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Monday, November 2, 2015

Strategic CSR - Natural goods

In the blog post in the url below, Mallen Baker (Foreword, pxxiv) questions the value of monetizing environmental resources, such as the oceans:
"According to a recent report by WWF, the monetary value of the world's oceans is US$24tn. That's the asset value. If you valued the annual 'goods and services' it provides, you come up with a figure of $2.5tn. No doubt that's meant to sound a lot. No doubt, there may be some people who only pay attention to an issue if it's put into monetary terms. As far as I'm concerned, it's completely irrelevant."
I am a big fan of Mallen's work (, but disagree about this. Quantification helps define the extent of a problem; it also puts it in a context to which most of us can relate (even if the numbers are very large). In contrast, Mallen sees the effort to monetize oceans as a plot orchestrated by, gasp, "the economists":
"Putting a cost on the ocean is not that helpful. If you look at how many of the world's processes depend on life in the oceans, how much of the world's protein comes from there, and what might be the knock-on ecosystem consequences of the collapse of the oceans. … [It should not] be defined by the financial value of what the services of valued at during a time of plenty … [but] by the catastrophic consequence of their absence. Sometimes you've got to avoid playing the economists game and keep it real."
I am not so sure. Often, the best way to keep something real is to put a price on it. Money seems to have a disproportionately motivating power over humans that other drivers, such as altruism, lack. For whatever evolutionary reason, we are incredibly materialistic beings who are willing to do many things for money that we would not otherwise consider. Such a proclivity produces distorted behavior. Either way, I am not convinced everyone would price oxygen in the way that Mallen suggests:

"Suppose you were going to be denied that oxygen unless you paid for it. What would it be worth to you? Obviously, every penny you owned because without it you die. The financial value of something is, after all, defined by what someone is prepared to pay."

Valuation is a complex process. Some people might not think it is worth living only to be destitute. Moreover, you could apply the same approach to valuing human life in general. In other words, if you ask the question 'What price would you put on your own life?,' Mallen's logic would answer "every penny you owned." Nevertheless, this does not prevent actuaries at insurance companies producing very specific values for life-related premiums that are considerably less than every penny you own. The benefit, of course, is that this process enables certain economic transactions via insurance products that can price the different levels of risk we are all willing to take. I suspect that we will be able to do something similar to help preserve the environment. 
In short, I agree with Mallen that, in terms of the oceans, the "consequences of absence are catastrophic," but that does not mean it is a waste of time to try and monetize them. In fact, it suggests to me that we should hurry up and get on with the process. If we are to prevent their complete destruction, our past suggests that a market solution will be most effective and, in order to begin that process, we need to start with how much these natural goods are worth!
Take care
David Chandler & Bill Werther
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What price would you put on the oxygen you breathe?
By Mallen Baker
June 8, 2015