7gen Bloc

The Guardian newspaper of London reports that according to a major unpublished United Nations' study, "the cost of pollution and other damage to the natural environment caused by the world's biggest companies would wipe out more than one-third of their profits if they were held financially accountable."

For many years, I've discussed the idea of "externalized costs" and the negative (if sometimes unintended) impacts business has on society and the environment that it simply doesn't calculate, disclose, pay for creating, or assume responsibility for cleaning up.

In the coal industry, the real cost of CO2 emissions is far greater than any profits to be had, according to calculations by Greenpeace U.S. It's easy to understand why the industry has fought so hard against attaching a fee to carbon emissions. Even a minimal charge would plunge the whole sector into the red and generate billions of dollars of losses for shareholders.

As Richard Mattison, chief operating officer of environmental research firm Trucost, notes in the Guardian story, "Externalities of this scale and nature pose a major risk to the global economy and markets are not fully aware of these risks, nor do they know how to deal with them."

It's fair to say that until we deal with the systemic risk created by these unaccounted costs, our global economy will rest on a house of cards. As painful as it is, business, government, and economists must move towards full-cost accounting. It will be a tough fight, as the failed efforts to pass cap and trade regulations have highlighted, but it's one we must engage in.

What should business do in the interim? Make these difficult-to-calculate disclosures proactively and deal with the issue on their own. At Seventh Generation, we're committed to beginning this process over the next few years. As I detail in The Responsibility Revolution, this type of transparency leads to more effective innovation, a stronger reputation, and a more productive workplace community. It may seem like a perilous thing to do from a narrowly-focused corporate perspective but widen that lens and a literal wealth of advantages can be seen.

photo: Dan DeLuca