Active Value

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.

1. 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.
2. Better BHC rating would also suggest lower costs to others, meaning lower macro-scale and specific risks for insurers, for governments, and for investors.
3. That equates to easier and more cost effective access to insurance, to credit, to public incentives, and to investment capital.
4. These are competitive advantages which markets can respond to, and which should attract investors, consumers, and public incentives and contracts.
5. 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.

The actions of governments can also be evaluated (internally or independently) on the basis of BHC calculations. Investments that improve lives and livelihoods, expand everyday wellbeing and long-term security in real, humanizing, and durable ways, can reduce hidden costs, multiply co-benefits, and free up resources for smarter investment in generalized sustainable development.

Nations that build peace improve prospects for everyone.

• This is how the United States built its global influence throughout the 20th century—by investing in other nations, saving millions of lives, and fostering bilateral and multilateral cooperation that benefitted all sides.
• Article I of the U.S. Constitution also calls on Congress to “advance science and useful arts”. If this is done with sufficient openness and generalized access to high-value insights, the whole society can reduce costs, improve outcomes, build efficiency, and develop more sustainably.
• Pulling back from such investments in health, wellbeing, and peace, has destabilizing effects, including widespread suffering and loss of life, that result in a far greater drain on public resources.

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.

New business models are emerging that will amplify opportunity—for market share and returns on investment, including for small businesses—by aligning operational priorities with wider societal benefits. For instance:

• Farms that build soil ecology and biomass can produce more food, with higher returns, while becoming eligible for payments for carbon sequestration and ecosystem services.
• Local small businesses that support the exchange of relevant data and finance can serve as soil ecology finance corporations, becoming investable high-value intermediaries that diversify rural economies and attract investment.
• Land that is more resilient can qualify for special tax treatment, while gaining expanded access to credit and lower cost insurance.
• In each case, improving the local and regional balance of hidden costs and co-benefits result in expanded opportunity and competitive advantage.

The BHC is a way for institutions large or small to assess the wider landscape of risk and identify critical areas of action. We propose starting with a checklist like this:

1. How much pollution do our operations and our supply chain generate?
2. What are the known effects of that pollution?
3. Do we see costs from health-related, environmental, and climate impacts, in our region? Our country?
4. How are those costs paid, and by whom?
5. What other secondary costs and ripple effects can we trace—including health-related costs, depletion of resources that support everyday economic activity, or diversion of public budgets to address these ripple effects?
6. Can we combine these new sources of information with what we already consider to formulate our own BHC estimate?
7. Can we achieve the same operational outcome with goods and services that do not generate these secondary costs and wider ripple effects?
8. Are there incentives in place to support a shift to these better practices with improved BHC?
9. Can we benefit from focused capital that is seeking these BHC improvements (even if they don’t use BHC as a specific metric)?
10. What would a rethink of our forward plan look like if we make these improvements and can access such incentives and focused capital? (Include revenues, market numbers, and growth potential.)

There are also important clues in the Sustainable Development Goals for how to constructively contribute to the wider landscape of co-benefits flowing from investments and everyday activity. While many of the SDGs need governemnt to provide clear policy direction and budgetary support, there is important room for spontaneous, private sector and small business contributions to:

• better health,
• improved food systems,
• water and sanitation,
• open access to information,
• sustainable and resilient infrastructure,
• fair compensation for decent and purposeful work,
• clean energy and industry,
• institutions rooted in and supporting justice and trust,
• partnerships to support sustainable innovation,
• building community and protecting Nature.

It’s time to get started building a future that makes sense.