Finding a sustainable path to business growth.

• Author: Hickox, John R.
• Position: QUICK STUDY

New research finds that if companies calculated what they had to pay for the full environmental costs of their operations, they would lose 41 cents for every U.S. dollar in earnings, on average. Currently, these "external costs" would not be something reflected on the balance sheet because either individuals or society at large bear such costs.

The report, Expect the Unexpected: Building Business Value in a Changing World, based on research conducted by KPMG International, found that the costs associated with external environmental trends are often non-monetary or difficult to quantify, such as pollution, and therefore are not reflected in financial statements. These costs jumped almost 50 percent from $566 billion to $846 billion from 2002 to 2010 across 11 key industry sectors. That amounts to an average doubling of these costs every 14 years.

IDENTIFYING THE MEGAFORCES

The research identified the following 10 megaforces that may significantly affect corporate growth globally over the next two decades:

* Climate Change. Possibly the one global megaforce directly impacting all others. If strong and early action is taken, annual output losses from climate change could be about 1 percent per year; if policymakers fail to act, costs could hit as much as 5 percent a year.

* Energy and Fuel. Fossil fuel markets may become more volatile and unpredictable because of higher energy demand, changes in the geographical pattern of consumption, supply and production uncertainties and increasing regulatory interventions.

* Material Resource Scarcity. As developing countries industrialize, global demand for material resources likely will increase dramatically, posing potential trade restrictions and intense global competition for dwindling available resources.

* Water Scarcity. Predictions are that global freshwater demand will exceed supply by 40 percent by 2030, creating potential shortages, decline in water quality, water price volatility and reputational challenges.

* Population Growth. The world population may reach 8.4 billion by 2032, further pressuring ecosystems and supplies of food, water, energy and materials.

* Wealth. The global middle class (defined as individuals with disposable income of between $10 and $100 per capita per day) could grow 172 percent between 2010 and 2030, putting further strain on resources and increasing price volatility.

* Urbanization. In 2009, for the first time ever, more people lived in cities than in the...