UK manufacturers across sectors see raw materials shortages as one of their top five risks in 2012, according to findings of a survey by the manufacturers' organisation, EEF. It sees effective resource management as a significant economic and environmental challenge. The stakes are high. The World Economic Forum warned last month that the world is heading for a "peak metals" scenario that could put US$2 trillion (1.7% of GDP) of economic output at risk in 2030, unless major global economies respond to shortages in the supply of steel and iron.

The transport industry consumes 16% of global steel production. Differences in the materials efficiency of production suggest that the industry has potential to make more from less. We looked at two global automobile manufacturers, luxury car producer BMW Group - owner of BMW, Mini and Rolls-Royce Motor Cars - and India-based Tata Motors - the maker of commercial and passenger vehicles including Jaguar Land Rover - to see how efficiently they're using steel.

Each company disclosed the quantity of steel used to manufacture their vehicles. On average, Tata Motors used 0.28 tonnes of steel to produce each vehicle, while BMW used more than three times as much (see Table 1).

Table 1: Steel use by car producers in 2010

Considering BMW manufactures its luxury cars to high European safety standards, more steel-intensive vehicles raise the importance of recycling to use raw materials more efficiently. BMW is also investing in lightweight alternative materials such as carbon fibre reinforced plastics.

Iron ore is the main component of steel and its price has risen more than 900% over the past 10 years and fluctuated sharply since January 2010. In 2000 the cost of iron ore was US$12.50 per tonne. Fast forward 12 years and the price has increased more than tenfold to over US$130 per tonne, after peaking at nearly US$190 in early 2011. The high and fluctuating cost of iron ore and potential loss of market share is driving many steel manufacturers to switch production methods by using new electric furnaces (EAF). These are cheaper to run and include a higher proportion of recycled steel than traditional basic oxygen furnaces (BOF). This highlights room for cost savings to be made by savvy suppliers to car manufacturers.

Iron ore prices jumped despite world iron ore production rising from 1,049 mn tonnes to 2,400 mn tonnes, a 129% increase, with some warning that excess supply could lead to a cutback in mining. As iron ore consumption is expected to increase at 2% p.a and is currently growing at 10% p.a, sharp swings in commodity prices are just one of the factors push resource efficiency up manufacturers' agendas. Building new markets and diversifying into new supply chains were among opportunities spotted by manufacturers in EEF's survey. Driving demand for products that are made using fewer raw materials could help make higher car ownership and economic growth in emerging markets more sustainable.

________________________________________________________________________________

¹ http://annual-report.bmwgroup.com/2010/gb/en/facts-and-figures-2010/management-report/review-of-operations/production.html

² http://www.tatamotors.com/investors/flash-figure-details.php?id=105 

Find out more Trucost services for companies

Find out more Trucost services for financial institutions

Companies and investors are caught between expectations of lower demand growth for energy and raw materials and uncertainties about supply-side risks. Commodities prices have fallen from their peak in 2011 as expectations of a recession in the Eurozone and a slowdown in economies such as China have hit markets and crop production has recovered. However, some inventories remain tight and fuel and commodity prices are still higher than the average for the five-year period to the end of 2010¹. Average food prices in 2011 were the highest in 20 years.

Supply and demand trends are likely to keep global food prices strong - futures wheat prices for the end of this year are currently more than one-tenth higher than existing prices.²  The recovery in wheat and grain production could help replenish depleted stocks caused by floods and droughts in some producing regions and help meet growing demand for food, feed and biofuels, rather than fully reverse the sharp rise in prices between 2010 and 2011.

High prices for oil and fertilisers such as potash, will feed through into agricultural commodity prices going forwards. The costs of the environmental impacts of production, such as greenhouse gas emissions and water use, could also increase input costs. Environmental costs are increasingly being internalised through regulatory or market measures, and the food industry is particularly vulnerable to the costs of the physical impacts of resource depletion, pollution and climate change.

A recent report by McKinsey & Company into resource trends over the next 20 years shows a potential  50-450% rise in commodities prices if externalities from greenhouse gas emissions and water use were priced. McKinsey points out that rising prices for food and water are increasing input costs for consumer packaged goods (CPG) companies, which also face rising energy and materials prices.

With Trucost's help, McKinsey assessed how the price of a common basket of consumer packaged goods (CPG) might change if it were to reflect the cost of environmental impacts. Trucost data show that pricing environmental costs for water and greenhouse gas emissions could increase wheat prices by more  than 400%. External costs for water use vary by region. For instance, the four top wheat producing countries are China, India, Russia and the United States of America. Different levels of water use per tonne of crop produced and levels of water scarcity in surrounding basins drive variations in water costs in each country. Chart 1 shows how more intensive water use for wheat production in India, combined with greater water scarcity, results in an embedded water cost that is more than 800 times higher than that in Russia.

Chart 1: Wheat production and external water costs in top 5 countries

Food value chains could incur costs through changes in Government subsidies, higher water pricing, changes to abstraction or irrigation licenses or lower productivity. For instance, lost crops due to drought in Argentina could cut export revenues by US$6 billion. Production in parts of China and India could be hit by low rainfall, while other areas face floods and storms caused by ongoing La Niña weather conditions. However environmental costs are internalised, uncertainties and fears of tail risks - low probability events that have a significant impact on prices - are likely to keep markets volatile. Exposure to fluctuations in commodity prices could increase if trading of agricultural commodity derivatives is curbed in response to accusations that it has contributed to food price spikes.

Companies that transform value chains and business models to improve resource efficiency and manage exposure to risks from the interdependence between food, energy and water will be well positioned for an era of greater price volatility.

____________________________

¹ IndexMundi commodity price data

² FactSet, 24 January 2012

Find out more Trucost services for companies

Find out more Trucost services for financial institutions

Last year marked the second year of steady expansion for the top three U.S. car firms - General Motors (GM), Ford and Chrysler - after a severe downturn during the global crisis in 2008. The U.S. car industry seems to be on a steady path to recovery, helped by President Obama's financial stimulus. GM is in pole position on sales, reporting 234,351 vehicles sold last month, 12% more than Ford and 70% more than Chrysler.

The bailout had green strings attached - manufacturers had to make more effort to sell fuel efficient vehicles to cut carbon dioxide emissions and oil dependence. Market forces and regulatory drivers are building momentum to do this. Improving the energy and carbon efficiency of vehicles in use will be a priority this year, as manufacturers struggle to meet demand for fuel efficient cars and a new U.S. fuel economy standard to cut greenhouse gas (GHG) emissions and improve energy efficiency comes into force. 

Competing on the carbon efficiency of production is also important to cut exposure to rising input costs and develop more sustainable value chains. So which U.S. carmaker has the most carbon-efficient production?

Based on the companies' latest carbon disclosures and Trucost calculations of their supply chain GHG emissions, Chrysler is the top polluter, with 351 tonnes of GHG emissions, measured in carbon dioxide equivalents (CO₂e), per US$ mn revenue. GM is next, with 345 tonnes per US$ mn, leaving Ford as the most carbon efficient of the three, with less than 310 tonnes of CO2e/US$ mn.¹

Chart 1: Carbon efficiency of automakers production and supply chains

Ford takes the chequered flag on its wider environmental performance. Its more environmentally-efficient production also lessens its financial risk. Trucost estimates that if the company had to internalise its environmental costs, they would amount to 2.3% of its revenue - 8% less than for GM or Chrysler.

Trucost calculates that Ford's supply chain contributes 87% of its total emissions. The carmaker has engaged with 30% of its direct (tier 1) suppliers on carbon impacts, and found variability in supplier readiness to measure and report GHG emissions. Engagement also delivered valuable insight into risk management opportunities for the broader automotive supply base. Ford is expanding engagement to wider production, information technology and logistics suppliers. With a US$65 billion value chain, encouraging better measurement and management of materials and carbon could have a significant impact on the company's raw material and environmental footprint. Ford could be better equipped to manage growth sustainably than the two competitors analyzed.

Stronger management of sustainability in value chains could help make supply chains more resilient. Potential risks were highlighted last year, when environment-related events disrupted the supply chains of several manufacturers. For instance, the earthquake and tsunami in Japan and floods in Thailand affected Toyota's operations and parts suppliers, causing a fall in production and loss of earnings.

Could 2012 be the year that potential game changers in the auto sector re-map upstream environmental risks and switch to low-carbon growth?

______________________________________________________________________________

¹ Environmental data was normalized to 2010 revenues for methodological reasons, as latest environmental data available covers the financial year 2010: http://www.gmsustainability.com/ ; http://corporate.ford.com/doc/sr10.pdf and http://www.chryslergroupllc.com/en-us/sustainability/Documents/ChryslerGroup2010SR.pdf

Find out more Trucost services for companies

Find out more Trucost services for financial institutions

Our 2012 State of Green Business report, our fifth annual, has just been published. I'm not going to mince words: Things aren't going as well as we'd hoped. For the first time since we began doing our assessment, in 2008, several of the indicators have taken a downward turn.

Each year, we take the pulse of sustainable business through the lens of 20 indicators of progress, or lack thereof. The indicators measure such things as carbon emissions, e-waste recycling, green office space, vehicle fleet emissions, toxic emissions, energy efficiency, employee commuting, corporate reporting, and a dozen other things. For each, we provide the metric, an analysis, and our take on whether we're making progress ("swimming"), holding our own ("treading"), or going backwards ("sinking").

For the first time, we saw a significant decline in progress-not just in one indicator, but several. Cleantech investments, energy efficiency, green office space, packaging intensity, toxic emissions, and toxics in manufacturing -- all of these trend lines leveled off or reversed course in 2011. Only one indicator -- green power use -- markedly improved.

What's to blame? Simply put, sustainable business is suffering a recessionary hangover.

For much of the past few years, many of our indicators moved in positive directions. Combined with the commitments we were seeing, as well as our surveys of sustainability leaders in large corporations -- which told us that their budgets, staff, and goals were holding steady or growing during the recession -- we concluded that the economic turmoil, at least in the United States, wasn't putting a damper on companies' efforts to improve their environmental performance. The results could be seen each year in the continued progress measured by the GreenBiz Index.

We were, shall we say, irrationally exuberant.

The reality is this: Much of the progress we saw in our 2010 and 2011 reports were lagging indicators based on work done with pre-recessionary budgets. As the economic realities have set in, environmental progress has stagnated, or worse.

That's not the full story. Despite our efforts to normalize many of the indicators to Gross Domestic Product in order to avoid spikes and drops resulting from economic booms and busts, we believe that less economic activity doesn't always lead to lower environmental impacts. In some instances -- electricity power plants, for example -- industrial operations must operate at baseline levels that don't always move in lockstep with the economy.

It's not all bad news. This year, like all years, we find many promising developments in the world of corporate sustainability, as more companies make more commitments related to their products or operations. As we have in the past four reports, we pick 10 promising trends, from the rise of sustainable consumption, to the growing engagement of chief financial officers in companies' sustainability initiatives, to the fact that clean technology, contrary to the political narrative, is alive and well, even flourishing. There is much reason for hope.

Indeed, that's where the cognitive dissonance sets in: We report on so many promising developments each week, so many companies that are engaging more thoughtfully and holistically than ever with what it means to integrate sustainability into their operations, products, and services. We watch as clean technologies become competitive, as markets for organic foods and efficient vehicles reach into the mainstream, as companies achieve zero-waste factories and replace toxic ingredients with safer ones.

But for all of the good work being done, it's simply not good enough.

Can we simply pass this off as a byproduct of a bad economy, and cross our fingers that progress will accelerate when times get better? Or is it time for companies to dig deeper, and for their employees and customers to get more engaged? What will it take to make real progress?

There's a lot at stake here. We continue to be optimistic, though perhaps more cautiously than in the past.

Download report: The State of Green Business 2012

The Climate Change Act 2008 requires the UK Government to make regulations under the Companies Act 2006 by 6 April to require directors' reports to include information about greenhouse gas emissions, or explain why it hasn't done so.

The Government's voluntary greenhouse gas (GHG) reporting guidelines advise companies to disclose emissions from operations (Scope 1) and purchased electricity (Scope 2) separately, in line with the GHG Protocol. Almost 3,000 companies under the CRC Energy Efficiency Scheme already have to report data on carbon dioxide emissions from energy use to the UK Environment Agency, and could face fines for inaccurate or incomplete disclosure. Firms could be fined £40 per tonne of CO₂ if emissions are incorrectly, with a margin of error of more than 5%. This is far higher than the cost of allowances that they will need to purchase for emissions under the scheme from April 2012, fixed at £12 per tonne of CO₂.

So how transparent are UK-listed companies on emissions? Trucost analysed the carbon footprints of companies in the FTSE 350, and reviewed their responses to the Carbon Disclosure Project (CDP)¹ information request to assess carbon reporting.

In 2011, 67% of FTSE 350 companies responded fully to the CDP's request, 2% fewer than in 2010. 49% of companies that answered the questionnaire fully made their responses public, also 2% fewer than in the previous year. Some of the companies that did not make information on their emissions public are high emitters. More than 50,000,000 tonnes of Scope 1 and 2 GHG emissions, measured in carbon dioxide equivalents are from companies with "private" CDP responses, as shown in Chart 1.

Chart 1: Levels of GHG emissions disclosed by FTSE 350 companies

Of the top 10 companies with the highest Scope 1 emissions relative to revenue, International Power and Shanks Group did not publicise their CDP responses; and Eurasian Natural Resources Corporation, Kazakhmys and EasyJet did not respond.

Kazakhmys does report CO₂ emissions not follow Government reporting guidelines on carbon reporting in its 2010 Annual Report, which does not include data on all six GHGs covered by the UN Kyoto Protocol.

Source: Kazakhmys plc Annual Report and Accounts 2010

Carbon data reported for 2009 are incomplete and inconsistent with the company's disclosure in its 2009 Annual Report (21.6 million tonnes of CO₂e). The latest figure for 2009 emissions only relates to copper mining operations. If the firm were to pay £40 per tonne for the missing 10.9 million tonnes of CO₂e, penalties for misreporting would total more than £4.3 billion. Kazakhmys is one of the top 50 UK companies by market cap - are large companies prepared for Government legislation requiring clear and accurate reporting?

-------------------------------------------------------------------------------------------------------------

1 Trucost assessed companies' responses to the CDP's Investor Questionnaire

Find out more Trucost services for companies

Find out more Trucost services for financial institutions

The European Commission unveiled a draft EU energy roadmap to 2050 last week, outlining plans for greater energy efficiency and more renewable energy. Low-carbon energy will cost about the same as if Europe continues to rely heavily on fossil fuels and nuclear power, as infrastructure built 30-40 years ago needs to be replaced anyway. Low-carbon Electric Utilities will play a greater role in the energy mix, as electricity replaces liquid fuels to power passenger cars and light duty vehicles.

Acting immediately can avoid more costly changes in 20 years. Investments in low-carbon energy will help stabilise energy prices in the future. Electricity prices are set to rise over the coming decade, but a lower cost of supply, energy-savings and improved technologies could cause prices to fall from 2030 onwards. Costs will partly be contained by tackling energy demand as well as supply. A draft EU energy efficiency Directive is among measures to step up efforts to use energy more efficiently at all stages of the energy chain.

The second law of thermodynamics, entropy, states that the energy in the universe is perpetually falling further into a state of disorder. As it is divided and spread into different forms, energy loses its ability to be exerted efficiently. Maximising entropy production and the efficiency of products is the lifeblood of manufacturers looking to tap into opportunities to supply clean tech energy solutions. But are they also keeping a check on energy use and carbon emitted in their own operations and supply chains? Producing turbines for wind, water and gas power generation uses energy-intensive processes and transport. The main greenhouse gas emitted during turbine production is carbon dioxide from energy use, so comparing the carbon efficiency of manufacturers can provide business intelligence on their relative energy efficiency.

When it comes to overall carbon efficiency including emissions from direct (first-tier) suppliers, Siemens and General Electric (GE) come in ahead of Vestas, Nordex, and Mitsubishi. Per US$ million revenue, Siemens and GE emit less greenhouse gases, measured in carbon dioxide equivalent (CO₂e) compared to their competitors. When only emissions from operations (Scope 1) and electricity purchases (Scope 2) are measured relative to revenue, Mitsubishi and Vestas take the lead (see Chart 1).

Chart 1: Ranking of manufacturers on carbon intensity (Scope 1 & 2 emissions/revenue)

This means that Mitsubishi and Vestas have more carbon-efficient operations and electricity use. For Vestas, this is likely due to a policy to purchase renewable electricity where available. Over the four quarters to June 2011, renewables accounted for 35% of its energy use and 65% of its electricity use. However, this was down on the previous four quarters due to a shift in production from Denmark and Sweden, which have a high share of renewable energy, to Asia and the United States, where access to renewable energy is more limited in some regions. The shift, which reflects wider cost-cutting by turbine manufacturers, is likely to make Vestas' goal of using 40% renewable energy and 95% renewable electricity worldwide by 2011 unachievable. However, Vestas has reversed a trend of rising energy intensity at facilities worldwide since the last quarter of 2010, which will help keep a lid on its carbon efficiency while cutting costs.  Vestas used 15% less energy in wind turbine production, measured as Megawatt-hours of energy consumption per Megawatt produced and shipped.

While the manufacturers analysed have different product mixes, a scenario analysis shows that if all they were to operate at their average carbon efficiency of 24 tonnes of Scope 1 and 2 CO₂e per US$ mn, or better, their annual carbon emissions would fall by over 2 million tonnes CO₂e. General Electric's emissions make up the majority of this potential cut.

In pressing times of rising energy costs and national policies to eek out resources and curb pollution, the light of efficiency is coming out from under a green bushel, and being recognised as a necessity for competitive business. Resource-efficiency is central to the low-carbon energy road map, and will rise up the agenda from January 2012 under Denmark's six-month Presidency of the EU - and beyond.

Find out more Trucost services for companies

Find out more Trucost services for financial institutions

Such activities are increasing across university operations, developing educational curriculum to support booming demand for environmental course work and degrees, and increasingly also a focus on the environmental exposure of higher education organizations across their supply chains.

Highlighting this developing interest, this January, in perhaps a first of its kind event, Michigan State University is hosting a workshop for its suppliers and prospective suppliers to engage in a dialogue on partnering to reduce the environmental impacts throughout MSU's supply chain and individual suppliers, to identify the challenges and opportunities of assessing and improving environmental performance in the supply chain, and how collaboration can support mutual improvement.   On a video at the event's website, organizer Kathy Lindahl, Assistant VP of Finance and Operations for MSU calls the Understanding out Impact event an ‘new adventure for us... to come together to figure out how to reduce our environmental footprint together with our suppliers'.

This supplier workshop follows a March 2010 initiative where MSU in partnership with Trucost, examined the greenhouse gas emissions associated with the university's largest suppliers, and purchased food products to develop an understanding of the environmental footprint of suppliers and support supplier education and collaboration towards impact reduction.

This assessment comes at a time where the measurement and optimization of environmental risks and opportunities within organizational supply chains is rapidly maturing.  A number of recent developments, such as the October 4^th Launch of the Corporate Value Chain (Scope 3) Accounting and Reporting Standard for Greenhouse Gas emissions after almost 3 years of extensive stakeholder collaboration, and a growing number of companies encouraging and working with suppliers to improve environmental efficiency including 60+ road-testers for the draft Corporate Value Chain Standard.

It will be interesting to see what takeaways come from MSU's initiative, perhaps it will become a model for other higher education institutions, or companies for that matter, for educating and collaborating with suppliers towards greater understanding and reduction of environmental impacts.

More details about MSU's Understanding our Impact workshop is available at http://bespartangreen.msu.edu/conference.html.

The UK Treasury updated its National Infrastructure Plan last month, setting out a substantial pipeline of over £200 billion worth of planned investment in UK infrastructure. The majority of this will be funded with private money. The coalition Government aims to help investors raise spending on UK infrastructure through a Memorandum of Understanding with UK pension funds (including the National Association of Pension Funds and the Pension Protection Fund) and an Insurers' Infrastructure Investment Forum.

The plan includes a £22 billion programme of investment in water infrastructure by 2015. Projects will need to take account of a Water White Paper published by the UK Department for Environment, Food & Rural Affairs last week. This outlines plans to reform the water industry to address challenges including demand pressures, supply constraints, and overuse of some water resources. Measures will include changing abstraction charges that "do not send the right price signals" as they do not reflect the relative scarcity and abundance of water, or competing water demands. Reforming the water abstraction regime aims to facilitate investment to meet water needs while protecting ecosystems. This reflects the Government's plans to ensure that prices and markets increasingly reflect the value of natural capital, so that investors look for opportunities to make a financial return from investing in activities that improve natural services.

Infrastructure that locks in high levels of resource dependence and pollutants could face higher than forecast costs, lowering future cash flows and return on investment. Costs have already increased for infrastructure projects including road building, water and sewerage and energy since 2005. The UK water industry expects greater energy efficiency and more renewable power generation will help insulate against energy price volatility. The water industry is energy intensive and contributes around 1% of UK GHG emissions. The sector has an important part to play in helping to meet the UK target to cut emissions by at least 34% from 1990 levels by 2020.

Water companies will need to pay for carbon dioxide emissions from energy use under the CRC Energy Efficiency Scheme from April 2012. UK water companies include carbon in business planning, taking account of whole-life carbon impacts and costs. Carbon pricing can be applied to expected emissions to calculate potential exposure to carbon costs. This can be factored into financial modelling to adjust the net present value of future cash flows. The same approach can be used to take account of external environmental costs from impacts such as water abstraction and air pollution. In addition to monitoring current and future operational risk, investors and companies can calculate likely energy use and greenhouse gas (GHG) emissions from construction on greenfield sites, and maintenance and expansion of brownfield infrastructure projects. Capital expenditure in different sectors can be used to calculate likely environmental impacts and related costs.

The Government measures infrastructure on indicators including reducing carbon intensity. Trucost data show that two of the largest listed water utilities in the UK have already reduced their carbon intensity, measured as GHG emission from operations and direct (first-tier) suppliers relative to revenue, between 2009 and 2010 (see Chart 1). Northumbrian Water Group has reduced its carbon intensity by 20% to 236 tonnes of carbon dioxide equivalents (tCO₂e) per US$ million, while Severn Trent has reduced its carbon intensity by 22%. This is in contrast to a 4% increase in the average carbon intensity of listed water utilities globally.

Chart 1:   UK water Utilities and sector average carbon footprints 2009-2010

Northumbrian Water has a target to reduce operational GHG emissions by 35% by 2020, from a 2008 base. The company has invested £33 million in thermal hydrolysis advanced anaerobic digestion, enabling waste water sludge to generate methane to fuel gas engines and produce green electricity. Severn Trent has cut emissions by measures including improving efficiency, minimising transport fuel use and reducing the volume of sludge processed. The firm has a long-term target to meet 30% of its energy demand by generating renewable energy from sources including crops, hydro turbines and sewage gas combined heat and power (CHP). In 2010, 22% of the company's energy demand was met by renewables.

The next five-year cycle of investment will be subject to Ofwat's price review from 2015-16. Ofwat, the economic regulator of the water and sewerage sector in England and Wales, is currently consulting on proposals to change the way it sets price limits to take account of factors such as population growth, climate change, and growing water scarcity. It is moving towards a whole-life costing, total expenditure (‘totex') approach to assessing efficiency to help address any real or perceived capex bias towards capital- and carbon-intensive projects. Incentives to encourage more efficient water use are likely to raise water prices more for business than residential water users.

Managing exposure to resource-intensive infrastructure - and suppliers - from the outset can help address financial risk from resource use as well as liabilities for emissions and other pollutants under environmental taxes, emissions trading programmes, regulatory regimes, changes in licensing conditions and business or supply chain disruption.

Find out more Trucost services for companies

Find out more Trucost services for financial institutions

Federal legislation to regulate or trade greenhouse gas (GHG) emissions has stalled in the United States, but the two largest pension funds are among investors helping to drive action to cut carbon using shareholder rights, asset allocations and public pressure. For instance, climate risk is central to engagement on value related risk by the US$235.8bn California Public Employees' Pension System (CalPERS) and the California State Teachers Retirement System (CalSTRS) backed the 2011 Global Investor Statement on Climate Change calling for policymakers at the UN climate talks in Durban this week to implement policies to reduce emissions.

Policymakers in California will lead the way in the U.S. when they create the nation's first economy-wide emissions trading scheme in 2013. Initially, the program will minimize costs to businesses and consumers. Consumers are looking at cutting their own carbon footprints, and expect companies to do the same. Three-quarters of Americans surveyed on green attitudes and behaviours believe that "a manufacturer that reduces the environmental impact of its production process and products is making a smart business decision," according to findings out last week.

Consumer Goods companies are on the frontline and many are curbing carbon. Trucost's database of over 4,000 listed companies shows that U.S. firms in the sector are 10% less carbon intensive than their peers globally, on average (see Chart 1). They are also doing better on disclosure. Whereas Trucost records show 35% of Consumer Goods companies globally disclose carbon emissions, the U.S. rate was 47% - up 13% from 2009 levels.

Chart 1: Average carbon intensity of Consumer Goods sector: U.S. Vs. Rest of world

The U.S. Consumer Goods company with the lowest carbon intensity that discloses data publicly is Avon Products Inc. Trucost used data reported by the cosmetics manufacturer on its direct emissions and resources use to calculate its carbon intensity, which also takes into account Trucost estimates of emissions from direct (first-tier) suppliers of goods and services such as business travel. Trucost's database shows that around 87% of carbon emissions from U.S. Consumer Goods companies were from their supply chains.

At 181 tonnes of greenhouse gas emissions, measured in carbon dioxide equivalents (CO₂e) per US$ million of revenue, Avon's carbon intensity is well below the average for its U.S. sector peers (489 tonnes of CO₂e per US$ mn). This contributed to Avon being ranked among the top four U.S. companies in the sector in Newsweek's Green Rankings 2011. Companies that manage their operational and supply chain impacts - and risks from carbon and resource costs passed on in higher prices - will be better prepared for environmental pressures to come.

Find out more Trucost services for companies

Find out more Trucost services for financial institutions

BP's Deepwater Horizon oil spill last year showed that environmental issues can create economic problems and cause significant financial losses. As a result of technical failures, it took 87 days to secure the well source and stop the leak. During this time, an estimated 4.9 million barrels were spilled into the Gulf.  

Source: pg 226 National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling report 

BP's share price fell by 52% in 50 days on the New York Stock Exchange, wiping $60 billion from its market value. This was also bad news for the UK investment funds as "BP's UK dividends represent approximately one-seventh of all dividend payments in the UK and form the basis of many pension schemes"

The accident highlighted the technological difficulties of energy operations in deepwater. It also focused attention on the need to strengthen controls on drilling, corporate culture, safety and environmental practices and management if oil reserves in high-risk areas are to be exploited.

A National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling report highlighted oversights in the oil industry's health and safety regulations, stating that "safety standards have increasingly failed to reflect ‘best industry practices' and have instead expressed the ‘lowest common denominator' - in other words, a standard that almost all operators could readily achieve." It went on, "the inadequacies of the resulting federal standards are evident in the decisions that led to the Macondo well blowout."

The Deepwater Horizon accident cost BP $41.3 billion in clean up, compensation and other costs, in addition to indirect adverse economic effects of reputational damage and lost customer confidence.

BP's oil spill was just one of 79 "loss of well control accidents - when hydrocarbons flowed uncontrolled either underground or at the surface" reported in the U.S. Gulf of Mexico between 1996 and 2009, according to the National Commission.

It seems that the industry is yet to learn lessons from BP and other exploration and production companies. Just last week, Chevron was banned from drilling off the coast of Brazil following an oil spill. The accident is being investigated. The National Petroleum Agency (ANP) has also rejected Chevron's request to drill a deeper well. "It said such drilling would "pose risks to the environment similar to those that occurred in the well where the spill occurred, but bigger and magnified by the greater depth"

And earlier this month, "defects" in production and management at ConocoPhillips were blamed by the China's State Oceanic Administration (SOA) for oil spills at an oilfield that it operates in the Bohai Bay off China's northeast coast resulted from. The Administration plans to sue ConocoPhillips, and ecological damage could lead to compensation claims running into billions of dollars. China looks set to strengthen pollution rules following the spills.

Environmental challenges and risks globally may be well worth taking into account.

Find out more Trucost services for companies

Find out more Trucost services for financial institutions