The Stern Report on Climate Change, which formed the basis for the UK’s 2008 Climate Change Act, says that climate change is caused by companies’ avoiding paying for the costs of the damage their greenhouse gas pollution causes. This is called “externalising” costs – putting them outside the company, so that something or someone else – the environment, customers, the public or employees – have to pay for them.
A new report, Expect the Unexpected, by the accountancy firm KPMG says that companies are externalising all kinds of environmental costs, not just the costs of climate change caused by their greenhouse gas emissions. The environmental impacts of industries like farming and food, beverages, mining and so on are worsening, but companies are avoiding paying for the damage they cause.
For example, although BP paid for the immediate costs of stopping its Deepwater Horizon oil spill and immediate attempts to clean up the oil, the evidence is that environmental damage to the Gulf of Mexico continues, BP is not doing anything about it and the White House is letting the company get away with it.
External environmental costs of 11 industries rose by half between 2002-2010
According to an article in the Guardian’s sustainable business blog the KPMG report “says that the external environmental costs of the 11 sectors it studied rose by half between 2002 and 2010 to $854bn and are doubling every 14 years, which makes it unsustainable even in the medium term.
“Across all these sectors, the report calculates that if companies had to pay for the full environmental costs of their production, they would lose 41 cents for every $1 in earnings on average, with the costs of food producers exceeding the sector’s entire earnings.
“The only sector to demonstrate an absolute reduction in its external environmental costs over the eight-year period was automobiles, which achieved a drop of 14%, while mining recorded the largest increase.”
Food and beverage producers “have made the least progress in reducing their environmental intensity while their exposure to environmental cost is growing rapidly.”
The environmental impacts include:
- exhaustion of available freshwater in some regions of the world
- deteriorating soil quality
- climate change refugees migrating from areas where food and water is scarcest
- deforestation
The solution depends on tackling environmental, social and economic problems in an integrated way
The KPMG report says that dealing with these problems needs an approach that takes into account the links between environmental, social and economic problems. Linear thinking that isolates one problem from all the others isn’t going to work, because they’re inter-related.
It also says that companies need to start taking account of the costs that they are currently externalising.
The Guardian article reports that “KPMG insists ‘a coordinated approach holds the key to success’ but all the signs from the upcoming ROP +20 conference are that the door is firmly bolted and the key is nowhere in sight.” So it looks as if a solution is possible, but companies and governments aren’t doing what needs to be done to achieve that solution.