A recent TEEB for Business report estimated that the world’s 100 largest corporations do $7.3 trillion in damages each year to the global environment. These “externalized” costs are not borne by the business itself, but by society as a whole. Changing the way that corporations do business is critical to solving global environmental crises such as climate change. In the book Corporation 2020, Pavan Sukhdev presents a vision of how corporations can make this change.
 Author of Corporation 2020: Pavan Sukhdev
A 1919 Michigan Court ruling formalized the role of a corporation: “A business corporation is organized and carried on primarily for the profit of the stockholders.” As long as this norm holds, corporations will continue to pursue private profit at the expense of the public good. Sukhdev writes: “According to urban legend, Willie Sutton, the immaculately dressed bank robber who robbed more than a hundred banks over a forty-year career, was once asked why he robbed banks and succinctly replied, ‘Because that’s where the money is.’” Since corporations don’t pay for pollution and other socialized costs from their activities, there is a profit motive to pursue polluting activities.
Sukhdev says that the modern corporation has four distorting characteristics: size, leverage, advertising, and lobbying. The number of “large” (greater than 0.1% of global GDP) corporations has grown from under 20 in 1970 to over 120 in 2010. Being large allows corporations to reduce transaction costs: rather than trading with other corporations, a corporation can simply redistribute resources internally. Sukhdev calls the modern corporation a “price arbitrageur par excellence” because it obtains labor, capital, and resources wherever they are cheapest to be sold wherever demand is highest.
The second characteristic, leverage, is related to size. Taking on debt allows a corporation to grow. Debt is available to larger corporations at a cheaper price, creating an advantage for large corporations while squeezing out smaller ones. When corporations with lots of debt become very large, they can be “too big to fail” because they pose a systemic risk to the economy. As we saw in the financial crisis, the government may have to prop up a failing big corporation – another benefit of size.
 Save the World (photo credit Victor Grigas)
Advertising “converts wants into needs, sometimes creating new needs that are nothing more than brand desires, with no functionality.” Even though advertising makes up a relatively small part of global spending, it has an enormous impact on creating demand for consumer products. Greater consumption, in turn, puts more pressure on natural resources.
Last, corporate lobbyists persuade government to create preferential laws, regulations, taxes, and public investments; the goal is to realign public institutions to benefit private interest. For example, when the Waxman-Markey “cap-and-trade” climate change bill was being considered by Congress, energy-intensive industries spent over $100 million on public relations and hired 2,340 registered lobbyists to protect the fossil-fuel industry. A watered down version of the bill was able to pass the House, but not the Senate. Lobbying in natural resources sectors is a clear case of redistributing public goods to private interests; in the United States, mining companies are given rights to mining resources at below market rates.
When a corporation is large, it has advantages in leverage, advertising, and lobbying. This creates a positive feedback loop where the efficiencies and power of a large corporation allow it to become even larger. As a corporation grows and grows, it has (in most, but not all cases) larger and larger negative externalities. The legal structure of the modern corporation and the tools it has to make profits are incompatible with addressing environmental crises.
So what’s to be done?
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A big part of Sukhdev’s message is how and why corporations voluntarily reduce the negative externalities associated with their business. One of the largest destroyers of tropical forests in the world, the Indonesian pulp and paper company APP, announced a new “no deforestation” policy. The commitment came after a long campaign by Greenpeace successfully vilified APP. APP saw that the costs to its brand name and reputation were greater than the benefits from continued deforestation. APP is one of many companies that have taken steps to reduce its environmental impact in order to improve its public image.
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Other corporations are taking a more holistic perspective and starting to account for the damage they do to the environment. In 2011, PUMA, the shoe company, measured their supply chain’s impact on water, land-use change, air pollution, and climate change. These negative externalities were valued at $188 million and were concentrated early in the company’s supply chain. PUMA says it will use this information to reach its goal of reducing its impact across its supply chain by 25 percent by 2015. Measuring externalities is the first step for companies to reduce them – “you cannot manage what you do not measure.”
However, shaming companies into better behavior and improved environmental accounting tools will only get us so far. Sukhdev argues that “despite the correlations between sustainability and corporate success, endogenous change (the idea that corporations can and should drive sustainability ‘from within’ because it is good for them) may not be enough.” The raison d’etre of a corporation is to make its shareholders profits, regardless of other costs.
Sukhdev calls for a number of solutions. Ending subsidies for companies that do environmental harm is a first step towards leveling the playing field. Next, taxing goods according to the damage they do to society would discourage harmful economic activities. A coal power plant, for instance, would have to pay for the social cost of the carbon emissions (amongst other damages) associated with power production. Finally, Sukhdev makes the case that the structure and objective of a corporation needs to be completely reformed. Rather than pursuing profit for shareholders, corporations should serve the public benefit – a social corporation. Increased regulation and creative taxation can help to reduce corporations’ impact on the environment, but Sukhdev argues that current corporate model is fundamentally incompatible with sustainability.
While I mostly agree with Sukhdev, he doesn’t provide a convincing road map of how we’re to get from the shareholder, profit-driven model of the corporation to his social corporation. As Corporation 2020 recognizes, large corporations have an enormous amount of economic and political power that they are unlikely to give up voluntarily. In addition to increasing a corporation’s size, advertising and lobbying also give it immense influence. Bold leadership, both in the public and private sectors, is a good start, but won’t be enough to get to the radical changes that he is proposing. My feeling is it will require pressure from millions of people who have never heard of Sukhdev or his book.
In Morocco and elsewhere, environmental challenges are likely to reduce living standards. Among the harmful impacts of climate change is increased desertification – the expansion of deserts. Globally, climate change will increase average precipitation, but in certain areas, rainfall will decrease. Because of changing precipitation patterns, the Sahara Desert is likely to expand into bordering countries, reducing their agricultural productivity. In many countries, this global change is in addition to local environmental pressures, quickening the growth of the Sahara.
 The Sahara Desert (Source: Enviro-Map)
The Atlas Mountains of Morocco have always been a marginal environment, as poor soil quality has hindered productive agriculture. Living in those mountains for two years, I experienced the negative impact that desertification is having on people’s lives. Poor and rural people are more dependent on the environment for generating incomes; 47% of the “GDP of the poor” comes from natural resources. Since the environment is fragile, even small changes in climate or use of resources can result in noticeable declines in standards of living.
Industrial logging, expansion of agriculture, extension of grazing land, and collection of firewood put increasing pressure on the forests of the Atlas. Economic growth and growing populations mean that Moroccans are extracting more and more from the forests that support the country. As a whole, the country loses an average of 30,000 hectares of forest per year. Fewer trees mean weaker root systems to protect soil. Erosion rates in both the Atlas and Rif mountains are among the highest in the world.
 Erosion in the Atlas Mountains (Photo credit: author)
The people I lived with felt the immediate consequences of the creep of the Sahara in several ways. The most obvious impact was the decrease in supply of fuel wood. Although most of Morocco is warm, the Atlas Mountains are at high altitude, creating the need for wood to heat homes during the winter. Large snowstorms often hit my village, dumping more than a foot of snow at a time. In one nearby village, the small forest cover had been completely removed; people were reduced to burning scrub bushes to keep warm. In my village, the nearest remaining trees were over an hour away by donkey ride. Every week, my host father would go out to collect firewood to heat our home. He would ride his mule for an hour to the west, where the forest still grew, to find a tree and cut down its branches to bring back home. My host father was 73 years old and the weekly wood collections tested his health and physical abilities. One day he was several hours late coming home; my host mother and I went out into the darkness, yelling his name until we found him, limping and delirious with exhaustion.
Another obvious impact of desertification is the decline in productivity of agriculture and grazing. Many people in the Atlas Mountains rely on raising goats and sheep for income. Herders feed animals in the mountains and bring them to cities to sell to bigger markets. However, as the soil runs off the mountains and into the rivers, grass does not grow as quickly and the land cannot support large herds without further expanding grazing areas.
Reduced forest cover also increases the frequency and severity of floods since rainwater runs directly off of the soil into riverbeds instead of slowly percolating through ground cover. Even mild rainstorms lead to significant floods. Several times a year, floods would make roads impassable, isolating our mountain communities from the rest of the world. Floods would also wash out fields and damage farmers’ crops.
The people of the Atlas Mountains and Morocco can contribute little to mitigating climate change. Morocco ranked 71st in greenhouse gas emissions in 2010, responsible for about 0.1% of global emissions.
If Morocco is to adapt to climate change and the expansion of the Sahara, it must invest in natural ecosystems that can reduce its impact. Instead, a growing population and standards of living are putting increased pressure on the environment, escalating its degradation. For instance, the price of meat is high, creating an incentive for herders to increase the size of their flocks.
As a Peace Corps volunteer, I was tasked with finding solutions to my communities’ problems and environmental concerns. As much as people wanted to protect natural resources, they depended on activities that harmed the environment for their short-term wellbeing. There were also significant problems organizing collective action. Even if my host family reduced the size of their flock or the amount of wood they harvested for fuel, these sacrifices would mean nothing if others did not make similar commitments. Without strong environmental institutions, it is nearly impossible to change behavior.
Another Peace Corps volunteer and I worked on reducing deforestation driven by local businesses. Public baths – hammams – were responsible for approximately 30% of deforestation as they used wood to heat their water. This may seem like a lot of wood just for public baths, but hammams are an important communal institution in Morocco.
We tried to appeal to the economic interests of the hammam owners. An ultra-efficient boiler developed by the Germany Agency for Technical Cooperation would reduce fuel wood consumption by up to 80% compared with existing hammam boilers. Since fuel wood was expensive relative to the cost of the boiler, we estimated that hammam owners would recoup their investment within 6-12 months. This seemed like a winning strategy for reducing pressure on forests, but we had a surprisingly hard time convincing hammam owners that they should invest in the efficient boilers. There was skepticism over the new technology and, as already successful businessmen, hammam owners had little incentive to upset a profitable business model. After a year of talking with owners, we convinced one hammam owner to purchase the boiler as a demonstration project for other owners.
It was a start, but hardly a solution. I am not optimistic about Morocco’s ability to improve environmental management and respond to desertification. With its already fragile environment, it is particularly vulnerable to the changing climate. Increasing local pressures will only exacerbate the problem. To really respond to this challenge, Morocco will need to increase the capacity of the institutions that manage natural resources; without collective action, private, short-term interests will continue to drive desertification and undermine the country’s long-term viability.
 Cherry Point Reach, Washington State
In Cherry Point, Washington, north of Bellingham, conservationists have worked for more than a decade to restore the annual herring runs that occur off the coast. Over the past 40 years, stocks have declined on this 10-mile stretch of coastline from about 17,000 tons of herring spawning off the coast to less than 1,000 tons.
Biologists who have studied the problem blame three refineries, which combined see about 600 to 700 ship visits per year. Now one of the world’s largest shipping companies, SSA Marine, wants to build a new terminal here with the potential to ship up to 50 million tons of North American coal annually to China. The so-called Gateway Pacific Terminal would double ship traffic with much larger vessels and increase rail traffic in the region. Continue reading Big Coal Targets Northwest to Get to Asian Markets – Environmentalists Fight Back
The Virginia General Assembly is expected to vote next year on whether to lift a 30-year moratorium on uranium mining in the state.
The issue has prompted an expensive lobbying campaign by the company that wants to mine a huge deposit known as Coles Hill in Pittsylvania County and an intense fight by environmentalists who want to stop it. The battle has pitted neighbor against neighbor in the county, in south central Virginia, an area known as Southside.
Two Virginians, each offered money to allow uranium mining on their land, personify the debate that is raging through the state. One accepted. The other declined.
Continue reading Uranium Mining – The Virginia Battleground – Environmental Concerns vs. Corporate Interests
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