Responsible Investment

Measuring value, not just profit

January 22, 2013
© Photo FSinsight
http://www.youtube.com/watch?v=vHS1uB4-NpA

As a former Special Adviser and Head of the United Nations Environment Program’s (UNEP) Green Economy Initiative, as well as the lead ‘synthesis’ author of the research-intensive UNEP report "Towards a Green Economy: Pathways to sustainable development and poverty eradication"Pavan Sukdhev has substantial insights into what a green economy is, why it is important, and how sustainable development and a green economy go hand in hand. The UNEP report outlines the definitions, actions and relationships that are key to establishing a new, green and sustainable way forward for business and society.

What is the green economy?

“UNEP defines a green economy as one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities,” says the intro to ‘Towards a Green Economy.’ The report then states that “The concept of a “green economy” does not replace sustainable development, but there is now a growing recognition that achieving sustainability rests almost entirely on getting the economy right… To make the transition to a green economy, specific enabling conditions will be required. These enabling conditions consist of the backdrop of national regulations, policies, subsidies and incentives, and international market and legal infrastructure and trade and aid protocols.”

New ways to measure performance

It also requires a new sense of responsibility in the private sector — corporations, who drive three-quarters of the economy. “Leadership has to reside in the private sector, and the key thing the private sector has to ask for [from policy makers and politicians] is a change in the way we measure things,” states Sukdhev in this video. “Today we measure national performance on the basis of the GNP which is just goods and services, but it doesn’t measure value addition. It’s the same problem at the corporate level; we don’t measure the total impact of the corporation, we just measure profits for shareholders.”

The value of nature in sustaining profit

The ‘externalities’ of corporations, their impact on natural, social and human capital, should be positive as opposed to negative, according to Sukdhev. A positive impact on preserving ‘natural capital’ is particularly important. Realizing the economic benefit of sustaining the earth’s ecological integrity — so-called ‘natural capitalism’ — has been a topic of scholarly research and popular interest for the past two decades. The 1988 book "Natural Capitalism: Creating the next industrial revolution"[1] heralded the seemingly-obvious connection between a healthy natural ecology and a healthy economic system. According to the intro of the book, “Natural capital refers to the earth’s natural resources and the ecological systems that provide vital life-support services to society and all living things. These services are of immense economic value; some are literally priceless, since they have no known substitutes.”

Put a price on nature

Pavan Sukdhev concurs fully. Nature offers important benefits, he has said in a recent Ted Talk[2]entitled ‘Put a price on nature!’ “I’m here to talk about the economic invisibility of Nature,” he says. It is time to make nature economically visible if there is going to be really sustainable development, he told the audience. “You can’t really have a proper model for development if at the same time you are destroying, or are allowing the degradation of, the very asset, the most important asset, which is your development asset: the ecological infrastructure.”

References

  1. Hawken, Lovins and Lovins, “Natural Capitalism: creating the next industrial revolution“, Rocky Mountain Institute, 1988.
  2. Pavan Sukhdev at TedTalks: “Put a value on nature!

The interview was recorded during the Future of Banking Conference, November2012 in Amsterdam, organized by the Dutch development bank FMO.

This article may be reproduced according to our terms of use with attribution (and link, if online) to www.tias.edu. To be cited as: “Measuring value, not just profit”, Pavan Sukdhev, www.tias.edu, January 22, 2013.

Read more

Website Pavan Sukdhev
UNEP Report 2011: ‘Toward a green economy

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