February 19, 2010 – Political pressure is mounting to make businesses pay for the damage they cause to the environment, and the latest UN study assessing the impact of the world’s biggest companies is almost certainly the first stage in a concerted campaign to calculate how much damage is caused, what it is worth and ultimately how it can be stopped.
Another report due later this year, The Economics of Ecosystems and Biodiversity, led by the economist and UN special adviser Pavan Sukhdev, will be another significant step towards this goal.
Sukhdev has already warned that damage to the environment will cause the global economy to decline by 7% by the middle of the century if it is not stopped.
Hilary Benn, the UK’s environment secretary, last month called on political leaders to find a way to put a price on biodiversity in the same way as they are doing for climate changefollowing Lord Stern’s landmark report in 2005.
“The report prepared by Sukhdev can do for our understanding of the natural world what Nick Stern did for the understanding of the economic impact of climate change,” Benn said.
Amid growing momentum for more limits on operations, taxes and fines, investor groups such as the US-based Ceres, which represents more than 80 funds managing more than $8tn (£5tn) of assets, are lobbying hard for companies to monitor, report and reduce their impact before they are forced to by legislation. So far, however, reporting is patchy and hard to compare.
The UN-commissioned report on the impacts of the world’s 3,000 biggest companies, by market value, could provide the best guide yet for managers, investors and customers as to which businesses will bear the greatest burden of future regulation.
A breakdown of the different sectors will be published in the final report this summer, but the Guardian asked London-based consultants Trucost – who also prepared the UN study – to analyse already-published research to provide a close guide to what it is likely to show. Trucost’s analysis shows dramatic differences between different sectors.
The most striking impression is of a gulf in scale between the sectors with the largest and the smallest impacts, measured in dollars.
By far the most “damaging” were the utilities, where the $400bn total “cost” was dominated by carbon dioxide and other greenhouse gases blamed for global warming, nuclear waste, acid rain and smog precursors, and metal pollution in water.
The four sectors with the lowest impact – telecommunications, healthcare, technology and financial services – all caused environmental damage totalling less than $25bn each.
After the utilities, the two sectors with the biggest impacts were “basic materials” such as mining, forestry and chemical companies, with costs put at just over $300bn, and consumer goods such as cars, food, drink and toys, at just under $300bn. The breakdown of their activities is very different however.
Damage by mining and similar businesses was predominantly from greenhouse gas emissions, followed by coal – which causes both greenhouse gases and smog-forming soot – then freshwater use and pollution, and pollution causing acid rain and smog.
The biggest problem caused by consumer goods makers, however, was their freshwater use, much of which was caused by food and drink companies, followed by greenhouse gases, and pollution from agricultural chemicals.
Industrial companies, including construction, aerospace and electronics, and the oil and gas sector, had the next greatest impacts at, respectively, $200bn and about $175bn. Both their costs were dominated by greenhouse gases, freshwater use, and acid rain and smog pollution.
The damage caused by consumer services, including the media, was valued at approximately $75bn, again mostly from greenhouse gases, water and local air pollution.
“The swath of companies these revolutions are going to affect is so very varied,” said Trucost’s chief operating officer, Richard Mattison. “As a consequence it’s incorrect to say – as markets will – that these companies will adjust. Saying ‘let’s ignore it for the moment and governments will deal with that’ is not really a position I think is tenable. There’s a need for investors to act.”
That there is widespread confusion about who does what and what it will cost is evident from a survey, published yesterday by New Scientist magazine, which showed a “dramatic mismatch” between public perceptions about how damaging companies are and what they are doing to limit their impacts, and the professionals’ assessments.
Among the results, it found some companies “enjoy undeserved green reputations” while others, such as Coca Cola, “are getting little public credit for some fairly impressive efforts to protect the environment”.
Even whole sectors can be misjudged: everybody knows power generators and industrial giants have big impacts, but “in general consumers fail to recognise the large environmental impacts of food and beverage production”, adds the report.
At a lecture last week, Sukhdev told his audience a story related to him by a fisherman he met last year in West Africa. The fisherman explained that foreign trawlers had fished until the North Atlantic was nearly empty. Then the big ships and their machinery had moved south in search of fuller nets, into the coastal waters near his village. The result was that the water where the fisherman once caught food for his family and to sell in the local market now also has too few fish.
Sukhdev tells the story to bring home the human tragedy of a subject that can too easily get bogged down in economic technicality and multi-zeroed numbers; focusing in a personal way on the myriad issues of how it is that humans have for centuries been able to plunder the natural environment without having to pay the cost themselves.
“It’s not just about economics, it’s very much about equity,” said Sukhdev.