This shift away from short-term profit at the expense of communities and ecosystems in favor of stable, long-term investments that are socially and environmentally sustainable, is a shift away from shareholder capitalism towards stakeholder capitalism.

Now more than ever, Wall Street is paying attention to a company’s long-term investments in environmental and social sustainability as an indicator of business health and longevity. The last few years have shown that companies with higher ESG performance are more resilient, and this is recognized by investment firms and private investors. It is not a simple calculation our world is increasingly interconnected, and every product draws on different sources of human and natural capital. These actions include removing carbon dioxide from the air, protecting or restoring forests, or providing fair wages so that communities remain healthy and free of practices such as forced or child labor. TCA includes the cost of actions taken either to prevent or to remediate negative impacts. These costs can also impact communities across the globe or future generations. In addition, communities of color and vulnerable populations disproportionately experience negative externalities. If a company places a production plant near a town and does not enact measures to keep local bodies of water clean, the community and the environment “pay” the cost. Communities or ecosystems tend to absorb and bear the burden of negative externalities. In short: True Cost Accounting reveals externalities.Īn “externality” is a cost associated with the production of a good that is not reflected in its final price. In a time of economic contraction, why do market leaders invest their resources in using TCA for supply chain resilience? TCA often translates to a higher upfront cost when sourcing or manufacturing a final product, which accounts for the resources the business must invest to keep their supply chains resilient and ethical. Instead, one effective approach to systemic thinking is True Cost Accounting (TCA).Īlso known as True Pricing, TCA is the idea that we can determine a price that better accounts for impacts on communities and the environment during the production process. In reality, this approach is the opposite of systemic thinking it undercuts the stability of markets and undermines sustainable supply chain health. It is tempting to look at short-term savings when facing economic contraction. Environmental, social, and governance (ESG) investment professionals now indicate that the pandemic highlights the need for systemic thinking. The COVID-19 pandemic accelerated the already growing use of sustainability metrics and elevated the challenges we face as an interconnected, global economy: labor shortages, supply chain disruptions, and fears of a recession creating uncertainty among businesses worldwide. As a result, investors have been prioritizing sustainability initiatives that minimize disruptions and build resiliency at an increasing rate $357 billion in assets were invested in sustainable funds at the end of 2021, more than four times the amount in 2018. Disruptions such as worker health and safety issues, labor rights violations, and the impact of climate change have the potential to dramatically alter these growth projections, as well as the total return to shareholders. Over the next two decades, the consumer sector is predicted to grow at a strong rate of five percent per year.

Steven schwartz tca