environmental costs of their production, they would lose 41 cents on average for every US dollar in earnings, according to a new study published by KPMG.

The research finds that the external environmental costs of 11 key industry sectors jumped 50 percent from $566 to $846 billion in 8 years (2002 to 2010), averaging a doubling of these costs every 14 years. Currently, these costs are rarely shown on financial statements, because companies generally do not have to pay for them directly.

The KPMG study, Expect the Unexpected: Building Business Value in a Changing World, identifies 10 “megaforces” that will significantly affect corporate growth globally over the next two decades. It 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, and calculates the environmental costs to business.

Michael Andrew, Chairman of KPMG International, said: “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.”

“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 report was released last week during KPMG’s business leader summit in New York City in cooperation with the UN Global Compact (UNGC), the World Business Council for Sustainable Development (WBCSD) and the United Nations Environment Programme (UNEP).

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,” De Boer said.

In related news, Puma released a detailed report on its groundbreaking effort to attach a monetary figure to its environmental impacts, and Al Gore released a white paper urging businesses to move away from the short-term thinking encourage by quarterly reports.

Bart King is a PR consultant and principal at Cleantech Communications.