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$4.7 Trillion: The Environmental Cost Of Business

What’s not on businesses’ balance sheets? The damage they do to the environment. When you add that in, a lot of blue chip companies look a lot less impressive.

$4.7 Trillion: The Environmental Cost Of Business
Kelly Rakowski/Co.Exist (Illustration)

Businesses use water from rivers and lakes, without replacing what they take. They put pollution in the atmosphere and don’t pay associated health care bills. These are "externalities," or uncompensated costs, that pose an increasing risk to the planet, as well as to companies themselves, according to a new report.

If you put a financial figure to the 100 most serious environmental impacts that industry doesn’t currently pay for—everything from greenhouse gases to land pollution—the number is huge: $4.7 trillion a year. In some industries, the damage actually outstrips the value of products created.

Greenhouse gases make up the largest share (38%), followed by water use (25%), land use (24%), and air pollution (7%), according to Trucost, the research firm that prepared the study. The report was published by the United Nations-backed TEEB for Business Coalition, which wants to establish "natural capital accounting" alongside traditional balance sheets.

The report looks at extractive industries like forestry, fisheries, and mining, and processing ones like cement and steel, comparing natural costs and revenues regionally. East Asian coal power generation has $453 billion in costs and only $443.1 in revenue. Cattle ranching and farming in South America has $354 billion in costs, and just $17 billion in revenue. North American coal has $317 billion in costs, and $66 billion in revenue.

This poses an inherent risk to investors, the study says, as companies could not afford to meet costs if they had to (say, if regulators got tough). That, in turn, would probably raise prices at the grocery, and the pump.

"No high-impact region-sectors generate sufficient profit to cover their environmental impacts. Therefore if unpriced natural capital costs are internalized, a large proportion would have to be passed on to consumers."

"The risk to agricultural commodity prices is particularly striking, where the natural capital cost is universally higher than the revenue of the sectors."

Some companies have begun to think about the risks of resource depletion. PepsiCo, for example, runs programs to replace water it pulls from the environment. And Puma, the apparel brand, has developed an "environmental profit and loss account." But there’s clearly a long way to go: At the moment, sustainability is still a relative concept for most companies.