Externalities

​The term “externalities” refers to positive and negative effects that businesses have on other stakeholders but which are not reflected on the firm’s financial statements. For example, a firm can have a positive externality if it hires ex-convicts and thereby reduces the likelihood (and social costs) of repeat offenders.

Unfortunately, in 2018 the negative ecological externalities of the world’s 1200 largest businesses were estimated to be about $5 trillion (a 50% increase from 5 years earlier),[1] an amount that is greater than the total profits of these firms.[2] Even if all these firms were to meet their greenhouse gas emission goals, this would represent merely 25% of the amount required from them to meet the 2°C goal of the Paris Agreement.[3] In other words, these firms on average cause over $600 of negative externalities per each of the almost 8 billion people on the planet. That is a lot of damage, especially considering that one-third of the planet earns less than $2 per day.[4] While the costs of these externalities are often borne by especially by those who can least afford it, the profits from these firms’ activities benefit the relatively rich who can afford to purchase shares, thus further widening the gap between rich and poor.

Question:  What sorts of businesses give you hope when it comes to creating positive social and ecological externalities? 

[1] Note that figure in this paragraph are US dollars. Makower, J., et al. (2020). 2020 State of Green Business. Oakland, CA: GreenBiz Group. 
[2] The largest 500 companies in the world generated about $2.15 trillion in profits in 2018. “Global 500” Fortune. 
[3] Makower et al. (2020).
[4] In all, 2.4 billion people lived on less than US $2 a day in 2010. Poverty Overview. The World Bank.