In the 2020 Social Enterprise Summit, the session on “Collective Impact for Environmental Sustainability” was joined by a panel of distinguished speakers including Dr. Entela Benz, Dr. James Gifford and Mr. Neil Yeoh, moderated by Mr. Johnson Kong. Environmental protection in the business world is of no doubt a classic collective action problem, where the benefits of improving environmental impacts would be non-exclusively shared among all players such that everyone tends to be a free rider. To overcome the challenge, the speakers proposed various measures, such as cross-disciplinary collaboration, investor engagement and voting, as well as pricing carbon risks.
As the saying goes, “if you can’t measure it, you can’t manage it”. Significant progress has been made in prompting companies to measure and disclose their environmental and social impacts, thanks to the increasing pressure from regulators and investors. Momentum is also emerging to urge companies to further monetize and integrate their environmental and social impacts into financial accounting, thereby creating a more holistic picture of values created and destroyed by a company. A few examples of these developments include the Triple Bottom Line (TBL), Social Return on Investment (SROI), Trucost’s valuation methodology, and the Impact-Weighted Accounts (IWA) Project of the Harvard Business School.
Yet, it is not uncommon to hear questions such as “what does the number in dollar terms really mean?”. Perhaps there are good reasons behind the hesitation, which reveals the lack of a commonly accepted theoretical foundation of value in the current methods.
For one thing, it is questionable whether the market pricing mechanism is fit for purpose in revealing value. Valuation methodologies have evolved from cost-benefit analysis, whose foundation lies in modern welfare economics. Market pricing or a simulation of the process is thought to be a mechanism that indicates value, for good reason. Yet, as Robert Cameron Mitchell and Richard T. Carson argued in their book in 1989, such a system of value disregards distributional issues despite the key role of the endowment of resources in determining value. Hence, it might lead to conclusions such as “the time of poor people in developing countries carries less value than those living in the developed world”, as far as the hourly wage is concerned, and such issues are only addressed on an ad hoc basis.
One paradox that underlines this challenge is that, on the one hand, distributional issues are disregarded due to the rejection of interpersonal comparison of utility, while on the other hand, the aggregation of values in practice implies interpersonal comparability. Perhaps, if we start with the premises that comparison is inevitable and that partial comparability is acceptable, as opposed to total comparability as defined by Amartya Sen, we could have a different system of value that is more fit for purpose.
Article written by Mr. Johnson Kong, moderator of “Collective Impact for Environmental Sustainability” at Social Enterprise Summit 2020. Learn more about Johnson’s view on “The Inefficiency of Unequal Distribution” relating to inequality of housing in Hong Kong here (this content is currently available in English only).