Putting a price on global environmental damage
Global environmental damage caused by human activity in 2008 represented a monetary value of $ 6.6 trillion, equivalent to 11% of global GDP, calculates a study released today by the UN-backed Principles for Responsible Investment (PRI) and the UN Environment Programme Finance Initiative (UNEP FI).
Those global costs are 20% larger than the $ 5.4 trillion decline in the value of pension funds in developed countries caused by the global financial crisis in 2007/8.
The study, an initial effort to quantify in monetary terms the environmental harm caused by business and the possible future consequences for investor portfolios, fund returns and company earnings, estimates that in 2008 the world's top 3,000 public companies were responsible for a third of all global environmental damage.
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.
Paul Clements-Hunt, Head, UN Environment Programme Finance Initiative, said 'This report sends a powerful message that the environment is also the business of business. Polluters must pay. Safeguarding the environment and using our natural assets efficiently entail collective action.'
'The bottom line is that if we are to achieve a sustainable global economy, then we must stop drawing down our natural capital.' he added.
The most environmentally damaging business sectors are: utilities; oil and gas producers; and industrial metals and mining.
The most environmentally damaging business sectors are: utilities; oil and gas producers; and industrial metals and mining.
Those three accounted for almost a trillion dollars worth of environmental harm in 2008. The top 3,000 companies by market capitalisation, which represent a large proportion of global equity markets, were responsible for $ 2.15 trillion worth of environmental damage in 2008.
Workers and retirees could see lower pension payments from funds invested in companies exposed to environmental costs, says the study, which was commissioned by the PRI and UNEP FI and conducted by Trucost, the London-based environmental consultancy.
The study, projects that the monetary value of annual environmental damage from water and air pollution, general waste and depleted resources could reach $28.6 trillion in 2050, or 23% lower if clean and resource-efficient technologies are introduced.
The study recommends investors should exercise their ownership rights, collaborate to encourage companies and policy-makers to reduce these environmental externalities, and request regular monitoring and reporting from investment managers on how they are addressing exposure to environmental risk.
The Principles for Responsible Investment, convened by UNEP FI and the UN Global Compact, was established to help investors achieve better long-term investment returns and sustainable markets through improved analysis of environmental, social and governance issues. The Initiative has over 800 signatories from 45 countries with more than $ 22 trillion of assets under management.
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