KPMG warns of sustainability “megaforces”

KPMG released its study, “Expect the Unexpected: Building business value in changing world”, at the organisation’s recent global Business Perspective on Sustainable Growth: Preparing for Rio+20 summit in New York. 

The study finds: 

The costs of environmental impacts of business operations are doubling every 14 years.
Companies should expect increases in external environmental costs which are not reflected on financial statements.
Businesses and policymakers must take joint strategic decisions and act now.

The KPMG research shows the external environmental costs, which today are often not shown on financial statements, of 11 key industry sectors jumped 50 percent from US$566 (NZ$680) to US$846 (NZ$1,015) billion in eight years (2002 to 2010). That’s an average doubling of these costs every 14 years.

The report calculated that if companies had to pay for the full environmental costs of their production, they would lose US$0.41 for every US$1.00 in earnings on average.

Yvo de Boer, KPMG’s global adviser on climate change and sustainability, said global sustainability megaforces will significantly increase the complexity of the business environment. 

While New Zealand is relatively well off in terms of water supply, food production and population density, global challenges will increasingly impact the costs of doing business in New Zealand. 

According to KPMG’s thinking, the 10 global sustainability megaforces that may impact business over the next two decades are:

• Climate change: This may be the one global megaforce that directly impacts all others. Predictions of annual output losses from climate change range between one percent per year, if strong and early action is taken, to as much as five percent year – if policymakers fail to act.

• Energy and fuel: Fossil fuel markets are likely to become more volatile and unpredictable due to: higher global energy demand; changes in the geographical pattern of consumption; supply and production uncertainties; and increasing regulatory interventions related to climate change.

• Material resource scarcity: As developing countries industrialise rapidly, global demand for material resources is predicted to increase dramatically. Business is likely to face increasing trade restrictions and intense global competition for wide range of material resources that become less easily available. Scarcity also creates opportunities to develop substitute materials or to recover materials from waste.

• Water scarcity: It is predicted that by 2030, the global demand for freshwater will exceed supply by 40 percent. Businesses may be vulnerable to water shortages, declines in water quality, water price volatility and reputational challenges. 

• Population growth: The world population is expected to grow to 8.4 billion by 2032. This will place intense pressures on ecosystems and the supply of natural resources such as food, water, energy and materials. While this is threat for business, there are also opportunities to grow commerce and create jobs, and to innovate to address the needs of growing populations for agriculture, sanitation, education, technology, finance and healthcare.

• Wealth: The global middle class (defined by the OECD as individuals with disposable income of between US$10 [NZ$12] and US$100 [NZ$120] per capita per day) is predicted to grow 172 percent between 2010 and 2030. The challenge for businesses is to serve this new middle-class market at time when resources are likely to be scarcer and more price volatile. The ad

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