Category Archives: Sustainability

“Whole Iceberg” Pricing and the Triple Bottom Line

Most retail prices are like the tip of an iceberg, reflecting only a small portion of the costs associated with a product. Beneath the surface are myriad hidden environmental and social costs that are not included in the product’s price. Transitioning from a single bottom-line model toward a more sustainable triple bottom line model involves developing pricing and supply chain strategies that reflect true costs.

Tip of the Iceberg --- Image by © Ralph A. Clevenger/CORBIS

Tip of the Iceberg — Image by © Ralph A. Clevenger/CORBIS

Each day as individuals and businesses, we make choices about how to spend our money. We identify alternatives and weigh trade-offs in evaluating which choice will best meet our needs. And in the billions of transactions that take place every day one factor in this evaluation process that usually carries the most weight is price – “what will it cost?”

Whether we are aware of it or not, we use “price” as a heuristic device. Price gives us a shortcut since we tacitly assume it represents all of the associated costs of a product or service rolled up into one number. This makes it easier for us to make “apples to apples” comparisons in our purchasing decisions – in theory anyway.

 Prices Reflect All Costs – Except When They Don’t

A key assumption that often goes unexamined is that our economy functions according to perfect market theory. In a perfect market, price reflects equilibrium between supply and demand. In a perfect market, buyers and sellers have equal access to all relevant information.

But the perfect market does not exist – except in economics textbooks.

In the real world, whole icebergs don’t float on top of the ocean, and prices are illusions that most of us unwittingly buy in to. But since pricing weighs so heavily in our B to B and consumer purchasing decisions, those companies who benefit the most are often the ones most skilled at pushing as many costs as possible beneath the surface for others to absorb.

Lower prices are good, right? So what’s the problem?

Called “negative externalities” by economists, these are costs that are shifted to those who are not involved in the transaction – pollution being a prime example.

Negative externalities are hidden costs that are not included in conventional accounting methods, so are not reflected in prices.

Why is this important? If prices are inaccurate since they do not reflect true costs, then the basis on which we are weighing trade-offs in our economic decisions is fundamentally flawed. The resulting misallocation of resources leads to what economists refer to as market distortions, or market failures in extreme cases resulting in a “tragedy of the commons” in which environmental and social exploitation can reach catastrophic levels.

The documentary “The True Cost” does a brilliant job of looking at the fast fashion industry as an example of the problem and its devastating human and environmental impacts – a problem that exists in varying degrees across all industries.

What’s a company to do?

  1. Expand awareness: go beneath the surface and see the rest of the iceberg

“Negative externalities” are much more difficult to ignore or explain away when they take on the face of another living being. This is why documentaries like “The True Cost” and “Cowspiracy” are so important. They reach us at an emotional level rather than an intellectual level. Facts and figures are easy to manipulate and can fall victim to confirmation bias, but empathizing with others based on our common identity is usually the impetus to behavior change.

  1. Assess your current position on the single bottom line <––> triple bottom line spectrum.

Take 20 minutes to complete the B Lab Quick Assessment

  1. Study and learn from the examples of those who are on the path to true cost pricing

It’s not easy bucking the status quo, but more and more companies are showing that it is possible to succeed economically while being true to social and environmental values. Companies like Patagonia, Whole Foods, Ben & Jerry’s and Seventh Generation are demonstrating that customers increasingly understand and care about the relationship between price and social and environmental impacts.  And Puma has taken a leadership role in moving to a full cost accounting methodology for others to emulate.

Ultimately, a company’s pricing and procurement strategies offer good litmus tests on how how it is balancing economic, environmental and social factors within a triple bottom line framework.

Post-Conventional Sustainability Leadership Using Action Inquiry

The adaptive changes that are necessary to create sustainable organizations and societies call for more leaders who exhibit post-conventional qualities.  Action Inquiry is discipline that promises to help leaders develop both the internal and external capacities needed to lead transformative change. Developed by Bill Torbert and Associates, Action inquiry is a disciplined leadership practice inContinue Reading

“The Earth and Its Poor Cry Out” – The Imperative for Business Leaders to Act

The enthusiastic crowds that greeted Pope Francis during his visit to the U. S. last week demonstrate how his influence extends beyond the realms of Catholicism and religion itself. His message of caring for our common home by cultivating an integral ecology founded on morality and compassion is meant for each of us – especiallyContinue Reading

How Incentives Can Undermine Sustainability Values

By reinforcing self-interest, even the best-intentioned financial incentives can hinder the cultivation of pro-social values that guide sustainable business transformation.  More effective is a full spectrum approach that addresses the needs and values of the whole person. In theory, it makes perfect sense. If you want to motivate people to produce more of something, simplyContinue Reading

Want To Accelerate Change? Get Personal

Relying on reason alone to drive organizational change is like fighting with one hand tied behind your back. We had done everything right…. or so we thought. We had brought together top-notch talent and the latest technology. We had included all stakeholders in every phase of development, and provided extensive training and ongoing technical supportContinue Reading

The Wisdom of Sustainability

All intelligent leaders possess three basic skills, but wise leaders harness them for the common good. In the course of studying intelligence and wisdom during his long and distinguished career as a psychologist, Robert J. Sternberg discovered that all effective leaders have high levels of:  Creative ability – developing novel ideas and approaches Analytical abilityContinue Reading

Sustainability as a Competitive Advantage

This article was originally published on the E4 Media Advisory web site. What do these companies have in common? Patagonia Ben & Jerry’s Seventh Generation By any conventional measure – profit, market share, and revenue growth – they’ve each achieved an enviable level of success in highly competitive industries once dominated by larger competitors. ButContinue Reading

Provisional Sustainability – A Double-edged Sword?

During a recent panel on Economic Sustainability one of the panelists remarked that “this is not about morality – it’s about business.”  When he said the word morality it was with a tone that implied flighty sentimentalism that has no place in the real world – especially in a corporate boardroom.  He stressed the wordContinue Reading

Is Maximizing Shareholder Value Inherently Incompatible with Sustainability?

This article was originally published in Triple Pundit Podium. Managing the tension between maximizing shareholder value and integrating sustainability into corporate strategy requires adaptive leadership at the Board level. What is the purpose of a publicly traded company?  Are maximizing profits and share price synonymous with maximizing shareholder value?  How do shareholders who may have diverseContinue Reading

It Starts With Purpose

What is the purpose of our organization? What is our vision of what we want to become? Whose interests do we serve? How do we manage the tension between competing interests? What are our goals? What values will guide our strategy, policies and activities? What is the best strategy to accomplish our goals while stayingContinue Reading