Trucost Blog / 06 Oct 2010

The environmental costs of big firms

A Trucost study for PRI and UNEP found that the environmental damage caused by some of the world’s largest companies costs the global economy more than $2 trillion worldwide.

The UN-backed Principles for Responsible Investment and UNEP Finance Initiative commissioned Trucost to calculate the cost of global environmental damage and examine why this is important to the economy, capital markets, companies and institutional investors.

The study warns that as environmental damage and resource depletion increases, and governments start applying a “polluter pays” principle, the value of large portfolios will be affected through higher insurance premiums on companies, taxes, inflated input prices and the price tags for clean-ups.

Marketplace reporter Eve Troeh talks with Bill Radke about what the report reveals.

BILL RADKE: A report out today measures the environmental impact of the world’s 3,000 largest companies, and how much that impact costs investors. It was commissioned by a United Nations program for responsible investing. Marketplace’s Eve Troeh is here live to tell us about it. Hi Eve.


RADKE: So when you look at 3,000 large companies I’m guessing you don’t see a positive impact on the environment. What’s the toll?

TROEH: This study found that environmental damage — pollution, deforestation, that kind of thing — cost more than $2 trillion worldwide. Yes, $2 trillion. And for companies that do cause damage, its says more than half of their profits are vulnerable, which means their earnings may look great on paper, but if they’re found liable for any environmental damage, they could potentially lose half of that.

RADKE: Is this report just about socially responsible investing, or is there more to it than that?

TROEH: There’s more. This report is really a wake-up call for big mutual funds that invest in all kinds of companies. Look at something like the BP oil spill. The company’s stock plunged, people lost a lot of money. What this report says is: Hey, investors, here’s how much of your money is on the line. And if investors want to gauge this environmental risk, businesses are not always going to be eager to offer up things, like their factory emissions or safety practices. So this report also says: Hey, you guys have to push to get more of this information.

RADKE: But wouldn’t it be easier to just not invest in oil or mining if you’re trying to avoid environmental risk?

TROEH: Well, when we’re talking about big investors, that’s just not realistic. These industries do exist, they do make money, and they’re not going away. But as the world starts to regulate things like carbon emissions, and they want to assess more environmental risk, this is going to be more important. Peter DeSimone at the company Social Invest put it this way.

PETER DESIMONE: So knowing that companies are going to have to operate in a carbon-constrained world, who’s best poised to do so? This report is a step to get people to start figuring that out.

RADKE: OK. That’s Marketplace’s Eve Troeh. Eve, thank you.

TROEH: Thanks Bill.


DOWNLOAD RESEARCH Universal ownership: why environmental externalities matter to institutional investors

Find out about Trucost’s Environmental Impact Valuation service

Interview republished with thanks to Marketplace

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