Planet Earth Ltd is nearing bankruptcy
Imagine for a moment the Earth is a business. Planet Earth Ltd. is an integrated global conglomerate, providing products and services to customers all over the world.[i] It has been in business a long time, with such huge capital accounts that only recently, in the wake of other business scandals, have its owners decided to audit the books and examine how well it’s really doing. The audit reveals a company in deep trouble. Fourteen of the company’s 18 divisions examined are in the red. Only four are profitable. The auditor’s opinion is sobering, pointing to the absence of internal controls: capital accounts undervalued and depleted for short-term gain and extensive use of off-balance sheet assets and liabilities. Business units are pitted against each other with inefficient transfer pricing mechanisms, no strategic planning, and underinvestment in R&D. The company is being run without a CEO. The auditor contends that to avoid bankruptcy the company’s management must transform its practices or be replaced.
Last year’s global assessment report of the Intergovernmental Science Policy Platform on Biodiversity and Ecosystem Services (IPBES – “the IPCC for nature”) can be compared to a business audit.[ii] Its 150 scientists found that of the 18 ecosystem services they assessed globally only four had been enhanced since 1970, the rest were all degraded or depleted.
The global market is the problem, but can become the solution, if we change the rules of the game
The global market is designed to maximize profit while meeting society’s needs. In doing so, it has become the primary force destroying our common home. It’s the hungry elephant in the Garden of Eden. And by 2050 it will be at least twice as big. But pursuit of profit is not its main problem. Its real problem is the incompleteness of the profit calculation – what’s left out. And these omissions are now the main event, including the value of clean air, water, safe climate, and healthy ecosystems. It’s telling that the four ecosystem services that the IPBES found had increased globally (food, fish, bioenergy, and the harvest of other materials) all have a market price, while the 14 services in the red, mostly have no price. And no price, means the price is really zero.
Governments must fix critical omissions in the calculation of corporate profit
Financial accounting owes its integrity to ‘double entry’ bookkeeping. But when it comes to the environment we practice ‘single-entry’ bookkeeping. We record the value of what we harvest from nature but make no matching entry for its depletion or degradation. Food companies, for example, do not account for soil erosion, water pollution, or the climate change effect of forest conversion. And while the ‘Invisible Hand’ of markets may have some powers to manage scarcity, it doesn’t know what it doesn’t know! Governments must ensure that the true cost of damage to our common home is factored into corporate profit calculations and their own national economic accounts. And when needed, they should resort to non-market mechanisms to ensure destructive behaviors are off-limits.
Governments must reduce corporate influence over public policy and elections
Fixing the omissions in the profit calculation require reducing corporate influence in policymaking. The world’s five largest publicly owned oil and gas companies spend around $200 million annually lobbying against climate policy[iii] It’s therefore, not surprising that G20 countries pledged $207 billion to support fossil fuels in their COVID stimulus measures compared to just $137 billion for clean energy. We must reduce the power business holds over government, while providing citizens with a greater voice.
Self-greening of markets – nice but not suffice
Business may say leave it to us, we can fix the problems without government intervention. They will point to the 1000+ companies that have committed to science-based targets for climate or that a quarter of global financial assets are now managed “sustainably” in some form or other.[iv] But these are not the end game, they are at best wobbly steppingstones that require reinforcement by strong government action, if we are to address ecological limits in the limited time left.
Time for governments to get back in the seat of governing
If governments set rules of the game that factor the value of nature into corporate profit calculations, it can align markets with solving the crisis of our common home. And that elephant instead of running rampant in the garden of Eden could turn its attention to tending to our common garden, while making a profit. Some business leaders are coming around to the same idea.[v] And if both business and citizens prevail upon governments to get back in the business of governing, maybe we will see the passing of policies that match the scale of global environmental challenges.
Covid-19 pandemic, probably not a catalyst for transforming markets, but a few rays of hope
Covid-19 is unlikely to catalyze the needed changes in markets, but there are some rays of hope. First, it’s shining a spotlight on inequity and fraying social safeguards that can lead to action. Second, it’s a reminder of the critical role of governments in securing markets. Third, it demonstrates behaviors can rapidly shift in ways that reduce GHGs. And finally, it serves to remind us that prevention is better than cure.
END NOTES
[i] Irwin F. & J. Ranganathan, Restoring Nature’s Capital: An Action Agenda to Sustain Ecosystem Services. World Resources Institute, 2007.
[ii] IPBES Summary for policymakers of the global assessment report on biodiversity and ecosystem services of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services. S. Díaz, et al. IPBES Secretariat, Bonn, Germany, 2019.
[iii] https://www.forbes.com/sites/niallmccarthy/2019/03/25/oil-and-gas-giants-spend-millions-lobbying-to-block-climate-change-policies-infographic/#4ab612ba7c4f
[iv] http://www.gsi-alliance.org/wp-content/uploads/2017/03/GSIR_Review2016.F.pdf
[v] https://www.businessroundtable.org/business-roundtable-market-based-solutions-best-approach-to-combat-climate-change