Pivoting towards sustainable business: understanding environmental cost
Photo by Thomas Net
When goods and services are traded in marketplaces around the world, you are able to look at a price tag and decide to purchase the product of your choice. When booking a holiday online, you can see the price breakdown of your hotel, your plane ticket and food selections, but what about all the other ‘shadow’ costs that come with your trip to that tropical paradise you’ve always dreamed of?
Not all goods or services are directly bought in marketplaces. Things like safety, happiness, fresh air and most importantly, a clean environment, are not ‘for sale’ and do not have a price tag. Nevertheless, everyone agrees that these elements are extremely important for the wellbeing of a country and humanity. Although the quality of the environment is one of the key factors in determining the health of a destination, it is often left without a price tag. The closest way to estimate their monetary value is through shadow costs, which can be explained as fictitious costs that have been made to offset their negative environmental impact. Environmental prices put a monetary value based on quality, which can give an indication of the value of environmental quality to society.
A great example of why shadow costs are important to take into consideration is the wheat farmers in Southern Asia. If these farmers have to pay the real price for the impact they have on water, the currently booming $31.8 billion industry would turn into a $234.8 billion loss leader. Similar cases include the American beef industry or coal fired power generation (Research by environmental auditors, Trucost).
When operating a business, impacts on the environment that must be taken into consideration include: switching to more sustainable practices such as using biofuels, reducing single-use plastics and lowering your carbon footprint. These impacts should be prioritized and the environmental impacts can also be quantified via personalized business strategies.
The Environmental Cost Indicator
One of the most common and most talked about environmental impacts is CO2 emissions, which is calculated as the emissions of greenhouse gases into the air contributing to global warming and consequently: climate change. However, next to CO2 emissions there are other factors that have an impact on the environment. In order to be able to understand how different emissions influence the environment, the Environmental Cost Indicators (ECI) can be used to calculate the prices of certain emissions and their impacts.
The ECIs are financial ratios that show the social/environmental value and expressed in euros per kilogram of a certain pollution or impact. These financial ratios show the loss in social/environmental value. (CE Delft, 2017). All of them are categorized into different ‘impact category groups’. These groups link to an actual number, which gives a more concrete picture of what the impact actually is, they are then quantified into euros (€). The impact categories vary from ‘the formation of smog’ to eutrophication of waters.
Why is it important to understand your ECI?
The environmental cost indicators can be used to calculate the impact on the environment, which can empower a business to act accordingly. The overview shows the cost prices that can be used to establish what the biggest polluter in the company is, and what can be done to decrease these contributors.
When moving towards green transitions in a company, the ECI can also help when deciding between recycling your (single-use) plastics or reducing the use of (single-use) plastics all together. By reducing the environmental footprint, the company contributes to a more sustainable society.
Do you as a business want to make a step in the right direction and #GoGreenForTheBigBlue? Have a look at our services page and see how we can help you reach your goals!
Sources: CU Delft & Natural Capital at Risk report from Trucost.