Ten “megaforces” will significantly affect corporate growth over the next two decades, according to new research from KPMG International. Expect the Unexpected: Building Business Value in a Changing World
explores climate change, energy and fuel volatility, water availability, cost and resource availability, population growth and new urban centers—and examines how these global forces may impact business and industry. The results: The external environmental costs of 11 industry sectors jumped 50 percent from US$566 billion to $846 billion in eight years (2002 to 2010). If companies paid for the full environmental costs of their production, they would lose 41 cents for every dollar earned. KPMG released its results on the opening day of its global Business Perspective on Sustainable Growth: Preparing for Rio+20 summit occurring this week in New York.
Global Sustainability Megaforces
- Climate Change. This global megaforce directly impacts all the others. Predictions of annual output losses from climate change range between 1 percent per year (if strong and early action is taken) to as much as 5 percent a year (if policymakers fail to act).
- Energy & Fuel. Fossil fuel markets are likely to become more volatile and unpredictable because of higher global energy demand, changes in the geographical pattern of consumption, supply and production uncertainties and increasing regulatory interventions related to climate change.
- Material Resource Scarcity. As developing countries industrialize rapidly, global demand for material resources will increase dramatically. Business will face increasing trade restrictions and intense global competition for a wide range of material resources that become less easily available. Scarcity also creates opportunities to develop substitute materials or to recover materials from waste.
- Water Scarcity. By 2030, the global demand for freshwater will exceed supply by 40 percent. Businesses may be vulnerable to water shortages, declines in water quality, water price volatility and reputational challenges.
- Population Growth. The world population is expected to grow to 8.4 billion by 2032. This will place intense pressures on ecosystems and the supply of natural resources such as food, water, energy and materials. While this poses a threat to business, there will be opportunities to grow commerce, create jobs, and innovate to address the needs of growing populations for agriculture, sanitation, education, technology, finance and healthcare.
- Wealth. The global middle class (defined by the OECD as individuals with disposable income of between $10 and $100 per capita per day) will grow 172 percent between 2010 and 2030. The challenge for businesses will be to serve this new middle class market at a time when resources are likely to be scarcer and more price volatile. The advantages many companies experienced in the last two decades from “cheap labor” in developing nations will eroded with the growth and power of the global middle class.
- Urbanization. In 2009, for the first time ever, more people lived in cities than in the countryside. By 2030, all developing regions including Asia and Africa will host the majority of their inhabitants in urban areas; virtually all population growth over the next 30 years will be in cities. These cities will require extensive improvements in infrastructure including construction, water and sanitation, electricity, waste, transport, health, public safety and internet and cell phone connectivity.
- Food Security. In the next two decades the global food production system will come under increasing pressure from megaforces including population growth, water scarcity and deforestation. Global food prices will rise 70 to 90 percent by 2030. In water-scarce regions, agricultural producers will likely compete for supplies with other water-intensive industries such as electric utilities and mining, and with consumers. Intervention will be required to reverse growing localized food shortages (the number of chronically under-nourished people rose from 842 million during the late 1990s to more than 1 billion in 2009).
- Ecosystem Decline. Historically, the main business risk of declining biodiversity and ecosystem services has been to corporate reputations. However, as global ecosystems show increasing signs of breakdown and stress, more companies are realizing how dependent their operations are on the critical services these ecosystems provide. The decline in ecosystems is making natural resources scarcer, more expensive and less diverse; increasing the costs of water; and escalating the damage caused by invasive species to sectors including agriculture, fishing, food and beverages, pharmaceuticals and tourism.
- Deforestation. Forests are big business; wood products contributed $100 billion per year to the global economy from 2003 to 2007, and the value of non-wood forest products (mostly food) was estimated at about $18.5 billion in 2005. Yet the OECD projects that forest areas will decline globally by 13 percent from 2005 to 2030, mostly in South Asia and Africa. The timber industry and downstream industries such as pulp and paper are vulnerable to potential regulation to slow or reverse deforestation. Companies may also find themselves under increasing pressure from customers to prove that their products are sustainable through the use of certification standards. Business opportunities will arise from the development of market mechanisms and economic incentives to reduce the rate of deforestation.
Outcomes from KPMG's Business Perspective on Sustainable Growth: Preparing for Rio+20 will be shared at Rio+20. Both events aim to craft a forward-looking agenda to focus on global green growth. KPMG International is hosting the event, in cooperation with the UN Global Compact, the World Business Council for Sustainable Development and the United Nations Environment Programme.