Paying Our Dues: internalising 'externalities'​ to scale sustainable finance

Did you know that finance can be a powerful tool in addressing social and environmental crises?

‍

Unfortunately, the health of people and the planet are seen as "externalities," or public goods that are not valued. The cost is not borne by the manufacturer or consumer who benefits from the product or service, but rather by workers, the environment, and future generations.

‍

This is because mainstream economics assumes that we live in a closed system and that the economy is not dependent on society and the environment. However, as sustainability crises worsen, we're faced with the reality that we live on a planet with finite resources - and that global crises like climate change could end up costing us trillions of dollars if we don't act fast.

‍

What's the solution?

We need to start factoring in the environmental and social dimensions of our decisions along with the financial ones, understanding that the economy doesn't function without a healthy society and environment.

This can be achieved through:

• Government intervention, such as regulations or taxes (e.g., a carbon price that reflects the environmental and social costs of emitting carbon dioxide).
• Business intervention, by incorporating the cost of externalities into production (e.g., using a 'shadow price' on carbon and water in long-term investment decisions).
• Citizen intervention, by using our votes and wallets to encourage governments and businesses to adopt measures like the above.
  ‍

Did you know: more than one-third of large companies are currently pricing carbon dioxide internally?

Source: CDP, 2021.

Further suggested reading:

• Doughnut Economics: the Doughnut model offers a vision of what it means for humanity to thrive in the 21st century - and Doughnut Economics explores the mindset and ways of thinking needed to get us there.
• Earth for All: this book outlines a compelling roadmap towards a better future, bringing together scientists and economists to show how we can still turn things around and bring about prosperity for everyone within planetary limits.
  ‍