Industrial activity creates many efficiencies, but it also creates a new problem that human societies have not been able to effectively address—the tendency toward depletion of resources at scale, with speed and effciency that no person or entity can manage or control. That has led us to a situation where we, as what Buckminster Fuller called a ‘world-around’ civilization, use more resources every year than Nature can sustainably provide.
The convenience of automobiles, low-cost t-shirts, smartphones, and strawberries in winter, comes with hidden costs, many of which are not immediately connected to the business that provides these products. One way to address hidden costs is for governments to assess fees or taxes to cover the costs to society and incentivize ‘cleaner’ industrial processes. This process—for instance charging a fee for each unit of pollution—is sometimes referred to as “taxing bads, not goods”.
The problem of hidden costs is much more complicated than that, however. An Active Value report on resilience knowledge mapping found:
When we parse the data from the Whole-Earth Active Value Economy (WEAVE) knowledge graph, a startling fact jumps out: Just 14 dimensions of sustainability and resilience knowledge and action contain 87.1 billion potential permutations—recombinations of the underlying categories, or variations of complex interrelationship. Adding an institution to the mix, as a 15th dimension, yields 1.31 trillion permutations.
To operate optimally in our present age of pervasive and compounding risk, rapid change, and systemic disruption, we need to be able to assess the balance of hidden costs and co-benefits (BHC). BHC metrics play an important role in the wider process of determining where there is greater or lesser Active Value at work. It is also a generic term that can apply to many different versions of this process.
This is where so-called ‘ESG’ (environment, social, and governance reporting) and ‘CSR’ (corporate social responsibility assessments) show themselves to be very much in the interests of commercial enterprise and investors. These affirmative reports on more responsible business greatly simplify the enormously complex task of understanding precisely the balance of hidden costs and co-benefits.
There are many practical reasons to pursue a detailed understanding of BHC, both at the macro level and in relation to the activities of a business, financial interest, or value chain actors and activities.
- First, a better BHC means higher Active Value, lower hidden costs to society, Nature, the macroeconomy, and future generations, and so it is a strong selling point.
- Better BHC rating would also suggest lower costs to others, meaning lower macro-scale and specific risks for insurers, for governments, and for investors.
- That equates to easier and more cost effective access to insurance, to credit, to public incentives, and to investment capital.
- These are competitive advantages which markets can respond to, and which should attract investors, consumers, and public incentives and contracts.
- Those competitive advantages also relate to real-world benefits that, while they may not be directly valued in financial data, make it easier to create conditions for sustainable development and resilient prosperity.
We shorthand this cascade of co-benefits and competitive advantages as ‘Active Value‘, because the costs of failing to understand the balance of hidden costs and co-benefits, and then to act optimally on that practical information, is coming to be existential. We note well the stark warnings from the Commodity Futures Trading Commission (CFTC) and Financial Stability Oversight Council (FSOC), that fiscal stability and the maintream economy itself are at risk.
There are projects and platforms already identifying critical actions that can save tens of trillions of dollars in waste, tens of millions of lives, and create a more solid foundation for stability and value-building cooperation. For instance:
- The ongoing work of central banks through the Network for Greening the Financial System (NGFS);
- the debt-sustainability provisions of the Sevilla Commitment agreed at the 4th Financing for Development Conference (FFD4);
- critical levers identified by the Food System Economics Commission (FSEC) to avoid $15.428 trillion per year in hidden costs;
- efforts to develop a Co-Investment Platform to realize those opportunities and secure food systems for the long-term;
- the Bridgetown Initiative, to support value-building debt-relief and revision strategies that build resilience for all.
These are just a few of the pieces of a much larger puzzle. The balance of hidden costs and co-benefits (BHC) is becoming visible. It will put weight on all investments and industries, as national governments, major investors, and everyday consumers find it easier to avoid senseless waste and catastrophic risk.
Access to future prosperity, and even to peace and security, will depend on how well we collectively go about building Active Value and improving the overall BHC. For local economies to be vibrant and sustainable, and suited to defending against compounding risks, they will need a diverse range of actors at all scales intentionally creating a wider foundation of Active Value.
The BHC is a way for larger institutions to assess the wider landscape of risk and identify critical areas of action.
