Assessing businesses' $7.3 trillion annual cost to natural capital

The cost business is levying on the planet’s natural capital is large and likely to grow. The risks to business are growing, too.

Primary production and processing industries are costing the global economy around $7.3 trillion a year in terms of the economic costs of greenhouse gas emissions, loss of natural resources, and other factors, according to a new study.

The report, Natural Capital at Risk — The Top 100 Externalities of Business, released today at the Business for the Environment summit in New Delhi, was produced by Trucost for the TEEB for Business Coalition. It identifies financial risk from environmental externalities such as damages from climate change, pollution, land conversion and depletion of natural resources, across business sectors at a regional level.

According to the report, the primary production (agriculture, forestry, fisheries, mining, oil and gas exploration, utilities) and primary processing (cement, steel, pulp and paper, petrochemicals) is estimated to have externality costs totaling $7.3 trillion, roughly equal to 13 percent of global economic output in 2009. The majority of environmental externality costs are from greenhouse gas emissions (38 percent), water use (25 percent), land use (24 percent,; air pollution (7 percent), land and water pollution (5 percent) and waste (1 percent).

The highest-impact sectors by region globally include:

  • Coal-fired power in Eastern Asia and in Northern America, which rank No. 1 and No. 3, respectively, collectively estimated at $780 billion annually. These consist of the impacts of GHG emissions and the health costs and other damage due to air pollution. In both instances, these social costs exceeded the production value of the sector.
  • Other high-impact sectors are agriculture: Cattle ranching in South America, for example, at an estimated $354 billion, ranks second. Wheat and rice production in southern Asia rank fourth and fifth respectively.
  • Iron, steel and ferroalloy manufacturing ranks sixth, at $225 billion. Cement manufacturing globally accounts for 6 percent of carbon dioxide emissions, and eastern Asia produces an estimated 55 percent of the world’s cement, resulting in it coming in seventh among high-impact sectors and regions.

“During the past decade commodity prices erased a century-long decline in real terms, and risks are growing from over-exploitation of increasingly scarce, unpriced natural capital,” write the authors, according to a draft copy of the report I received last week. “Depletion of ecosystem goods and services, such as damages from climate change, pollution or land conversion, generate economic, social and environmental externalities. Growing business demand for natural capital, and falling supply due to environmental degradation and events such as drought, are contributing to natural resource constraints including water scarcity.”

Next page: “Standard operating practices, excluding catastrophic events”