Measuring the Costs of Environmental Impact Part 2

In part one we talked about the huge environmental costs for companies and the economic impacts these may have. Now we want to see what can be done, if reporting these costs should become standard, and the benefits this may have. Already many companies have made huge investments in reforestation, reducing water consumption, and an overall protection of natural resources. With the rising costs of valuable resources which are in danger, it only makes sense that these become a regular part of a company’s investment. With a strong sustainability agenda, corporations can help business be perceived as the place to best change what is going on in the world. As more companies realize how much sustainability helps their financial accounts, they’ll want to know how best to report these costs, and what can be done about them. The best step is to no longer ignore what’s going on, no matter what way you look at it.

There are a few ways of looking at environmental costs and corporate responsibility as a whole. The first is a financial analysis called environmental, social and governance (ESG). ESG is seen to many companies now as a way to improve profitability. This may seem like a shallow way to look at corporate responsibility, but think about it for a minute. For example if a company ranks high in treating its employees well, they should have less turnover and HR costs. If there are more and more costs to doing something environmentally harmful, it will be in the corporation’s best interest to stop such atrocities. Nowadays, investors that see companies that take such factors into account believe them to be forward-thinking and well managed, and are more apt to invest. Bloomberg has recently jumped on the ESG bandwagon, and along with all sorts of financial data, you can see their ESG data as well.

Another way to look at corporate responsibility is something called Triple Bottom Line Accounting, also known as “people, planet, profit.” This would just expand the traditional reporting framework to include the ecological and social performance of firms. Businesses don’t have to forget their core competencies to comply with the environmental and social needs of the planet. It has to be a two-way street. People must understand it may take time to implement policies (especially in developing countries), but businesses must look at the future and understand that something must be done. One such organization is The Global Reporting Initiative, which aims to make sustainability reporting standard practice by providing guidance and support to organizations.

Will these ways of evaluating a company’s corporate responsibility ever make it into SEC-required filings? They certainly ought to be, because until they are, there’s less impetus for companies to care about the long term, or investors to invest in these smart companies. Maybe it will take just a few reports from companies like Puma, who publish their environmental impact and what’s being done about it to get other companies on board. It won’t be long before all companies will be held accountable for these costs, and the ones that get a head start now will still be going in the long run.