'Ecoflation' poses risk to business

Washington-based think tank The World Resources Institute (WRI) has warned that the cost of many commodities could rise by up to 45% over the next decade as a result of global environmental damage, accelerating climate change and new green legislation, resulting in a potentially devastating impact on businesses' bottom lines.

Consultancy AT Kearney joined WRI to study how six unnamed companies from across the US consumer goods sector would be impacted by rising commodity pricaes over the next decade. It concluded that 'ecoflation' - commodity price hikes resulting from environmental damage - could result in a serious dent in their profitability.

Liz Cook, vice president for institutional strategy and development at the WRI, said that the study had assessed the likely impact of climate change, biofuel policy, increased demand for sustainable timber products, carbon prices and water scarcity on a wide range of commodities.

It predicted that by 2018 oil prices would climb 22%, natural gas prices would rise 40% and wholesale electricity prices would climb 45%, while the cost of cereals and soy would rise 13% and 3% respectively.

Cook added that assuming the six businesses analysed did not act to address environmental issues and did not seek to pass the price hikes onto customers, their pre-tax profits would fall by between 11 and 18%.

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