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Saving the world is simply good business

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Jan 9th, 2011
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By Al Lehmann North Terrace Standard January 04, 2011
The inadequacies of financial accounting are a more or less open secret today, particularly that aspect of dealing with costs.
 In the past we were able to get away with taking advantage of externalities (transferring costs of doing business to the public commons), largely because nature was so huge compared to the scale of human activities that its abilities to cope were barely in question. The globe appeared to contain limitless resources, as well as to be a limitless sink for our wastes.
 No more. Resource scarcities of all kinds are beginning to be felt. Peak oil is either here or just around the corner. Clean, potable water is in short supply (as is water for global agriculture).
 On the waste side, global cities are scrambling to deal with garbage disposal. Carbon emissions are destabilizing the climate. And pollution generally is creating health risks, even in unlikely places like the far North.
 In standard business accounting models, the lower a company’s costs are, the more competitive the company can be, and the greater the profit for shareholders. One way to keep costs low is simply not to have to pay them.
 It’s ironic that the accounting philosophy that argues that there’s “no free lunch” has been so comfortable with a system that has enjoyed billions, if not trillions of dollars worth of freebies, essentially for centuries. But for countless decades, we simply didn’t know any better.
 We cannot plead ignorance any longer. Growing awareness exists that our stewardship of the planet must include accounting for real costs, and it seems only fair that those most instrumental in creating these costs also be instrumental, both in lowering and in paying them.
 This judgment is not to suggest, either, that only business is to blame. Our whole cultural ethos has been built on the same faulty assumptions. But businesses have a unique power in our culture, and one would hope they might use that power to do the right thing, a prescription that should include something beyond simply making money for shareholders, important as that may be.
 A recent report from the United Nations Environment Program’s Green Economy Initiative  http://www.unep.org/greeneconomy/Portals/30/docs/GER%20Preview%20v2.0.pdf has made a promising beginning toward change. Large institutional investors (pension plans, investment banks, etc.) have highly diversified, long-term portfolios that represent powerful ownership stakes in the global economy.
Annual environmental costs from global human activity are estimated at about US$ 6.6 trillion. Nearly a third of these costs are the damage created by the world’s 3,000 largest publicly listed companies. Governments are becoming increasingly prone to assessing these costs more realistically, and more likely to demand that those incurring the costs pay them.
The report emphasizes that external costs caused by companies can reduce returns to investors through increasing risk, inefficient allocation of capital, higher insurance premiums, reduced future cash flows, reduced earnings, and so on. These environmental costs could reach 18 per cent of global GDP by 2050, an estimated $28.6 trillion.
The report encourages institutional investors to demand protection of natural capital as a form of business self-interest. Naturally, such action would require plenty of negotiations between corporations, investors, environmentalists, scientists, and governments.
 The sooner we get under way, the better. Talk to your broker.
Al Lehmann is a teacher living in Terrace, B.C.

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