Shifting the business narrative: internalising externalities - a response to the Information for Better Markets Conference 2017

For me the high point of the Information for Better Markets conference held in December was Jeffrey Unerman’s presentation Reporting on business’s external impacts: what do we know? This was a summary of research commissioned by ICAEW from Jeffrey, Jan Bebbington and Brendan O’Dwyer for the conference.

There is so much to say about this paper.  However, I want to focus on language and how we can use it to map business’s changing view of the issues we call sustainability.  Let me start by declaring a position. I think that the act of reporting sustainability separately reinforces the view that these issues are extra to the business and do not lie at its core.

If we want these so-called externalities internalised then we need to start thinking and acting like they are core to the business.  Whilst reporting does impact behaviour, I am unconvinced by the argument that beginning with reporting will drive a change in internal decision-making.  This seems to be reverse engineering a process.  It is important to change business decision-making first, as this will, of course, then  give organisations something to report. With this in mind ICAEW led on establishing the Natural Capital Coalition project, which we house. The Coalition’s focus is on how to embed nature in mainstream decisions. It’s Natural Capital Protocol, which was launched in 2016 is a framework to achieve that.   

My interest was really peaked when Jeffrey spoke about the ‘Internalising externalities continuum’ and I have copied his slide in here:



What I find fascinating is that you can map a changing conceptualisation and associated language along this continuum.

Jeffrey and colleagues were looking at sustainability disclosures, which, as I have said, in their current form tend to reinforce those issues as external. For me this is underpinned by the language.  We read and talk in terms of impacts, measurement and categories of issue considered discretely and in isolation and this comes through in the research.

One of the most telling things we have seen in the businesses that are implementing the Natural Capital Protocol is a change in language that signifies a new conceptualisation of the importance of nature. 

We are seeing three shifts.  These are:

From impacts to dependencies;

From measurement to valuation; and

From segregated issues to a systems approach.

Impact can happen without having any relationship with the business.  A donation of £1m to a favoured charity or planting a 1000 trees are impactful and very worthy but external to the business. When we think about how dependent we are on nature in a very specific way, rather than on what impact we might have, the relationship we have with nature changes.  It becomes something business success cannot do without; it becomes a strategic and operational issue right at the heart of the business. Similarly measurement simply tells us “how big”; valuation tells us “why does it matter”, moving nature centre stage.  Finally for as long as we can take each subject in isolation – and therefore ignore each one’s importance –  we will not understand their inter-connectedness and their relationship to the business.  Once we see them as a connected whole we can see how we depend on them and  why they matter.

This is fundamental to creating a compelling strategic narrative for the importance of nature to businesses success and its internalisation. This I think – although much more research is needed to be confident – is mirrored in the move along the continuum that the research identifies.