Moves by intergovernmental bodies and investors suggest that they could soon be made more financially accountable for the pollution they cause.

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Pressure is building on businesses to address the environmental impact of their operations. Moves by intergovernmental bodies and investors suggest that they could soon be made more financially accountable for the pollution they cause.

Some experts are even predicting that many of the world’s biggest companies could see their profits cut by one third as a result of more stringent regulation, the abolition of subsidies and increased taxes.

A coalition of global investors from 13 countries, managing over US$2.1 trillion of assets, last month called for better corporate reporting on environmental, social and corporate governance (ESG) activities.

The international investor coalition, Principles for Responsible Investment (PRI), wrote to 86 major companies urging them to honour the reporting requirements of the United Nations Global Compact, the world’s biggest voluntary corporate responsibility initiative.

Each of the 86 “laggard” companies has previously joined the UN initiative, but failed to produce the mandatory annual report on how they are putting the initiative’s ten principles into action.

PRI and UNEP

Now the PRI and the United Nations Environment Programme (UNEP) have jointly ordered a report into the activities of the 3,000 biggest public companies in the world.

The study, conducted by London-based consultancy Trucost and due to be published in the summer, has already calculated that the estimated combined environmental damage caused by these companies amounted to some US$2.2 trillion (£1.4tn) in 2008. According to Trucost, the biggest single component of the $2.2 trillion estimate, accounting for more than half of the total, was emissions of greenhouse gases. Local air pollution such as particulates, and the damage caused by the over-use and pollution of freshwater, were among other major costs included.

The figure equates to 6-7% of the companies’ combined turnover, or an average of one-third of their profits – though some businesses would be much harder hit than others.

Trucost’s Richard Mattison, chief operating officer and leader of the report team, told the Guardian newspaper that whether they actually have to pay for these costs will be determined by policy makers’ appetite for enforcing the ‘polluter pays’ principle.

Putting a price on environmental damage

Another significant UN study due later this year will add to the calls to put a price on global environmental damage, and suggest ways to prevent it. The report is being led by economist Pavan Sukhdev, who is a special advisor to UNEP’s Green Economy Initiative.

It’s thought that Sukhdev’s report will argue for an end to the billions of dollars of subsidies for harmful industries like agriculture, energy and transport, tougher regulations and more taxes on companies that cause environmental damage.

News of the forthcoming reports emerged at the same time as the executive secretary of the United Nations Framework Convention on Climate Change, Yvo de Boer, resigned and announced he is moving to the private sector. De Boer will join the consultancy group KPMG in July 2010 as Global Adviser on Climate and Sustainability.

Explaining his decision, de Boer said that the political commitment and sense of direction toward a low-emissions world are overwhelming. “I have always maintained that while governments provide the necessary policy framework, the real solutions must come from business,” he said. “This calls for new partnerships with the business sector and I now have the chance to help make this happen.”

KPMG’s global head of advisory, Alan Buckle, said that corporate clients need help with an increasingly complex web of corporate governance and reporting, developing regulation and taxes. “These issues are becoming increasingly important for all organisations – and many business leaders acknowledge that climate will affect the way they do business in the future,” Mr Buckle said.

Source: Lloyds

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