The environment continues to degrade as a result of industrial activity despite various attempts to change the behaviour of organisations. Voluntary systems like Corporate Social Responsibility and legislated systems like the Kyoto Protocol have had little success in stopping this continued consumption of the natural environment. Long term sustainable capitalism cannot be achieved while the natural environment continues to be consumed. This can be resolved by implementing a framework that assigns a cost to every environmental change caused by human activity. This environmental cost flows through the complete supply chain so that it forms part of the supply and demand formula of capitalism. A separate international environmental currency is used to trade the environmental cost components of products. The environmental cost values would be continuously adjusted so that market forces would cause behaviour of organisations, management, employees and communities to change so that the target of zero or negative environmental cost is achieved within a defined timeframe.
Although capitalism is a very successful mechanism for creating wealth and improving the average living standard of humans, in its current form it is not sustainable in the long term, because it does not take into consideration the costs to the natural environment. Natural resources like water and air is generally not included in the supply and demand formula of capitalism and is therefore perceived as unlimited and free. The consequence is that the natural environment is being consumed to support capitalism in the short term and will run out sometime in the future. To continue doing this would be short-sighted and irresponsible.
In a capitalist environment businesses aim to maximise profits. A solution could therefore aim to change the environment such that, while the business optimises its operations to maximise profits, its behaviour is changed such that it behaves more responsible and sustainable in the long term. Following this argument, the behaviour of businesses can be changed to use the environment sustainably by including environmental costs in the supply and demand formula of capitalism.
This can be achieved by using a universal environmental currency to trade any environmental changes caused by human activity. Environmental cost would be negative if the environment is improved and positive if the environment is degraded. The environmental cost amount would be set and adjusted so that market forces would eventually eliminate any negative effects to the environment.
The environmental costs stay associated with the raw materials or products that are the direct or indirect cause of the environmental cost. This cost is included in the cost of a product, which will force companies to take the environmental cost into consideration during all phases of a product from design to disposal if they want to stay competitive.
The environmental cost component is tracked separately through the environmental currency and each business keeps record of all environmental costs that flows through the business. All inflows of environmental costs associated with raw materials that come into a business must be passed on to its customers by allocating it to the products it sells.
The total environmental cost that flows through a business is used as an environmental performance measure for the business. This performance measure with symbol, Eη, is determined as some ratio of the number of environmental cost flowing though a business’ books and its total business turnover. The more damage a company causes directly or indirectly to the environment, the higher the Eη value will be and vice versa. The performance of each business is made visible through this number by legislation that requires each business to display their Eη value on all their product labels, adverts, brochures, web pages, etc.
The environmental cost value associated with every product is maintained and charged separately so that consumers at every stage of a product’s life cycle can clearly see and evaluate the environmental cost of the products they are purchasing. In the shop the customer can compare the environmental costs of different products from different suppliers. Since the Eη value of the manufacturer is also shown on the label of the product, the customer can also make a judgement about the supplier’s overall performance.
The system proposed would motivate consumers to change their buying habits as a result of the open communication of the environmental costs of products that allows them to make informed decisions and also because products with higher environmental cost will become more expensive than those without. This would put pressure on organisations to change their behaviour in order to stay competitive.
Organisations will be held accountable by society and will be required to plan long term and innovate responsibly while taking costs to the environment into consideration if they want to continue operating successfully.
The outcome is capitalism that is sustainable and can continue in the long term.
- Further detailed research and analysis
- Marketing campaigns to convince stakeholders about the need for the system
- Define a universal environmental cost measurement system
- Define and legislate environmental cost performance labelling of products
- Regulate environmental cost bookkeeping rules