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A Practical Proposal to Erase Externalities

by Randy Hayes and Brent Blackwelder

As the global economy grows, it expands into pristine habitats, interferes with critical ecosystems, consumes more resources, and emits more pollutants. Many activities that fall under the banner of economic growth are undercutting the planet’s ecological systems. At the heart of this tragedy are pollution damages that are imposed on society but not factored into company costs. These damages are called externalities because they are externalized by the businesses generating them.

Every day, producers of myriad products impact the biosphere in ways unknown to customers, investors, and policy makers in both host and home countries. By not undertaking the measures necessary to protect ecosystems, these companies avoid responsibility for the damages. And because they have failed to account for the true costs of their businesses, they can sell their products at lower prices than more ecologically responsible companies, gaining an unfair advantage and reaping undeserved profits.

The consumption patterns in many product markets would change if the true costs of production were reflected in the prices of the products, or even if customers, investors, and policy makers had better access to accurate information. There are many possible paths to full internalization of these externalities, but there is no clear map of the territory. As the United Nations Environmental Programme puts it, “in the current absence of sufficient and comparable company disclosures on the environmental impacts of operations and supply chains,” it is difficult to puzzle our way out of the dilemma. In fact, it is virtually impossible to achieve a sustainable economy unless something is done about pollution externalities.

A true-cost economy would align our economic system with nature’s life support systems. Biologists teach us that each living system has feedback loops that allow it to adjust and operate within carrying capacity limits. The human economy is no exception, but we’ve short-circuited an important feedback loop by letting companies externalize the costs of their pollution. The time has come to adopt systematic rules that add pollution costs to the prices of goods and services. Such rules would provide critical information that is necessary to keep the scale of the economy within the planet’s carrying capacity. A true-cost system would solve real problems, but how can we put such a system in place?

A small change at SEC headquarters could have big effects.

The mission of the U.S. Securities and Exchange Commission (SEC) is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. Although the SEC requires public companies to disclose certain financial information, it does not require them to disclose information about their health and environmental externalities. Changing the requirements could produce widespread positive impacts.

Public companies are responsible for as much as one-third or more of all pollution externalities. By requiring these companies to track and report the costs that they typically externalize, we would not only set a legal precedent, but we would also begin to instigate the much deeper social and cultural changes needed to achieve a true-cost economy. If we can compel the largest and often most intransigent corporations to disclose how they are impacting the planet, truth and honesty can begin to displace “dark costs” and secrecy. With such a cultural shift, we will perhaps no longer be talking about imposing disclosure requirements, but rather enjoying increased cooperation and forthrightness.

In the meantime, the transition to a true-cost economy calls for mandatory, annual disclosure of externalities — ecological impact disclosures — by every company that falls under SEC jurisdiction (effectively all U.S. public companies and some foreign issuers as well). Adoption of ecological impact disclosures can be done by successfully petitioning the SEC, passing federal legislation, or both.

CERES (a prominent nonprofit organization), religious groups, and pension funds have pushed for shareholder resolutions and achieved important successes toward institutionalizing broader disclosures. Other groups have petitioned the SEC to adopt a flexible environmental, social, and governance (ESG) reporting framework, such as that developed by the Global Reporting Initiative. These efforts are worth applauding, but we need a bigger, bolder solution that confronts the magnitude of the problem and paves the way for a sustainable, true-cost economy.

The best route is to empower the SEC to force each public company to provide an annual ecological impact disclosure. Such a disclosure would be more effective than a flexible or voluntary framework — it would require specific data, reported in standard forms. Each reporting company would provide information about its own operations as well as those of other companies in its supply chain. In addition to aggregate, company-wide information, companies would provide site-specific data so that the public can determine where impacts are occurring.

Many investors have been calling for this sort of information to help them make better decisions about where to put their money. But this is precisely the kind of information that has been kept from the public for the past century. Keep an eye on the efforts at Foundation Earth over the next year to remedy this situation.

Randy Hayes is the founder of the Rainforest Action Network. Brent Blackwelder, a regular contributor to the Daly News, is the president emeritus of Friends of the Earth.

The Role of Religious Congregations in Promoting a Steady State Economy

by Brent Blackwelder

Proponents of a steady state economy could get a boost from religious congregations. Very thoughtful and insightful people are now writing about the urgent need to transition to a steady state economy. However, good ideas from deep thinkers in this day and age are often insufficient to overcome the power of entrenched lobbies such as the oil, timber, and mining industries, as well as those in the financial sector who specialize in offshore tax havens and dubious finance schemes of the kind portrayed in the Oscar-winning film Inside Job.

Those interested in a sustainable economy are seeking to focus society’s attention on the limits to economic growth. This means rethinking the measures of economic growth and coming to grips with the drivers of consumer demand, such as population growth.

Religious communities are good places to look for allies because, over the past 15 years, many congregations have developed an interest in exploring human duties to creation. The concept of stewardship of creation is gaining widespread support among those who believe in God as the creator of the universe.

Surprisingly, many environmentally concerned people are not aware the Biblical teachings on stewardship of creation. Some promptly dismiss the notion by saying that the Bible is anti-environment and against sustainability. They claim that the book of Genesis urges humans to “exercise dominion over nature and subdue the earth.” This is an inaccurate translation of the Hebrew that unfortunately played a role in promoting a view of the earth and the rest of life as resources to be exploited.

Today there is much greater theological scholarship describing the full range of environmental messages in the Bible. This scholarship has caught on in many religious congregations where support for environmental sustainability is gathering strength. For example, Interfaith Power & Light, founded by Episcopal minister Sally Bingham, has coalitions in over 30 U.S. states, encouraging churches and temples to adopt environmentally enlightened policies in operating their religious buildings and grounds and to be active in promoting clean energy.

Proponents of a steady state economy need to enlist congregations to discuss the concept of a new economy and to consider alternatives to massive consumer spending. There is a natural connection because most religions emphasize living a simpler and less materialistic life, a life that considers the impacts of one’s actions on others.

It would be fitting for religious congregations to take the lead in demanding a new national index of well-being to replace gross domestic product (GDP). GDP is a good measure of the throughput of resources in an economy, or more bluntly, the rate of converting natural resources into waste. Typical economists exhort people to increase their purchases and consumption to keep GDP on the rise. Such a philosophy is incompatible with a sustainable economy on a finite planet. Religious congregations bring moral authority to a discussion of the ethics of consumerism and materialism. They can be powerful allies in challenging the basic economic dictum to go out and shop. People of faith could deliver a powerful message about the failure of GDP to serve as an accurate measure of happiness and well-being.

The Genesis story of Noah’s ark ends with a covenant that is not simply between God and Noah, but rather a three-way covenant among God, Noah, and all the animals on the ark. Humans have not lived up to this contract, as modern industrial society is devastating wildlife habitat, putting as much as one fourth of the earth’s life forms in jeopardy.

During a discussion of animal species threatened by human activity, one of the world’s foremost biologists, E. O. Wilson, was asked what animals would disappear if humans were to disappear from the earth. Wilson answered that the only ones he could think of were two species of head lice.

Religious organizations have already played a role in debates on endangered species, but people of faith could also weigh in on the topic of population growth. They could write the Pope pointing out that the Genesis blessing, “be fruitful and multiply,” is first given to all the animals. Humans, therefore, must take their blessing in this context and seek a planet characterized by a flourishing of all kinds of creatures.

In summary, the effort to attain a sustainable economy needs big allies. I have suggested that religious congregations can confront the biggest economic question of our times. What kind of stewards of creation are human beings if our global economy disrupts the earth’s climate, decimates wildlife habitat (even in remote places), expands the population of our own species beyond sustainable bounds, and gauges its success by the volume we consume?

References

1. For evangelical perspectives on environmental stewardship see Matthew Sleeth’s The Gospel According to the Earth or visit the Blessed Earth environmental ministry.

2. Visit Interfaith Power & Light for a set of activities on clean air, food, and climate that religious congregations are involved in.