In the previous videos, we have discussed the social and environmental challenges such as clean air, freshwater, respect for human rights, safe working conditions, and access to health and education. How do we deal with these challenges? But very much depends on your perspective. An economist calls these challenges such as clean air externalities. Externalities are public goods which are not priced. Next, a human rights advocate would say that we need to ensure that every person's claim to life's essentials are met. So access to clean air, food, or health care is a basic right for all. Finally, an ecologist would say that we need to operate within the ecological limits. You can see here up my farm where I live with my family, how beautiful nature is. It is important to preserve our Earth's system for future generations to live in and to live from. An ecologist does not understand how an economist could call nature just an externality, external to our economic models. For her, a healthy nature is the basis of a thriving society. Now, I would like to introduce our working definition of sustainable development, which integrates the three perspectives or levels in the concept of integrated value. Integrated value is the combination of the financial, social, and environmental dimensions. I see you thinking, who tell us to integrate the three dimensions, but the problem is that social and environmental externalities are not reflected in market prices. So the question is how to internalize these externalities. Remember, that the SDGs are an agenda for all of us to act upon. We start with the government, which can regulate or tax externalities. Famous example is a carbon tax to reduce carbon emissions. The next party is business. Companies can incorporate the cost of the externalities in production. For example, a shadow price for carbon in the case of long-term investments. The idea is that government may introduce a carbon tax during the lifetime of the project, move into finance, investors and lenders can use environmental, social, and governance, so-called ESG factors in their decisions. Next, consumers can buy sustainable products and services. We can vote with our wallet. A final party is civil society. Non-governmental organizations, so-called NGOs, can raise awareness through advocacy. They can make the public aware of environmental problems, for example, exposing polluted products or companies, or social issues such as child labor or underpayment in the production chain of a company. These are all techniques of how to internalize externalities. We will discuss them in detail in the next videos of this week. But the more important question is, why should we integrate the social and environmental externalities? Why should we pay to these beautiful surroundings? I give you four reasons. The first is anticipation of regulation or taxation. Some countries, such as Sweden have already introduced a high carbon tax. Yes, carbon emissions have been reduced by 25 percent in Sweden. What does may follow or increase current low carbon taxes, be better prepared. The second reason is to avoid reputational risk. A company can face pressure from NGOs and consumers to improve its social and environmental practices. Third reason is to be future-proof, societies in transition to achieve the SDGs by 2030, may be not fully, but at least to some extent with the business as usual approach. Your business model may get outdated and your company made this become a stranded asset. While a transition might look slow at some fronts, the scenario is thinkable where we seriously [inaudible]. You can contribute to that. It is wise to prepare your business for this transition. Fourth and important reason is ethical-based. It is our moral responsibility as company manager or investor to address the social and environmental externalities. Thank you for listening.
