When a timber company procures its next batch of paper, does it pay the price for the carbon that will no longer be absorbed by the trees used for production? When massive tech companies create new headquarters that inflate housing prices, are they responsible for the resulting pressure on medium and low-income families?
Why a sustainable future hinges on internalizing externalities
While the messaging in the news and media around fighting climate change and corporate sustainability measures appears encouraging at times, reality paints a different picture. The magnitude of structural change that is necessarily required to achieve true progress is daunting. However, it is not impossible.
The triple bottom line (TBL) concept is well known and even practiced by some companies, which is a step in the right direction. Yet to truly set us on the right course, a new economic framework, akin to a sort of social capitalism, is necessary to create the right incentives to instigate change. MIT recognized this as well, noting that TBL does not connect company performance to the economic, environmental, and social resources on which they rely.
At Sustain, and with the implementation of Sustain Prices (which are driven by a voting system grounded in transparency of information), company stock prices will begin to reflect environmental and social performance. This dynamic will encourage companies to compete to better society. I highlight the potential for this dynamic to be a positive force while discussing Microsoft’s investment in affordable housing with a tech journalist from The Street.
Externalities are side effects or consequences of an industrial or commercial activity that affects other parties. They represent social and environmental costs and benefits that companies cause but are not held accountable for.
Sustain Prices are a way to signal the degree to which companies create externalities, and price those effects into overall company value. In other words, internalizing the externality by holding companies accountable for the impact on the world. This is the future of sustainability and capital markets.
