Sustainability megaforces affecting business

KPMG have published an interesting report highlighting how what they call ‘sustainability megaforces’ will “impact each and every business over the next 20 years” (p.1, my emphasis). These ‘megaforces’ are:

  • Climate Change
  • Energy & fuel (particularly volatility in markets because of higher demand and changing patterns of consumption)
  • Material resource scarcity
  • Water scarcity
  • Population growth
  • Wealth (issues around the growth of global middle class)
  • Urbanization
  • Food security
  • Ecosystem decline
  • Deforestation 

The report argues that these 10 megaforces are all linked and interact with each other which means that it essential to use systems thinking in addressing them. If we don’t then it is unlikely that actions will have the impact desired and they may have unintentional negative impacts.

A startling statistic in the report is that “the external environmental costs of business operations are doubling every 14 years” (p.9). These ‘costs’ do not in general appear on financial statements but the idea that they should is growing. We have already seen Puma produce a set of environmental profit and loss accounts. The report compares these costs with earnings for different sectors and for some they are really significant. For Food producers, environmental costs are 224% of earnings – so if you did have to count them then the sector would effectively be bust without major change. Mining, marine transportation, industrial metals all see environmental costs at over 50% of earnings.

So how ready are businesses for these risks? According to KPMG most sectors are relatively unprepared and they call for a number of actions. None of these are revelatory and are pretty much the things that are normally mentioned as ‘what business should be doing on sustainability’: understand risks; plan strategically; set ambitious targets and actions; monitor and report; collaborate; and engage stakeholders build partnerships.

Some thoughts

This is a valuable report but I do have some issues with it.

  • I wouldn’t argue with the megaforces identified in this report but maybe there are some issues that should have been included. Looking at global risks as identified by the World Economic Forum there are a few issues that stand out as missing from this list – in particular: economic disparity; fiscal crises; global governance failures.
  • The charts linking environmental costs to earnings are quite startling for demonstrating the situation of some sectors – notably food producers. However, this kind of relative reporting always carries the danger of skewing perceptions by not showing the actual costs. So there is no chart showing the actual environmental costs for the different sector. I suspect that Oil & Gas would not have come off looking as good as it does.
  • As is often the case the solutions proposed don’t match up to the scale of the problems presented. All the suggestions for business are good, and every business should be doing them, BUT even if this were to happen would we really have addressed the problems faced? For example, the problem for food producers is not just that companies are not following this advice. It is that there are major structural problems in the way we produce, distribute and eat food.
  • This is also reflected in the final point in the report that talks about “imperatives for achieving sustainable growth”. It appears as though, despite the scale of the issue identified, our starting point is that ‘growth’ and business should continue as close to usual as possible but we need to make it sustainable. Perhaps we should be addressing this from the other direction of thinking these are the problems we have to address, what kind of economy is compatible with that?

Having said that, it is always helpful having reports with the weight of KPMG behind them that highlights the need for “each and every” business to be working to understand and address the impacts that they have on these megaforces, and the impacts that the megaforces could have on them.

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