Accounting for Sustainability: Pollution

Introduction

Pollution represents a critical threat to both environmental and human health across multiple dimensions. As a primary driver of biodiversity loss and species extinction, pollution affects ecosystems by contaminating air, water, and soil simultaneously. In Europe, air pollution alone constitutes the single largest risk to human health, accounting for approximately 1 in 8 deaths annually across the EU, highlighting the negative impact of pollution.¹

In 2022 the Swiss government invested approximately 205 CHF per person in wastewater treatment, roughly twice the 106 CHF spent per person in England, reflecting a longstanding commitment to protecting Swiss water quality and cleanliness². But Switzerland's environmental challenges are not limited to air and water.

Waste disposal represents a significant and often overlooked source of pollution, releasing greenhouse gases and air pollutants while simultaneously contaminating water, soil, and surrounding ecosystems. Paradoxically, despite its reputation for environmental excellence, Switzerland ranks among the world's highest waste-producing countries relative to population size.³

Pollution generates substantial risks for societies and businesses and makes it essential to seek solutions across all sectors of the economy. Companies must understand and plan for the effects of pollution to stay resilient against climate-related risks. This article explores pollution and how to account for its impacts under the International Financial Reporting Standards (IFRS).

The hidden costs of pollution

Over the past four decades Switzerland has faced multiple environmental crises that have fundamentally transformed its approach to pollution control and environmental protection. The most catastrophic crisis occurred in 1986, when a fire engulfed the Sandoz chemical facility in Schweizerhalle near Basel, unleashing more than 1,000 tons of hazardous substances, with pesticides and mercury among them, into the Rhine. The resulting ecological devastation was immediate and severe: the water turned red and aquatic ecosystems collapsed across a 180-kilometer stretch of the river, and drinking water supplies were contaminated⁴. This incident remains the country's most damaging chemical accident and ranks among Europe's worst environmental disasters.

In more recent years a different but equally troubling threat has emerged: PFAS (per- and polyfluoroalkyl substances), which are synthetic chemicals that persist indefinitely in the environment. Since their initial detection in groundwater around 2007-2008⁵, PFAS have been found throughout Swiss water systems, with particularly alarming concentrations in the Goms Valley (canton Valais) and in the Rivers Ergolz and Birs near Basel , where industrial operations have accelerated contamination. All these incidents, ranging from sudden industrial catastrophes to gradual long-term contamination in the water, soil and air, underscore the high impact of pollution on society, and on human health.

The harm from pollution to the planet, human well-being, and business operations is transmitted in four ways⁸:

• Air pollution from industrial emissions, vehicle exhaust, and energy production releases particulate matter and toxic gases that damage human health and air quality. Greenhouse gas emissions drive climate change with far-reaching impacts on health, economy, and ecosystems.
• Water pollution from industrial discharge, agricultural runoff, and untreated wastewater contaminates freshwater and marine ecosystems, compromising drinking water supplies and aquatic biodiversity. Toxins harm human health, while excess nutrients trigger eutrophication, degrading the productivity of fisheries.
• Soil contamination from mining, manufacturing, and chemical production degrades land productivity and creates long-term environmental liabilities costing hundreds of millions to remediate. Land degradation diminishes critical ecosystem services including environmental regulation and livelihood support.
• Waste pollution, with the EU generating 2.5 billion tons of waste annually, poses severe environmental and health risks such as electronic waste that releases hazardous materials into ecosystems, affecting wildlife and societies.

Other notable pollution types include plastic pollution, PFAS and VOCs, each presenting distinct environmental and health challenges:

• PFAS ("forever chemicals") are widely used in cleaning products, food packaging, and cookware. They accumulate in ecosystems and human bodies, causing liver damage, harm to the immune system, and increased risk of cancer. PFAS litigation, progressive regulatory bans in EU countries (including the proposed European Chemicals Agency restriction and national bans), and rising consumer awareness are driving manufacturers to phase out PFAS in some applications.
• VOCs are organic chemicals released as gases from vehicle exhaust, industrial processes, paints, and cleaning products. They react in the atmosphere to form harmful ozone and smog.
  

The four channels of pollution are deeply interconnected. Air emissions can cause acid rain, contaminated water infiltrates soil, and microplastics contaminate all three environmental systems simultaneously.¹⁰ To understand these impacts it’s essential to acknowledge that business activities degrade natural capital in ways markets fail to price. As pollution regulations tighten globally, the "polluter pays" principle has emerged as a powerful mechanism compelling companies to take their environmental responsibilities seriously. This principle, central to the EU's zero-pollution hierarchy, shifts the financial burden of environmental damage from society to those responsible for causing it, incentivising companies to prevent pollution at source rather than remediate it afterward. The Packaging and Packaging Waste Regulation (PPWR) exemplifies this approach, using pricing mechanisms to reward environmentally conscious companies while penalising those with higher pollution footprints.¹¹

Accounting for pollution

Regulatory restrictions on pollutants of substances of concern, such as PFAS and VOCs, represent a substantial compliance challenge for manufacturers of pharmaceuticals, chemicals, packaging and consumer goods. As regulatory bodies worldwide tighten controls on the use and emissions of substances of concern, companies must evaluate the financial impact of these restrictions on them. This section outlines how the IFRS Accounting Standards can guide pollution-related impairment testing, provisions, R&D costs, changes in the useful life of assets, and inventory valuation.

Explore the complete series

This article is the sixth and last in the Accounting for Sustainability series. To develop a comprehensive understanding of how climate-related matters influence financial reporting, we encourage you to explore the complete series here: Climate & Sustainability