Publication / 29 Oct 2015

Counting the Cost

Investors should encourage cement companies in China to disclose environmental performance data to help reduce environmental costs and manage the risks of tougher pollution control legislation.

The cement industry is one of the major contributors to air pollution and greenhouse gas emissions in China due to its size and high energy intensity supplied primarily through fossil fuels. These air emissions contribute to global climate change as well as much more localized impacts from air pollutants such as poor air quality damaging people’s health and respiratory systems.

The research finds that the combined cement production of 32 publically listed cement companies representing 46% of China’s total cement production was responsible for an external cost of $31,500m (RMB 195,400m) in 2013. On average, 67% of cement companies’ clinker and cement segment revenue and 43% of total company revenue could be at risk as the external costs of cement production become internalized through a range of drivers identified in this report.

This study demonstrates the usefulness of quantifying portfolio, sector and investment level exposure by using external cost accounting techniques alongside a framework that considers the internalization of these external costs through a number of different risk drivers. This can help the financial sector reduce its risk and identify opportunities to capitalize on the transition to a more resource efficient and sustainable economy.

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