Eliciting the hidden costs of business – talk by Pavan Sukhdev
Thursday, 25 May, 2017

On the 25th of May, ISET was pleased to host the environmental economist and founder of the consultancy company GIST Advisory, Pavan Sukhdev, for a presentation. Starting his career as a physicist, Mr. Sukhdev got interested in the challenges of environmental protection. This led him to investigate economics, particularly aiming at understanding the significance of businesses as a driver of the changes that we see around us as well as third-party impacts, which are known as externalities in economics. Mr. Sukhdev highlighted corporate externalities as being the “biggest free lunch in human history”. Created by private companies, externalities cause huge damages. Companies earn profits at the expense of public losses, reaching from 10 to 15 trillion dollars or 15-20% of global GDP. A study by the NGO “Trucost” found that in 2010 five sectors, namely electricity, oil and gas, industrial metals and mining, food and construction are responsible for about 60% of environmental costs. Yet, as pointed out by Mr. Sukhdev, the private sector operates in the scope of the legal framework and can therefore be influenced and regulated by society.

During the second half of his talk, Mr. Sukhdev raised the question of who suffers most from these externalities and argued that smallholder farmers are affected most negatively by the economic misuse of environmental resources, as they heavily depend on them.

To account for the economic contribution of the environment, he suggested that one should adjust the GDP measure. According to Sukhdev and his coauthor Gundimeda, for example, the contributions of the Indian ecosystem amount to 53% of the GDP while in Indonesia and Brazil the percentages are 25% and 11% respectively.

Sukhdev’s presentation was finalized by the quote from Benjamin Franklin: “I believe that the great part of miseries of mankind are brought upon them by false estimates they have made of the value of things.”