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With a continuously decreasing amount of resources, there’s a clear need to analyze our production and consumption habits. Our current rate of consumption isn’t efficient or sustainable. We must rethink how we utilize our current resources in order to preserve our planet and protect our assets in the future.
It is clear that we collectively need to redefine our previous standards of financial goals in order to prioritize sustainability. This belief is the foundation of sustainable development. Sustainable development allows for the protection of natural resources while also striving for the ability for all, despite location or socioeconomic status, to realize their dreams equitably. Our current methods of production have devastating side effects, which are known as “negative externalities” in the financial world.
The main cause of our current negative externalities are company production chains and irresponsible corporate strategies. For example, many companies that produce goods have environmental negative externalities. For a company that produces paper, a negative externality would result from the pollutants coming out of the factory’s smokestacks. These pollutants will go on to adversely affect the health of everyone around. Currently, these negative impacts are rarely calculated in business valuation models. The business valuation model is a metric that’s used to define a “successful” company. The model is important because a company’s performance on this scale holds a weight. Unfortunately, companies aren’t penalized, or held accountable in any way, for negative externalities stemming from their production channels. The root of the issue is the fact that the business valuation model only focuses on short term growth, totally ignoring very serious long term effects (hello climate change!).
At Physis Investment, we firmly believe that companies should be held accountable for any environmental, social, and economic harm that they cause. Interestingly enough, companies benefit themselves, especially in the long term, from being conscientious of their negative externalities. If a company curbs environmental pollution in its surrounding area, the local workers will be healthier. This will lead to workers being able to work more efficiently with less sick days, ultimately benefiting the company. The implementation of sustainable development goals into how we evaluate companies is integral to progressing towards a prosperous and viable future for our societies and everyone we share the planet with!
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