The Wall Street Journal
March 28, 2006
For People and Planet
By AL GORE and DAVID BLOOD
March 28, 2006; Page A20
(snip)
The industrial revolution brought enormous prosperity, but it also introduced unsustainable business practices. Our current system for accounting was principally established in the 1930s by Lord Keynes and the creation of "national accounts" (the backbone of today's gross domestic product). While this system was precise in its ability to account for capital goods, it was imprecise in its ability to account for natural and human resources because it assumed them to be limitless. This, in part, explains why our current model of economic development is hard-wired to externalize as many costs as possible.
(snip)
The interests of shareholders, over time, will be best served by companies that maximize their financial performance by strategically managing their economic, social, environmental and ethical performance. This is increasingly true as we confront the limits of our ecological system to hold up under current patterns of use. "License to operate" can no longer be taken for granted by business as challenges such as climate change, HIV/AIDS, water scarcity and poverty have reached a point where civil society is demanding a response from business and government. The "polluter pays" principle is just one example of how companies can be held accountable for the full costs of doing business. Now, more than ever, factors beyond the scope of Keynes's national accounts are directly affecting a company's ability to generate revenues, manage risks, and sustain competitive advantage. There are many examples of the growing acceptance of this view.
(snip)
Over the past five years we have seen markets begin to incorporate the external cost of carbon dioxide emissions. This is happening through pricing mechanisms (price per ton of carbon dioxide) and government-supported trading platforms such as the European Union Emissions Trading Scheme in Europe. Even without a regulatory framework in the U.S., voluntary markets are emerging, such as the Chicago Climate Exchange and state-level initiatives such as the Regional Greenhouse Gas Initiative. These market mechanisms increasingly enable companies to calculate project returns and capital expenditures decisions with the price of carbon dioxide fully integrated.
The investment community has also started to respond. For example, the Enhanced Analytics Initiative, an international collaboration between asset owners and managers, encourages investment research that considers the impact of extra-financial issues on long-term company performance. The Equator Principles, designed to help financial institutions manage environmental and social risk in project financing, have now been adopted by 40 banks which arrange over 75% of the world's project loans. In addition, the rise in shareholder activism and the growing debate on fiduciary responsibility, governance legislation and reporting requirements (such as the Global Reporting Initiative and the EU Business Review) indicate the mainstream incorporation of sustainability concerns.
(snip)
As some have said, "We are operating the Earth like it's a business in liquidation." More mechanisms to incorporate environmental and social externalities will be needed to enable capital markets to achieve their intended purpose -- to consistently allocate capital to its highest and best use for the good of the people and the planet.
Mr. Gore, a former vice president of the United States, is chairman of Generation Investment Management. Mr. Blood, formerly head of Goldman Sachs Asset Management, is managing partner of Generation Investment Management, which he co-founded with Mr. Gore.
URL for this article:
http://online.wsj.com/article/SB114351506093609748.html (subscription)
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
