Externalities and Sustainability

If you haven’t gotten your April issue of the Harvard Business Review, then go to your local news stand or book store and pick it up! Christopher Meyer and Julia Kirby have done an excellent job of presenting an article on corporate responsibility that is based on business strategy that even the toughest business leader can appreciate.

The title of their article is “Leadership in the Age of Transparency“, not one mention of sustainability, corporate social responsibility, philanthropy or green. They cut straight to the point, “Leadership”, the place where organizations want their brand! How many times have you sat through a corporate meeting and heard “We will position ourselves as the leader withing our industry.”

Their article deals with a change in the rules of doing business. They point out that it is no longer possible for companies and organizations to ignore externalities. Maybe that’s why I enjoyed their article so much, externalities have been a big part of what I do and have done for years.

A few years ago I was told that I was suppose to work with a big consultancy and help them understand sustainability. This was a group of accountants, they didn’t have an environmental or ecological group. They dealt with dollars and cents. They analyzed data, located under performing departments, developed strategies and made recommendations.

So, when I met with them for the first time they were not that excited about this “green issue”, their term not mine. I asked them what they thought sustainability was and they gave me the green tree hugging emotional charged concepts that you have heard over and over.

I started talking about industrial ecology and the impacts that organizations and businesses make on the communities they operate in. Before I could get any further one of the consultants interrupted me and blurted out “Your just taking about externalities!” Now, this is were it pays to know your audience, I had learned earlier that day that this young man was expecting his first child. I asked if he meant externalities like those used by companies that publish reports that say chances of reaction or death from a chemical or product was one in a million? He replied “Yes, but that was a normal process of product development and just another cost of doing business.” I asked him if the one child in a million happened to be his child would he still just view it as a cost of doing business?

The whole atmosphere in the room changed. Four months later the consultancy had a sustainability department and they were engaged in research that focused on activities that were previously viewed as externalities.

So, not to give away any other of the great points within the article I’ll stop here and encourage you to read the article and see what other insights you can gleam that will help your organization take that next step towards a leadership position.


Excellent article Jesse, great blog. I love it when you can throw out ROI and externalities in one sentence. Especially, when you can use both terms, but many haven’t heard the latter. By not only speaking on their level, but also throwing something in there like a teaser, you can be sure there’ll be people gooleging during lunch, then throwing it around like a new toy by that afternoon !
Posted by Melissa

Nice blog and article. My work focuses on the other flavor of externalities as well – the positive kind. I view sustainability from the land resource perspective that includes forestry and the agro-economy. Both industries have the capacity to generate positive and negative ecological externalities. Internalizing positive externalities (clean water, carbon cq, wildlife) can generate direct value (market access, gov incent. credit trades, liability prot., etc) as long as a unified method to commicate these value evolves.
Posted by Tim

This is exactly the kind of approach that those interested in sustainability need to take when looking to enact change at a business level. We need to engage corporations in their language and methodologies which they understand. When you sit down and present a CBA (cost-benefit analysis) – or as mentioned above include externalities – which will impact their bottom line they will sit up and listen. Get them to buy in due to these reasons and then slowly mange the change so that sustainability becomes part of the culture. Trying to force the sustainability issue first will be a much harder uphill battle.
Posted by Heather, MBA

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