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 last week by the UN-backed Principles for Responsible Investment (PRI) and UNEP Finance Initiative.
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 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 more vigorous "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.
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 conducted by Trucost, the global environmental research company.
The study projects that the monetary value of annual environmental damage from water and air pollution, greenhouse gas emissions, 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.
"An increasing number of large investors are recognising that
environmental externalities generated by one company are likely to come
back and hit their portfolios in another place or time," James Gifford, Executive Director, UN-backed Principles for Responsible Investment, said. "This report
provides an important rationale why investors need to exercise
leadership and responsible ownership by acting together to reduce
corporate externalities."
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