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Environmental Debt

The Hidden Costs of a Changing Global Economy

Palgrave Macmillan

A FRAMEWORK FOR TWENTY-FIRST-CENTURY COMMERCE

In October 2010, in a dull hotel ballroom in suburban Chicago, a rare combination of individual conviction, corporate fortitude and strange bedfellows moved a group of executives to transform refrigeration in their industry. The leadership of the Consumer Goods Forum (CGF), a group of four hundred of the world's biggest retailers and consumer goods manufacturers, knew that better refrigeration could achieve a 2 percent decrease in the world's greenhouse gas emissions over the next forty years — an amount comparable to annual global air travel.

So there I was, the keynote speaker at the first CGF Sustainable Refrigeration Summit. As then-solutions director of Greenpeace, I challenged the group to eliminate an exceptionally potent greenhouse gas, hydrofluorocarbons (HFCs), from all cooling technologies by 2015. Coca-Cola, Pepsi and Unilever had been working with Greenpeace and the United Nations Environment Programme for many years to achieve this transition. This was the day we asked the entire consumer goods sector to make the same move. We were all noticeably nervous.

Several companies shared their own success stories and assured the group that it was a reachable goal, but others expressed concerns about the costs of transitioning to natural refrigerants. They doubted that a 2015 deadline was attainable. Fortunately, there was also a palpable feeling in the room that we could find a way to do something extraordinary together. And then at 4:00 p.m., nearing the end of the day, the meeting leader asked a vice president from a multinational retailer, "You'll do this, right?" The VP's face lost all color while he imagined what it would take to achieve this audacious goal. But before responding, he looked at his biggest competitor and asked, "You're gonna do this?" She nodded her head, and then the first VP, still looking shocked, answered, "Yes, we'll support this resolution."

That day, the Refrigeration Subcommittee recommended to the full CGF board that the organization resolve to replace old cooling chemicals (HFCs) with natural refrigerants starting in 2015. I figured that board approval would take about six months — this was a radical step, and the board members were the chief executives of fifty of the world's largest corporations.

Nope. Muhtar Kent, the co-chair of the CGF (and CEO of Coca-Cola), wanted to announce the resolution at the United Nations Climate talks in Cancun, exactly one month later.

And he did.

Nothing except for nature can transform the world as swiftly as can business — for better or for worse. Indeed, the two concurrent crises in the news virtually every day are global financial turmoil and escalating environmental uncertainty. All business, all economies, all living and man-made systems depend on nature. Growing an economy that destabilizes nature is just plain foolhardy. That's why, in this book, I offer a comprehensive framework to connect the causes and solutions of these crises — the Nature Means Business (NMB) Framework.

NO NATURE, NO BUSINESS

There is a change in the weather. And not just from climate change. The environmental news has become so consistently terrible that its effects on business are now undeniable, unpredictable and damned expensive. In multinational boardrooms and executive suites across the world, attitudes toward environmental needs and responsibilities are changing as environmental problems start to derail corporate success — even survival.

Such shifts directly conflict with every corporation's strong imperative to cut costs in the short term. If a company invests heavily in dramatic changes that will secure its environmental and fiscal future, it is likely to endure some lousy quarterly earnings. This is because today's rules and regulations encourage businesses to separate long- and short-term choices. Investing in new green technology and systems costs a lot on the front end, and the resulting savings might not materialize for many years. These savings have countless long-term benefits, including protecting a company's current position amid changing regulations, propelling a company into a new market position, securing more predictable costs and revenues and protecting the environment. But at the moment, stock market pressures and job security usually collude firmly on the side of quarterly earnings.

Logically, if today's actions cause grave environmental consequences in the future, then they should not be logged as quarterly profits — not now, not ever. In fact, they should be logged instead as environmental debt. The term "environmental debt" is defined as polluting and/or damaging actions that will cost other parties (people, businesses or governments) real money in the future. And just like any other debt, at some point the bill will come due.

We often overlook the fact that a toxic natural world threatens personal health as well as corporate health. From the stratosphere where satellites roam, to the kitchen sink where we wash the dishes, money and nature are always interconnected.

Until we connect the profitability of business with the survival of the natural world, we will not be able to balance real profits with real losses. This book is a guide to help recalibrate and reconfigure financial choices in the public, private and individual sectors — in government, business and personal responsibility.

Despite the current mania for cost cutting and deregulation, it is evident that business rules and standards must protect the world that business inhabits. The old rules are failing us miserably in this regard. Companies are learning the hard way that the environmental landscape factors into virtually every financial and commercial transaction. Extreme weather in Pakistan, Ukraine and Brazil spikes the cost and curtails the availability worldwide of cotton, wheat and soy, respectively. And during the summer 2012 drought, Canadian farmers earned more money from their solar installations than from their stunted, dry corn.

NO HEALTHY ECOSYSTEM, NO HEALTHY ECONOMIC SYSTEM

In the twentieth century, most business functioned as if there were no limits on natural resources. Just as many governments accrued financial debt that will fall onto future generations, most big businesses profited at the expense of the environment. This no longer works, not for business, not for society at large and not for you and me. However seductive it is to enjoy the short-term financial benefits and phenomenal convenience and pleasure that come with this huge environmental debt, it is as financially wise as sending a teenager to a mall with a credit card.

In the twenty-first century, governments are already agonizing under the weight of financial debt. This will only get worse as water shortages, extreme weather, and industrial and agricultural toxic spills increase the pressure on public spending.

But there is a way out of this. In fact, as you will see throughout this book, many businesses are working with rivals to improve and align environmental and financial performance. It is time for good policy to incentivize more companies to move in this direction and for consumers to put our money where our mouths are.

"There must be some way out of here," said the joker to the thief.
"There's too much confusion, I can't get no relief.
Businessmen, they drink my wine, plowmen dig my earth,
None of them along the line know what any of it is worth."

— Bob Dylan, "All Along the Watchtower"

Twentieth-Century Business Rules Use Incomplete Metrics to Measure Performance

1. Pollution is largely free to the polluter.

2. Earnings statements do not include long-term financial, economic and social impacts.

3. Governments subsidize business with no concern for environmental impact.

This model no longer works. Here's what can.

The Nature Means Business (NMB) Framework

1. Pollution can no longer be free and can no longer be subsidized.

2. The long view must guide all decision making and accounting.

3. Government plays a vital role in catalyzing clean technology and growth while preventing environmental destruction.

WHAT'S THE REAL COST OF POLLUTION?

As Erin Brockovich memorably says in the movie that bears her name: "They dream about being able to watch their kids swim in a pool without worrying that they'll have to have a hysterectomy at the age of twenty. Like Rosa Diaz, a client of ours. Or have their spine deteriorate, like Stan Blume, another client of ours. So before you come back here with another lame-ass offer, I want you to think real hard about what your spine is worth, Mr. Walker. Or what you might expect someone to pay you for your uterus, Ms. Sanchez. Then you take out your calculator and you multiply that number by a hundred. Anything less than that is a waste of our time."

1. Pollution Can No Longer Be Free and Can No Longer Be Subsidized

We take for granted that government debt can destabilize economies and that individual debt can be a step on the road to ruin. Yet pollution cripples our economy daily with debt that is hidden in plain sight. A polluter is allowed to shift the environmental cost of its actions to other parties, so goods and services appear cheaper than their true cost. This pollution can be as abstract as where your electricity comes from or as down-to-earth as how you maintain your garden and diet.

In 2011, Harvard's Institute for Global Health and the Environment released a study showing that just in the United States, the unreported life cycle costs of coal are between $350 and $500 billion a year. These hundreds of billions of dollars represent actual bills paid by unwitting families, fisheries, businesses, schools, municipal water systems and health-care providers as well as the victims of asthma, black lung and other medical problems. So, despite conventional wisdom, coal is not a cheap energy. Its price is cheap only because it is subsidized by its own victims.

An equally vexatious problem is much closer to home. Pesticides are everywhere — in our gardens, refrigerators, even our cosmetics. In 2007, the College of Family Physicians of Canada published a peer-reviewed survey of the scientific literature on the relationship between pesticides and cancer. It is sobering reading, especially concerning the dangers to children. Pesticides were linked to increased rates of leukemia, brain cancer and non-Hodgkin's lymphoma. Other cancers are strongly suspected to have links to pesticide exposure as well. The study says: "Increased rates of all types of leukemia were found in children whose parents used insecticides in the garden and on indoor plants and whose mothers had been exposed while pregnant." Statistics are similar for other cancers. The extra cost of organic products does not feel so unreasonable when one considers that pesticide-laden agriculture achieves its large yields and cheap costs by incurring this kind of environmental debt.

Right now, pesticide manufacturers are not paying the health-care costs of those afflicted with medical problems triggered by their products. Other businesses, taxpayers and health-care systems are. Just as with coal, the pesticide industry is subsidized by its own victims.

NO COST FOR POLLUTION, NO REAL SAFETY

Long-term impact is explained in Star Trek IV: The Voyage Home:

mr. spock: To hunt a species to extinction is not logical.

captain kirk: Ironic. When man was killing these creatures he was destroying his own future.

2. The Long View Must Guide All Decision Making and Accounting

The inability of the financial industry to correctly calculate risk is now well documented and broadly understood. The global economic meltdown between 2007 and 2009 was caused by individuals and companies reaching for short-term profits while ignoring long-term value. In 2010, when Wall Street rewarded its workers with $90 billion of legal bonuses, people from all walks of life began to question the rules and the definition of "profits." The Wall Street bonus structure rewarded those who delivered short-term profits rather than long-term value. Virtually all of us agree that this reward structure is warped.

But we haven't yet connected environmental actions from the past with the costs and suffering they cause today. Old logging regimes from decades ago in far-off lands can harm us today while washing our hands with advanced chemicals may diminish whole ecosystems decades from now.

Remember the catastrophic 2011 floods in Thailand? They were the result of heavy rains coupled with deforestation that occurred throughout the twentieth century. Although the Thai government banned all commercial logging in 1989, the damage was largely already done. Deforestation continued after the ban due to a combination of corrupt officials, agricultural needs and industrial demands. By 2011, the massive deforestation had degraded Thailand's topsoil, and without enough trees, the ground was unable to soak up water at a rate that would have contained the destruction. Local Thai factories that produced car parts were closed for months. These closures caused shortages for Toyota and Honda, and both companies were forced to suspend manufacturing in Kentucky, Singapore and the Philippines. Toyota alone lost production of 260,000 vehicles (3.4 percent of its previous annual output), and tens of thousands of workers lost their jobs. This logging from the twentieth century caused financial havoc around the world in 2011, a good twenty years after much of it occurred.

An example of latent consequences in our kitchens and bathrooms is the explosion of products used for antibacterial cleaning, such as soaps, toothpaste and personal care products. Many of these ubiquitous products contain triclosan, a compound that can cause mild problems, such as skin irritation and allergies, in some people. It can also cause long-term, ecosystem-altering problems, such as endocrine disruption that affects wildlife, humans and the aquatic ecosystem. What's more, these products encourage the buildup of antibiotic resistance, which leads to the evolution of superbugs. This will fundamentally alter modern medicine's very ability to treat infection. Whoa ... think twice before using hand sanitizer; after all, the U.S. Food and Drug Administration states that regular soap and water (or alcohol) will do the same job.

Leading scientific and medical institutions have published findings in the last decade showing that triclosan exposure at low levels causes thyroid disruption in frogs. Human and frog thyroid signaling systems are nearly identical. Triclosan can cause reproductive problems that harm local fisheries. No safe level has been established, and the questions only get more troubling as these products proliferate.

Triclosan is now banned in household products in Canada, and the European Union is attempting to do the same. Businesses built on strong antibacterial product lines have plenty to worry about.

Globalization is not just a buzzword. No industry is local anymore, and neither is any environmental problem. And as important, no industry's impact is limited to its present-day activities.

3. Government Plays a Vital Role in Catalyzing Clean Technology and Growth while Preventing Environmental Destruction

Government built and still maintains the infrastructure for twentieth-century electricity, transportation, communications, water and sanitation. After World War II, the United States even helped Europe rebuild its infrastructure through the Marshall Plan, understanding that a functioning Europe was necessary for U.S. financial growth and security. But today in the United States, there is huge public pressure to eliminate spending for basic infrastructure, even though ours currently receives an overall grade of "D" from the American Society of Civil Engineers.

Safe and efficient infrastructure is imperative for an economy to grow, and governments use current tax dollars or incur debt by floating bonds to pay for it. Upgrading systems that benefit all of society, including business, is a good reason to incur debt. In the 1950s, when the United States built an extensive interstate highway system and developed facilities and technology for air travel, commerce, tourism and trade, all grew exponentially. Twenty-first-century clean energy infrastructure, energy efficiency upgrades and low-intensive agriculture are both the solution to the current employment crisis and the best way to lower our environmental debt.

Perhaps the government-funded infrastructure we most take for granted today is Internet technology. It was first developed by the Department of Defense in the 1960s and 1970s and then catapulted to its full potential by the High Performance Computing Act of 1991, sponsored by then-Senator Al Gore. This is where the joke about Al Gore inventing the Internet comes from — he actually deserves tremendous credit for championing this bill, which was the funding cornerstone of the information superhighway.

Before launching Netscape, Marc Andreessen, the coauthor of the first Web browser, said: "If it had been left to private industry, it wouldn't have happened, at least, not until years later." Today, globally, Internet infrastructure is built with a combination of public and private money. Neither can do it alone.

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Excerpted from Environmental Debt by Amy Larkin. Copyright © 2013 Amy Larkin. Excerpted by permission of Palgrave Macmillan.
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