The 2018 State of Green Business Index — Trucost’s annual assessment of corporate environmental performance among the world’s 1,200 largest companies and 500 largest firms in the United States — reveals a worrisome finding.
The natural capital costs of companies had previously been falling, but the latest year’s results show a sharp increase. As a result, the natural capital cost generated by the largest global companies is nearly two times higher than their net income.
The cause seems to be increased production of agricultural commodities and, hence, increased farming-related environmental impacts, in particular water pollution from fertilizer and pesticide use. These impacts occur in the supply chains of large global companies, increasing their overall natural capital costs. This is more evidence of the failure of markets to price in the natural capital costs of production.
Nevertheless, there is also good news!
The Index shows:
- That corporate carbon emissions continue to decrease in absolute terms, reaching the lowest level in the past five years, as a result of a switch to cleaner fuels
- There have also been modest improvements globally in water use and waste management.
- The numbers of companies setting carbon and water reduction targets has increased by around 10 percent over the past five years.
By far the majority of environmental impacts are embedded in the supply chains of companies rather than their direct operations. This poses serious risks for companies as climate–related impacts such as droughts disrupt supplies of water-intensive commodities. So it is positive that more companies are disclosing supply chain carbon emissions and water use.
However, the carbon reduction targets set by the largest 1,200 global companies and by the largest 500 U.S. companies in 2016 account for only around a fifth of their share of the reductions needed by 2050. This is likely to change, however.
For the 2-degrees-Celsius scenario, Trucost calculates that carbon prices will need to reach $120 per metric ton by 2030 to achieve the Paris Agreement goal.
To date, some 42 national and 25 local governments have implemented carbon pricing initiatives or are planning to do so. Judging by the mood at the COP23 climate summit in Bonn, Germany in November, the U.S. decision to withdraw from the Paris Agreement appears to have made little difference to the resolve of other nations to continue to make progress, and in fact all nations bar the United States have now signed up. Meanwhile, U.S. market participants including companies, financial institutions, states and cities are demonstrating unrelenting commitment to, and significant leadership on, climate action