Friday, June 27, 2008

We Need a Definition of "Sustainability"... And Here It Is

We Need a Definition of "Sustainability"... And Here It Is

meyer_100.jpg“Sustainability” is a meme morphing into a buzzword. As “climate crisis,” “triple bottom line,” “carbon cap and trade,” “cleantech,” and other phrases enter more widespread use, they are amalgamating, becoming code words that signify that the user “gets it,” while offering little specificity about what it is that’s gotten.

This happened with “Web 2.0,” a term Tim O’Reilly established to signify web-based applications, which has now engorged to encompass social networking, user-generated content, communities with feedback features like user ratings, and possibly everything except Microsoft Word.

There’s not much harm in the expansion of “Web 2.0." It’s a made-up term, and, Humpty Dumpty-style, it can mean what those who use it decide is most useful. But sustainability is a reasonably specific concept, and it would be a loss to sacrifice its precision for fashion.

Here’s what I think “sustainability” should mean.

Economists have historically labeled impacts--good or bad--that do not feed back into economic decision-making as “externalities.” If you bought a car battery and paid nothing to sequester its toxic materials upon disposal, the costs to society of dealing with it—whether counted as health care for people getting heavy metal poisoning or their harder-to-measure suffering—were deemed externalities because neither the customer nor the battery maker paid this cost.

Now, in many states, that externality has been internalized. The customer purchases a $25 certificate licensing her to dispose of the battery, and she is buying with knowledge of the full cost of the product. Likewise, the impact on the atmosphere of shooting carbon through a smokestack was an externality; carbon taxes and cap and trade systems are proposed mechanisms for internalizing the costs.

An activity is sustainable when all costs are internalized, because if the costs are too high, the activities stop. Low gas prices lead to more Hummers; taxing gas in some fashion to pay for environmental remediation makes sense, and is a pro-sustainability approach. This version of sustainability applies not only to the environment: labor practices are unsustainable if they breed unrest (or revolution) or fail to develop the labor force; additives that extend product shelf life are unsustainable if they diminish human life; corporate presence in a town may be unsustainable if the tax breaks that attracted the facility mean that it is not paying enough to keep the community thriving.

In this view, corporate social responsibility, cleantech, and carbon sequestration or trading are all approaches that can improve sustainability. The key principles are:

(1) Measure the system life-cycle costs in all dimensions we care about

(2) Internalize those costs rather than wave them away or throw them over some regulatory transom. The nurturing of human capital, the fairness of resource allocation (corruption is unsustainable), and caring for the health environment of workers or neighbors are equally a part of running a business or a nation in a sustainable manner.

Holding on to an economics-based definition of sustainability helps reconcile broader social interests with the measurement of shareholder value. If we can capture social costs in earnings equations, then we will align social and financial motivations. It would be a loss to let such a useful concept drift into a more emotional definition.

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