KPMG: “Ten sustainability megaforces”

In February this year, KPMG published a report identifying ten “sustainability megaforces that will affect every business over the next two decades.”

They have identified ten good drivers of change. They just seem to have missed a trick when it comes to showing how these issues will have serious consequences for business leaders.

Even inclusion of the word ‘sustainability’ somehow reduces the impact.

These are simply “megaforces that will affect every business over the next two decades.” The report does not do a good job of explaining how or why.

For example, their summary take on climate change is:

“Predictions of annual output losses from climate change range between 1 percent per year, if strong and early action is taken, to at least 5 percent if a year if policymakers fail to act.”

This statement is lulling business leaders into a false sense of security. First it tells them that climate change is negotiable (1% now or 5% if you leave it for your successor). This completely ignores the ‘tipping point’ aspects of the reality we face. It also says that the scale of impact is around 1%-5% of output. While this may be true as a global average, the fact is that for some businesses the impact of will be much greater. Remember the brief floods in Thailand last year? They helped push Sony from a $1bn profit forecast to a $1bn loss.

The fact is that climate change has the potential to put some companies out of business altogether, and will seriously disrupt the revenues and supply chains of others, in ways that will be almost completely unpredictable. That is the message KPMG should have been giving to CEOs and boards.

(And while they were about it, they should not have been passing responsibility for the scale of climate change impacts to unnamed ‘policymakers’.)

You might think that climate change is too large and unpredictable to be specific about.

Let’s look as well at what the report says about water:

“It is predicted that by 2030, the global demand for fresh water will exceed supply by 40 per cent.”

And then food:

“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 70-90 percent by 2030. In water scarce regions, agricultural producers are likely to have to compete for supplies [of water] with other … industries such as electric utilities and mining, and with consumers.”

The report completely fails to bring out what this means: that somehow we are going to have to choose whether the limited available water goes people to drink, OR farmers to grow food, OR to generate electricity, OR to dig things out of the ground. Who, and how, is going to make that choice?

You might argue that such matters are beyond the scope of a management consultancy. But the report also fails to make it clear what the impacts of a 70-90 percent (average) rise in food prices are likely to be.

For the average executive in a non-food business the impact probably seems minimal — they can easily afford to spend more on food. But what about the impact on an average employee?

What would be the impact on the average worker of a 70%-90% increase in food prices? (Remember that there are already 46 million people in the USA who are on food stamps.)

What would be the impact on workers’ health? On their children’s health? On morale at work, ability to concentrate, and the consequent impacts on productivity, health and safety? What will be the knock-on effects in terms of business disruptions and the ability to get things done?

Employees also act in the market place as consumers? If food rises by 70% what does that do to disposable income? How does that affect demand for foreign holidays, new cars, furniture, new toys for the kids, the ability to repay mortgages, house prices…? If more of the economy’s wages are spent on food (and fuel/energy prices are also set to rise) what will be the impact on your business’s revenues? And if you are not a consumer business, what about your customers, or your customers’ customers? If they have lower incomes, how is that going to affect the timing or amounts of money they want to spend with you?

These are the issues KMPG should have surfaced, to bring home to business leaders how these distant ‘megaforces’ are truly going to affect every business over the next two decades.