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This was a published press release by KPMG, and outlines the ten megaforces which will shape the commercial landscape for the next 20 years. Articles, reposts and videos, in this category, will relate to current and possible future impact of these ten megaforces.

The KPMG study, Expect the Unexpected: Building Business Value in a Changing World, explores issues such as climate change, energy and fuel volatility, water availability and cost and resource availability, as well as population growth spawning new urban centers. The analysis examines how these global forces may impact business and industry, calculates the environmental costs to business, and calls for business and policymakers to work more closely to mitigate future business risk and act on opportunities.
Michael Andrew, Chairman of KPMG International, said: “We are living in a resource-constrained world. The rapid growth of developing markets, climate change, and issues of energy and water security are among the forces that will exert tremendous pressure on both business and society.”
“We know that governments alone cannot address these challenges. Business must take a leadership role in the development of solutions that will help to create a more sustainable future. By leveraging its ability to enhance processes, create efficiencies, manage risk, and drive innovation, business will contribute to society and long-term economic growth.”
The KPMG research finds that the external environmental costs, which today are often not shown on financial statements**, of 11 key industry sectors jumped 50 percent from US$566 to US$846 billion in 8 years (2002 to 2010), averaging a doubling of these costs every 14 years.

The 10 global sustainability megaforces that may impact business over the next two decades are:

  1. Climate Change: This may be the one global megaforce that directly impacts all 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.
  2. 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.
  3. Material Resource Scarcity: as developing countries industrialize rapidly, global demand for material resources is predicted to increase dramatically. Business is likely to 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.
  4. Water Scarcity: it is predicted that 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 to reputational challenges.
  5. 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 is a threat for business, there are also opportunities to grow commerce and create jobs, and to innovate to address the needs of growing populations for agriculture, sanitation, education, technology, finance, and healthcare.
  6. Wealth: the global middle class (defined by the OECD as individuals with disposable income of between US$10 and US$100 per capita per day) is predicted to grow 172 percent between 2010 and 2030. The challenge for businesses is 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 are likely to be eroded by the growth and power of the global middle class.
  7. 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 are expected to have the majority of their inhabitants living 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.
  8. 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 are predicted to rise 70 to 90 percent by 2030. In water-scarce regions, agricultural producers are likely to have to 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 over one billion in 2009).
  9. 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.
  10. 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 US$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 may arise through the development of market mechanisms and economic incentives to reduce the rate of deforestation.

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Press Release, KPMG, Sustainability “Megaforces” Impact on Business Will Accelerate, Finds KPMG, 14 Feb 2012; Retrieved: 14 Feb 2012

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21st Century Tragedy Pending
Sustainability is recognizing the need to better manage resources for survivability, while rethinking actual needs, and reducing waste of emissions, energy and water.  In the European Union, sustainability is implemented through government regulations and policies.  In other countries it is not national policy, but corporate leadership that understands needs for change. Sustainability is an American governmental policy, but is only mandated through environmental laws and regulations. Here, sustainability initiatives are voluntary and a choice for the individual and business concerns.  Not surprising, a recent MIT study suggests that  American leaders are motivated by significant tangible results that affect profitability for their enterprises.

Why are so many governments and so many corporations engaged in sustainability? Why are so many studies focused on sustainability? Simple, survival. Here is an example of a recent survey that shows world population growth has grown dramatically and will continue to do so:

  • 1800 less than 3 percent of the world population lived in large urban areas
  • 1900 about 150 million people lived in the largest urban areas
  • 2011 currently about half of the world’s population live in large urban areas, 3 billion (7 billion total)
  • 2050 it is estimated that over 65 percent of the world population will live in urban mega cities, the world’s estimated population will be 9 −10 billion

Additionally, according to KPMG, the 10 global sustainability megaforces that may impact business over the next two decades are:

  • Climate Change: This may be the one global megaforce that directly impacts all 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 is predicted to increase dramatically. Business is likely to face increasing trade restrictions and intense global competition for a wide range of material resources that become less easily available.
  • Water Scarcity: It is predicted that by 2030, the global demand for freshwater will exceed supply by 40 percent.
  • Population Growth: This will place intense pressures on ecosystems and the supply of natural resources such as food, water, energy and materials. While this is a threat for business, there are also opportunities to grow commerce and create jobs, and to innovate to address the needs of growing populations for agriculture, sanitation, education, technology, finance, and healthcare.
  • Wealth: The challenge for businesses is 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 are likely to be eroded by the growth and power of the global middle class.
  • Urbanization: By 2030 all developing regions including Asia and Africa are expected to have the majority of their inhabitants living in urban areas; virtually all Population Growth over the next 30 years will be in cities.
  • Food Security: Global food prices are predicted to rise 70 to 90 percent by 2030. In water-scarce regions, agricultural producers are likely to have to compete for supplies with other water-intensive industries such as electric utilities and mining, and with consumers.
  • Ecosystem Decline: 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: Wood products contributed $100 billion per year to the global economy … Yet the OECD projects that forest areas will decline globally by 13 percent from 2005 to 2030, mostly in South Asia and Africa. 1

But why do we need to act now?
Political and Business leadership, mostly in Europe, and many multi-national organizations with revenues exceeding $1 Billion annually have recognized the global need for Sustainability and, in many cases, implemented initiatives to transform to 21st century realities.  Major players clearly understand the consequences of their actions, possible scenarios, and the need to manage potential threats or conflicts. The future of current societies will be based on keen understandings of what is required to be efficient, sustainable and promote policies of “zero waste” with long-term commitments from business, governments and citizens.
Many organizations are preparing for limitation of resources in the next three to five years. China has already demonstrated restraints on the export of rare earths or other commodities to the West. For this century, we need Sustainability Leadership that effectively orchestrates resources to preserve our planet for this generation and succeeding generation to meet their needs, whether East or West. Protracted trade wars would have little or no advantage to the global economy and could be a catalyst for a second recession.
To summarize, this man-made global situation, based on poor economic, environmental and social decisions were based on these criteria:

  • Scope: total Global impact (threat to entire biosphere)
  • Business: Involvement and engagement from a global perspective
  • Government: Multi-lateral, multi-country driven legislation and voluntary participation
  • Stakeholders: Consensus varied from Tier 1 – developed and Tier 2 – developing countries. There is no one leader or country that is  inspirational, promotes change and accepts long-term commitment. Responsibilities are unilateral and often centered on individual country priorities.
  • Mitigation: Diplomacy, treaties, government trade and economic policies
  • Result: On-going global discussions for the last thirty years has elevated awareness. Currently, there is no consensus regarding timeline, international sustainability,  or universal strategies to reach a sustainable economy in each country.

Comparing the 20th century to the 21st century, is a contrast in scenarios and outcomes. In the last century, lines were drawn across ideologies and almost produced a cataclysmic event that would have changed the world permanently, in just a few minutes.
Since the 1960s, we watched radical environmentalists confront business and government, to promote environmental and social issues. From the scientific community, environmental and social issues have been studies and shown that indeed our world is changing. Public skepticism has been a byproduct of radical self promotion and scientific bias. Public opinion is concerned about improved economic conditions, while it also has a growing concern over the environment.
Also, we are seeing the expansion of sustainable infrastructure into new areas, destined to build and restore our environment. Successes are often cited in articles about Sustainability initiatives improving business, education, government and the military. Measuring tangible results are posted by the Business Roundtable,  company Sustainability Reports and financial market indices. Sustainability is embraced as a smart choice for future, but it is not quick fix, and will be a long-term commitment.

Footnote:

1 KPMG, Sustainability “Megaforces” Impact on Business Will Accelerate, Finds KPMG, 14 Feb 2012; Retrieved: 14 Feb 2012

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