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Historically, externalities have had little or no impact on the cash flows or risk profiles of most companies. Companies have not been fully rewarded for their positive externalities and have also not paid for much of the damage they cause through negative externalities such as carbon emissions or the social effects of poor working conditions.

For this reason, externalities have been largely excluded from the measurement of corporate value. But this disconnect between corporate and societal value is disappearing.

Globalization, digital connectivity, the financial crisis, population growth, the explosion of the global middle class, climate change and other economic, social and environmental megaforces are transforming the operating landscape for business.

As a result, externalities are increasingly being internalized, bringing new opportunities and new risks with significant implications for corporate value creation in the 21st century. In short, externalities are now part of every company’s value creation story.

Business leaders and investors need to understand these new dynamics and their consequences in order to unlock value creation opportunities. They need to identify and quantify externalities, recognize what is driving internalization, and understand the potential effects on corporate value. Equipped with this understanding they will be in a stronger position to develop effective response strategies that protect and create value, both for shareholders and for society.

Readers of this report will learn:

• how new regulations, growing stakeholder influence and changing market dynamics are driving the internalization of business externalities at an increasing rate

• how companies can protect and create both corporate and societal value in the age of internalization using the KPMG True Value methodology

• what is needed from investors, business leaders and policy makers in order to achieve closer alignment between the creation of corporate and societal value

Read the report here.