Capitalism and\nsustainability are deeply and increasingly interrelated. After all, our\neconomic activity is based on the use of natural and human resources. Not until\nwe account for the external costs of investment decisions, will we have a\nsustainable economy and society. <\/p>\n\n\n\n
While capitalism is accurate\nin its ability to account for capital goods, it is imprecise in its ability to\naccount for natural and human resources because it assumes that they are\nlimitless. This, in part, explains why our current economic development is\nhard-wired to externalize costs.<\/p>\n\n\n\n
Externalities are costs created by industry but paid for by society. For example, pollution is an externality that is sometimes taxed by the government to make the entity responsible for the full costs of production. Over the past century, companies have been rewarded financially for maximizing externalities to minimize costs.<\/p>\n\n\n\n
Read\nAlso: Big Breakthroughs And Progress Cannot Happen In Silos<\/a><\/p>\n\n\n\n Today, the global\ncontext for business is changing and we think financial markets have a\nsignificant opportunity to chart the way forward. The interests of shareholders\nover time will be best served by companies that maximize their financial\nperformance by strategically managing their economic, social, environmental and\nethical performance. This is increasingly true as we confront the limits of our\necological system. <\/p>\n\n\n\n The polluter pays\nprinciple is just one example of how companies can be held accountable for the\nfull costs of doing business. Now, more than ever, capitalism is directly\naffecting a company\u2019s ability to manage risks and sustain competitive\nadvantage. There are many examples of the growing acceptance of this view.<\/p>\n\n\n\n In the corporate\nsector, companies like General Electric are designing products to enable their\nclients to compete in a carbon-constrained world. Whole Foods and others are\naddressing the demand for quality food by sourcing local and organic produce.\nWhat is of more importance to businesses is making money for shareholders, not\naltruism.<\/p>\n\n\n\n In the governmental\nsector, organizations such as the Kenya Climate\nInnovation Centre<\/a> and SEED<\/a> <\/a>are helping companies\nexplore how best to align corporate responsibility with business strategy. <\/p>\n\n\n\n Over the past five\nyears, we have seen markets begin to incorporate the external cost of carbon\ndioxide emissions. This is happening through pricing mechanisms (price per ton\nof carbon dioxide) and government-supported trading platforms such as the Clean\nMechanism Board and, the Nairobi Securities Exchange (NSE).<\/p>\n\n\n\n The investment\ncommunity has also started to respond. For example, the Enhanced Analytics\nInitiative, an international collaboration between asset owners and managers,\nencourages investment research that considers the impact of extra-financial\nissues on long-term company performance. The Equator Principles, designed to\nhelp financial institutions manage environmental and social risk in project\nrisk financing, have now been adopted by 40 banks which arrange over 75 percent\nof the world’s project loan. Also, the rise in shareholder activism and the\ngrowing debate on fiduciary responsibility, governance legislation, and\nreporting requirements indicate the mainstream incorporation of sustainability\nconcerns.<\/p>\n\n\n\n When we are seeing\nevidence of leading public companies adopting sustainable business practices in\ndeveloped markets, there is still a long way to go to make sustainability fully\nintegrated and therefore truly mainstream. A short-term focus still pervades\nboth corporate and investment communities, which hinders long-term value\ncreation.<\/p>\n\n\n\n As some have said,\n“We are operating the Earth-like it is a business in liquidation.”\nMore mechanisms to incorporate environmental and social externalities will be\nneeded to enable capital markets to achieve their intended purpose \u2013 to\nconsistently allocate capital to its highest and best use for the good of the\npeople and planet.<\/p>\n","protected":false},"excerpt":{"rendered":" Capitalism and sustainability are deeply and increasingly interrelated. After all, our economic activity is based on the use of natural and human resources. 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