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Externalities

11/14/2020

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​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.
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    Bruno Dyck

    Bruno is an organizational theorist at the University of Manitoba. He loves being a management professor, scholar and teacher.

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​EMAIL BRUNO
​BRUNO DYCK
Bruno Dyck enjoys collaborating with managers, scholars, and students to promote SET management principles and practices. He is a Full Professor in the Asper School of Business at the University of Manitoba, and has published several prize-winning books and articles, and won awards for research and teaching, including the 2019 Expanded Reason Award. Bruno enjoys cycling to work year-round, becoming a vegetarian, buying local goods and services, hiking, and spending time with family and friends.

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DAVID HOLCOMB
​David Holcomb has assisted in the launch of this website -- developing ideas in conversation with Bruno and turning those ideas into reality. For the past 35 years, business for the common good has been one of David's vocational anchors. He has completed graduate work in both business and theological studies and has worked in both fields. Currently David resides with his family in Milwaukie, Oregon, where he serves as the Director of Finance and Operations with a local non-profit. 
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