Global Top 100 Environmental Externalities
* Report: Natural Capital at Risk - The Top 100 Externalities of Business. TEEB for Business Coalition, 2013
"A new report by the TEEB for Business Coalition estimates the global top 100 environmental externalities are costing the economy world-wide around US$4.7 trillion a year in terms of the economic costs of greenhouse gas emissions, loss of natural resources, loss of nature-based services such as carbon storage by forests, climate change and air pollution-related health costs.
The report, "Natural Capital at Risk - The Top 100 Externalities of Business", was released today during the Business for the Environment summit in New Delhi.
Companies and their investors face both an opportunity and a significant problem. Consumer demand is set to grow significantly over the next few years with the increase in middle class consumers, especially in emerging markets. However, this is against a backdrop of increasing resource scarcity and the degradation of our natural ecosystems. One of the challenges will be to understand the value of the natural systems we rely on - commonly referred to as natural capital - and how these systems can be managed. The current business model creates significant environmental externalities. For example, water is not usually priced according to how scarce it is. The report, authored by Trucost, identifies financial risk from environmental externalities e.g. damages from climate change, pollution, land conversion and depletion of natural resources, across business sectors at a regional level. It demonstrates that high impact business sectors make an economic loss when the costs of environmental damage such as their natural resource use and pollution costs are accounted for. However, businesses and investors can take account of natural capital impacts in decision making to manage risk and gain competitive advantage.
Headline findings are:-
- The primary production (agriculture, forestry, fisheries, mining, oil and gas exploration, utilities) and primary processing (cement, steel, pulp and paper, petrochemicals) sectors analyzed are estimated to have externality costs totalling US$7.3 trillion, which equates to 13% of global economic output in 2009.
The value of the Top 100 externalities is estimated at US$4.7 trillion or 65% of the total primary sector impacts identified.
- The majority of environmental externality costs are from greenhouse gas emissions (38%) followed by water use (25%); land use (24%); air pollution (7%), land and water pollution (5%) and waste (1%).
The highest impact sectors by region globally include:-
- Coal-fired power in Eastern Asia and in Northern America rank 1 and 3, respectively estimated at US$ 453 billion per annum in Eastern Asia and US$ 317 billion in North America. These consist of the damage impacts of GHG emissions, and the health costs and other damage due to air pollution. In both instances, these social costs exceeded the production value of the sector.
- The other highest impact sectors are agriculture, in areas of water scarcity, and where the level of production and therefore land use is also high. Cattle ranching in South America, at an estimated US$ 354 billion ranks second. Wheat and rice production in Southern Asia rank fourth and fifth respectively.
Iron, steel and ferroalloy manufacturing ranks 6 at US$225 billion. Cement manufacturing globally accounts for 6% of CO2 emissions, and Eastern Asia produces an estimated 55% of the world's cement, so it is not surprising that it comes in at # 7.
During the past decade commodity prices erased a century-long decline in real terms, and risks are growing from over-exploitation of increasingly scarce, unpriced natural capital. Depletion of ecosystem goods and services, such as damages from climate change, pollution or land conversion, generate economic, social and environmental externalities. Growing business demand for natural capital, and falling supply due to environmental degradation and events such as drought, are contributing to natural resource constraints including water scarcity.
The report assessed more than 100 environmental impacts using the Trucost environmental model which condenses them into six eKPIs to cover the major categories of natural capital consumption: water use, greenhouse gas (GHG) emissions, waste, air pollution, water and land pollution, and land use. These eKPIs were then quantified by region across over 500 business sectors. The method used has limitations and is only designed to give a high-level indication of the priority sectors and regions where natural capital risk lies. Limitations in the method are outlined in the report to support ongoing development of this type of analysis.
The study ranks the top 100 impacts in each sector, broken down by region to provide a platform for companies and investors to assess exposure to unpriced natural capital, both directly and through supply chains and holdings. It also highlights sector-level variation in regional exposure to impacts to identify opportunities to enhance competitive advantage. Impacts across all six eKPIs were combined by region and sector to create a ranking of the top region-sectors globally."
- TEEB for Business Coalition - www.teebforbusiness.org
Launched in November 2012, The TEEB for Business Coalition is a global, multi stakeholder platform formed to develop and support the uptake of natural capital accounting in business decision-making. The vision of the TEEB for Business Coalition is to support a transformative shift in corporate behaviour to preserve and enhance rather than deplete natural capital. The Coalition is the business application of G8 and United Nations Environment Programme supported TEEB (The Economics of Ecosystems and Biodiversity) programme. TEEB provides a compelling economic case for the conservation of natural capital and is the cornerstone of current Green Economy policy. The Coalition founding organisations and supporters include the World Business Council for Sustainable Development (WBCSD), The Institute of Chartered Accountants in England and Wales (ICAEW), H.R.H. The Prince of Wales's Accounting for Sustainability Project, Global Reporting Initiative, Corporate Eco Forum, Business for Social Responsibility, International Federation of Accountants, Conservation International, International Union for Conservation of Nature (IUCN), WWF and Global Initiatives. From international and government, supporters include the United Nations Environment Programme, the International Finance Corporation and the World Bank. From business supporters include Puma, Deutsche Bank, FMO Dutch Development Bank, Deloitte, Ernst & Young, International Federation of Accountants (IFAC) and Chartered Institute of Management Accountants (CIMA).
- About Trucost - www.trucost.com
Trucost has been helping companies, investors, governments, academics and thought leaders to understand the economic consequences of natural capital dependency for over 12 years. Our world leading data and insight enables our clients to identify natural capital dependency across companies, products, supply chains and investments; manage risk from volatile commodity prices and increasing environmental costs; and ultimately build more sustainable business models and brands. Key to our approach is that we not only quantify natural capital dependency, we also put a price on it, helping our clients understand environmental risk in business terms. It isn't "all about carbon"; it's about water; land use; waste and pollutants. It's about which raw materials are used and where they are sourced, from energy and water to metals, minerals and agricultural products. And it's about how those materials are extracted, processed and distributed.
The 8th annual B4E Global Summit in Delhi, 15-16 April is co-organised with the Confederation of Indian Industry and The Club of Rome in partnership with CNN, The Climate Group, Carbon Disclosure Project, World Agroforestry Centre, and other partners. The TEEB for Business Coalition is chairing a plenary session on 'Integrating Natural Capital Valuation into Business'. Amongst the panellists Richard Mattison, CEO Trucost will be disseminating the findings of Natural Capital at Risk. The event is being held back to back with the Clean Energy Ministerial (CEM), nearby at The Ashok Hotel. There will be 25 to 30 Ministers in Delhi for this together with a group of CEOs and international business leaders involved in CEM.