Trucost Calculates Environmental Costs

All companies have an impact on the environment, says Simon Thomas, chairman of Trucost, whether directly themselves or indirectly through their supply chains, and these carry hidden or “external” costs. The costs are incurred whenever a natural resource is used, a chemical transformation takes place, or emissions are made to air, land or water.

Trucost’s subscription-based online service, Environmental Cost Calculator, provides users with valuations of environmental costs as a proportion of company turnover. It applies an input-output model to show the amount of resources required—the input—to produce a unit of output and where this output is sold. The model is based on detailed government census and survey data.

Fund managers can use the data to model the financial impacts of upcoming environmental legislation and taxes and decide whether environmental costs are relevant to the companies in their portfolios. They can also monitor and compare the environmental performance of companies.

So far the service only covers FTSE 100 companies, but Thomas says Trucost is adding companies from the MSCI World Index in the third quarter.

The service is aimed at fund managers globally. Thomas says: “Investors and regulatory bodies are placing increasing demands on companies to provide more information on their environmental performance. Governments, too, are exerting increasing pressure both through taxation and regulation—the UK Government’s Modernising Company Law White Paper proposes mandatory reporting for the top 1,000 UK companies, and eight percent of UK tax revenue in 2001 came from green taxes.”

He adds: “Many companies and investors have an incomplete understanding of the impact of business on the environment.” He says the Trucost service provides a quantitative approach to the problem.

Kirsten Hyde