9th June 2003 - Launching today - the Trucost Environmental Cost Calculator. Environment Minister, Rt Hon Michael Meacher MP, "strongly commend(s) it."

London, Monday 9th June 2003: Today sees the public launch of the Trucost Environmental Cost Calculator, which allows fund managers, consultants and companies to evaluate the real environmental impacts of companies and sectors in financial terms for the first time. ‘Communicating Environmental Performance to Investors’, an Investor Relations Society conference in London on Wednesday (4th June), heard renewed calls from the government, ACCA, Hermes and Arthur D Little, for greater corporate disclosure of external environmental costs. Sponsors, Trucost Plc, previewed the Trucost Environmental Cost Calculator at the conference, which puts a financial value on these external costs.

Rt Hon Michael Meacher MP, Minister for the Environment, said at the conference

"I think Trucost is doing something really good. I was talking about methodologies in actually working out the external costs of corporate behaviour. I know a Minister is never supposed to give commercial plugs, but I think you [Trucost] are doing a great job. And I think your method is certainly one very good way by which one can actually calculate the overall, wider impact … of company activities, and I would strongly commend it. ”

Steve Brown, Director, Hermes, said at the conference:

"Trucost is … trying to get a holistic view of … companies’ impacts on the environment through all its activities. Clearly that is a very, very challenging exercise but I think it’s something that we as investors have a significant interest in because understanding the scale of those externalities is important to us in understanding the risks, in economic and financial terms, that that business may run going forward."

The Trucost Environmental Cost Calculator allows fund managers, consultants and companies to evaluate the real environmental impacts of companies and sectors in financial terms for the first time. Valuations of these environmental costs are provided as a proportion of a company’s turnover, putting them into context. This helps companies meet the environmental reporting obligations set out in the Company Law White Paper. This financial information enables fund managers, consultants and companies to:

•Quantify and compare environmental costs for companies or sectors
•Model the financial impacts of upcoming environmental legislation and taxes
•Guide and improve environmental due diligence
•Engage more effectively with companies/investors and make better informed investment decisions and recommendations
•Decide whether environmental costs are material

The Trucost Environmental Cost Calculator identifies the environmental goods and services used by a company and sector (using detailed government census and survey data), to which it applies a pricing model based on established economic principles. Trucost has compiled a library of prices for almost 1,000 natural resources and emissions, which are used to quantify both direct and indirect financial risk, and are regularly updated to provide a consolidated source of valuations online. Users choose a price for their selected resource from a list of prices, which include Trucost’s price, or they can use their own value. Standard methodology, which is approved by independent expert third parties, is applied to all companies. Trucost has the support of an International Advisory Panel of leading academics in the fields of economics and the environment, who assist in the ongoing development of its methodology.

Simon Thomas, Chairman, Trucost Plc, says:

"Investors, customers, employees and regulatory bodies are placing increasing demands on companies to provide more information on their environmental performance. Governments too are exerting increasing pressure both through taxation and regulation ­ the UK Government's Modernising Company Law White Paper proposes mandatory reporting for the top 1000 UK companies and 8% of UK tax revenue in 2001 came from green taxes."

Thomas continues:

"Many companies and investors have an incomplete understanding of the impact of business on the environment. The Trucost Environmental Cost Calculator models the complex interactions between the economy and the environment to identify environmental impacts and express them in financial terms. There is a long-standing need for such a quantitative approach which is why fund managers have reacted so enthusiastically to this development."

Rt Hon Michael Meacher MP, Minister for the Environment, said:

"Clearly, the government needs to do more to align business and broader societal interests. To enable corporate environmental responsibility. We have made a start. The landfill tax, the climate change levy and the aggregates levy are all aimed at making the market take account of environmental concerns. And we have pledged to go further. To look at other areas where we can use economic instruments to support our sustainable development objectives. To use the jargon ­ we are internalising the externalities, taking into account the true cost of production. And that means business needs to take action now. Because today's impacts could be tomorrow's liabilities.

Companies that know what their impacts are can make the efficiency savings. Companies that understand the key issues can identify the gaps in the market. And companies that target their investment towards sustainable technologies today, will reap the rewards tomorrow.

But in my view it does mean that companies will need to have a far greater understanding of these issues so that they can make an informed judgement on what they need to report. If you don't know what your environmental impacts are, how can you know about the potential for future liabilities? If you don't know about how the products you sell are made, how can you assess the risk of reputational damage? And if you aren't considering what sustainable development means for your company, how can you be sure your strategy is the right one? These issues may not be reflected in the balance sheet today, but they could well be tomorrow. And that's why the pressure to report is growing.

You may also be aware about developments in environmental accounting...a number of organisations, including our sponsors here today [Trucost], have developed systems to help companies calculate the real cost of their external impacts ."

Steve Brown, Director, Hermes said:

"What Trucost are trying to do with their extensive input-output modelling of the economy is to capture the first two of those externalities [direct and indirect externalities]. They are trying to not only capture, with their analysis of business activities, the impact of a companies’ own facilities on the environment, but also the impact down the supply chain of all the companies that supply that business and their impact on the environment – trying to get a holistic view of that companies’ impact on the environment through all its activities. Clearly that is a very, very challenging exercise but I think it’s something that we as investors have a significant interest in because understanding the scale of those externalities is important to us in understanding the risks, in economic and financial terms, that that business may run going forward.

"So we are moving down the tracks towards some kind of internalisation process of these external costs, with the help both of academic analysis under the auspices of government, and the types of products that people like Trucost have provided at a business unit level."

Communicating Environmental Performance to Investors - 4th June 2003 - Speakers

- Natalie Evans, Head of Policy, Investor Relations Society
- Phil Hodkinson, Member of the Independent Materiality Group (OFR) for Modernising Company Law White Paper
- Steve Brown, Managing Director (Investments), Hermes Focus Asset Management
- Simon Berkeley, Arthur D Little
- Roger Adams, Board Member, Global Reporting Initiative (GRI) & Technical Director, Association of Chartered Certified Accountants (ACCA)
- Chris Gribben, Associate Director, Ashridge Centre for Business & Society
- Rt Hon Michael Meacher MP, Minister for the Environment and Agri-Environment
- Simon Thomas, Chairman, Trucost Plc

For further information or copy of speeches and presentations at the conference, please contact Philippa Thomson on 020 7321 3731

You can download this article in Adobe Acrobat format (.pdf) by clicking on the link to the right.

If you are not currently able to view files in this format, Adobe Acrobat Reader is available free from the link to the right