The True Cost of the S&P 500

True Cost

The True Cost of the S&P 500

True Cost of the S&P 500

On Feb. 12, GreenBiz will launch its annual State of Green Business report with new research from Trucost on the environmental performance of U.S. companies. Here’s a preview of the findings, focusing on the True Cost of S&P 500 companies in the food and beverage and retail sectors. Putting a price on natural capital -- in other words, assigning a dollar cost to environmental impacts -- provides a business context for the analysis.

Not surprisingly, the embedded environmental costs are significant and represent real financial risks and strategic opportunities for companies. Our research found the direct and supply chain environmental costs of S&P 500 retail companies totalled almost $22 billion. That is a lot, but the costs of the food and beverage companies are more than three times higher at $69 billion. For food and beverage companies the key impacts were water use ($38 million), land and water pollutants ($12m), greenhouse gas (GHG) emissions ($10m) and other air pollutants ($8m). For retailers, the most significant impact was also water use ($8m), followed by GHG emissions ($7m).

How are companies paying for their environmental costs?

Droughts and pollution hot spots are causing food and beverage and retail companies to internalize upstream environmental costs. During the 2012 U.S. drought, water shortages and high temperatures destroyed field crops, driving up corn and soybean costs. This has led to increases in prices for other food supplies such as animal feed. Knock-on effects continue to ripple throughout supply chains and the impact on food prices such as meats, dairy and eggs is expected to be felt into 2013 as companies pass on higher input costs to consumers.

Regulatory frameworks that place a price on carbon emissions are also evolving in regions including California and nine Northeastern U.S. states, parts of Canada, Australia, South Africa, China, South Korea and Europe. Companies with carbon intensive suppliers in these regions are at risk from pass-through carbon costs leading to lower margins.

How well are companies measuring these environmental costs?

To get a snapshot of how well companies are managing their environmental performance, we assessed the disclosure of impacts resulting directly from companies’ direct operations.

We found the food and beverage sector discloses 41 percent of its direct impacts on the environment -- over double that of the retail sector, which discloses 20 percent.

Water is the most material environmental cost for both sectors, but disclosure was worryingly low, particularly given that our demand for the resource is already outstripping supply in some regions.

For retailers, water dependency tends to be embedded in the supply chain; the direct environmental cost being mostly negligible.

However, direct water disclosure is a key challenge for the food and beverage sector, which discloses just 24 percent of its direct water use.

The top 10 disclosers

Both sectors disclose best on GHGs, perhaps reflecting the availability of an international reporting standard (GHG Protocol), as well as awareness of the potential materiality of GHGs for food and beverage and retail companies.

Food and beverage companies have made the most progress, disclosing 73 percent of their GHG emissions, compared to 58 percent in retail.

The food and beverage sector is also making significant progress in disclosing waste and land and water pollutants, with disclosure of 58 percent and 47 percent of these impacts.

Retailers are also making progress in disclosing 43 percent of the total air pollution impacts.

To celebrate the success of companies leading the way in disclosing their direct environmental impacts, we reveal the top 10 disclosers in each sector:

Top 10 S&P 500 disclosers of direct environmental impacts in the retail sector

Rank

Company

Percent cost of direct environmental impacts disclosed

1 - tie

Target Corp.

100

1 - tie

JC Penny Co. Inc.

100

3

Kohl’s Corp

99

4

Whole Foods Market

95

5

Wal-Mart Stores Inc.

93

6

Safeway Inc.

83

7

Kroger Co.

80

8

Staples Inc.

67

9

Best Buy Co. Inc.

47

10

Home Depot Inc.

36

 

Top 10 S&P 500 disclosers of direct environmental impacts in the food and beverage sector

Rank

Company

 percent cost of direct environmental impacts disclosed

1

Molson Coors Brewing Co.

100

2 - tie

Coca-Cola Co.

99

2 - tie

Coca-Cola Enterprises

99

4 - tie

Hormel Foods Corp.

98

4 - tie

ConAgra Foods Inc.

98

4 - tie

PepsiCo Inc.

98

7 - tie

Campbell Soup Co.

97

7 - tie

H.J. Heinz Co.

97

7 - tie

Monsanto Co.

97

10

General Mills Inc.

94

 

How does this compare to disclosure of supply chain impacts?

Not surprisingly, the majority of the environmental costs of food and beverage and retail companies are found within their supply chains. To assess progress in understanding these risks, we compared the disclosure of direct emissions to supply chain emissions for GHGs, the most disclosed direct environmental impact for both sectors.

We found an acute difference. The average retail company discloses 4 percent of its supply chain GHG impacts, dropping to just 2 percent in the food and beverage sector.

While only a handful of companies currently report supply chain impacts, many are gearing up to do so. The Carbon Disclosure Project and Newsweek Green Rankings have both revealed sharp increases in supply chain reporting. In order to meaningfully report these impacts, companies first need a systematic way to identify and capture material issues at each supply chain tier since impacts are often concealed in the raw materials and processing stages.

The GHG Protocol’s Corporate Value Chain Accounting and Reporting Standard, published in October 2011, provides much-needed guidance and recommends companies start by modeling impacts to identify focus areas for efficient primary data collection from suppliers. This type of supply chain “hot spot analysis” has been used by companies like Sprint, PUMA, BSkyB and the Formula One Teams Association.

What are the implications for food and beverage companies and retailers?

Food and beverage and retail companies that take the lead in understanding and managing supply chain resource dependency and environmental impacts will benefit from reduced risk from input costs -- and just as importantly, opportunities to evaluate and lock in strategic suppliers Companies that assign a value to environmental impacts will be able to communicate with CFOs, CEOs, and investors about their performance in a business context.

Valuation of environmental impacts also provides a common metric to integrate environmental considerations into traditional financial metrics, helping companies identify trade-offs, select more environmentally efficient suppliers and optimize supply chains and products in line with natural resource availability and environmental cost. Measuring and valuing natural capital will lead to early mover advantage -- because what is valued is managed.

Image of money for dinner courtesy of M. Cornelius via Shutterstock.