Today, some businesses measure the value of environmental services they consume to produce their goods, showcasing a change in the way they account for the use of natural resources. This is good news, though such measurements are limited to few countries, organizations and their leadership.
How do we define what makes up the environment?
If we were to group its members or elements, we could come up with five distinct yet dependent groups, 1) plants, 2) animals (including land animals, fish, birds, insects), 3) humans, 4) minerals (including gases and chemical compounds), and 5) micro-organisms.
The question then arises, whether companies must go beyond carbon footprints and measurement of resources related to the mineral group, to also include humans and the value or impact on their societies? On January 12, 2018, BlackRock (world’s largest asset management company) CEO, Larry Fink sent a letter to CEOs of public companies telling them that their responsibility was not only to deliver profits, but also to make “a positive contribution to society.” This is great news and a step towards aligning leadership to think about value to the five groups that make up our planet and its environment. In 2013, India mandated companies of certain sizes to spend 2% of their average net earnings from the past three years, on corporate social responsibility (CSR) activities.
Why is the environmental value question important?
The answer lies in another question. One that you can ask yourself. What are five things you value as an individual? Health? happiness? family? peace? wealth? children? your art? others? Money is only one in the list. Yet, we prefer to measure the value of a business primarily on its financial performance. Why can’t we measure the performance of a business based on what we value? As an example, how are the products and services of a business impacting our families? the mental and emotional health of our children? of us and our happiness? How are businesses positively impacting other elements that we value?
Imagine, if everything we purchased, food, products, and services, were tagged with information on resource usage for producing them, next to their nutrition tags or specifications. This, coupled with information used to determine carbon footprint would give us a much clearer view of our true usage of environmental resources on a daily basis. The calculation for resource usage at the product level however, would require standardization and base-lining of what counts towards resources and their measurement techniques. Once this is automated, we could have mobile applications telling us exactly the value of environmental resources we have consumed. Then, arises our need to understand the value we have created using the value we have consumed.
Measurement of value created is measurement of the positive impacts on the five groups of our environment. While most products and services are catered towards human consumption, the ability to recycle, reuse parts or whole, enhancements to the current ecosystem and to dependent species, impact on human, animal and plant life will require another set of detailed measurement techniques. Impact on human psyche, mental health, physical and emotional health are all part of this calculation.
We will then begin to see that certain products or services consume more environmental value than they create. Such businesses may look to invest in value-creation activities and allocate this value back to their products and services. Just so they can make up for their value consumption. Value-creation can be in any of the five groups (plants, animal, human, mineral, micro-organism) but it would be preferable to invest in groups that are consumed for creating the products or services. In this way, we maintain a certain balance of value consumption and creation. There is one group however, where measurement of value consumption and creation will be challenging and that is the micro-organism group. If businesses can at least start with any of the other four, it would be worthwhile.
While the above utopia requires a Global movement towards measuring value, standardizations, government policy changes, tax incentive programs, change in the way analysts determine company valuations, shareholder value beyond financial value, wall street, banking, investments and much more, there are some initial steps each of us can take. The letter from Mr. Larry Fink is one of them.
As individuals and leaders, we need to think about value consumption and how we are using resources, how we can assist with environmental protection, how we measure success of our products and services and how we setup sustainable ecosystems in our living and work spaces. But first we must ask ourselves, “what is my value consumption and value creation?” What is yours?