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12 Apr 2021

How social value and the environment are intrinsically linked

Luke Baker

Social value is a term that has started to be thrown around a lot by organisations today but what is it really? And how is it linked with the environmental crisis we find ourselves in?

We are all familiar with the term ‘value’, we express this through the items we purchase day-to-day.  And that’s how value has largely worked since we first started exchanging goods and services millennia ago.

What’s more, companies have become very good at delivering on this value. Amazon’s mission statement reads, “to be Earth's most customer-centric company” and their obsession with customer value has led them to be one of the world’s most successful companies.

This interpretation of value however has brought with it some issues. And this is where the term social value comes in. Social value looks not just at the value a company provides to its customers measured by the price they pay, but also the wider value it provides to society through all its activities. For anyone who dabbled in economics, they’ll have seen this part of ‘value’ broken out and referred to as externalities. These externalities can be both negative or positive.

Nightclubs are great… for those in them

An often-used example is the fabled nightclub. The nightclub provides value to its customers through the DJs and resulting music and good times. The problem comes though for its surrounding neighbours who also hear the music or have to deal with anti-social behaviour from party-goers. Anyone who has been kept up by the neighbour having a party all night will sympathise with these folks. Therefore, the waking up of neighbours and their lack of sleep is the negative externality here.

This is a fairly straightforward example, as the neighbours disturbed are all within a defined area around the club. Whilst the negative externality, in this case, is fairly straightforward, the solution could be anything but. Look at Fabric nightclub and its continuous closures and reopening as an example.

What you can’t see

To add another layer of complexity let’s look at an industry that produces a physical product and how it can have some very different knock-on effects.

On the surface clothing stores facilitate a very simple transaction, you give them money, they give you clothes. But there is of course more to this story. There are a whole bunch of people and processes involved in getting that t-shirt onto the rail as well as effects during and after you’ve worn it. And at each of those points, there is a social value or externalities.

We’re going to be looking into the disastrous consequences of the fashion industry and some of the heroes looking to change it in a later article but let’s take a look at a very small piece of the supply chain; the sourcing of one of its inputs; cotton and the water required to grow it. In fact, for every kg of cotton, you need on average 10,000 litres of the stuff. And this is where social value and the environment start to intertwine.

One of the leading countries for cotton growing is India and this thirsty plant is having some nasty knock-on effects on the water levels in the country. In fact, in India in 2013 they exported more than 7.5m bales of cotton or 1.275m tonnes, which means they also effectively exported about 38bn cubic metres of virtual freshwater. Those 38bn cubic metres consumed in the production of all that cotton weren’t used for anything else.

This should be fine though; we have lots of water on this planet. Or do we?  Fresh water in certain regions of the world where there is also cheap labour is becoming a serious issue. By 2030 water demand will outstrip supply by 50% in North East India, according to the World Resources Institute. What’s more, over 100m people in India do not have access to safe water already with 200,000 people dying because of this shortage each year. 

Of course, a plant like cotton should not be grown in arid regions like North East India but due to the price of labour, it is a world leader in its supply to predominantly the western world.

A growing trend

And we are increasingly seeing this interplay between the environment and human beings and it’s not a positive one for us. This is because we are coming up against a number of planetary boundaries, whether that be water or soil nutrients when it comes to our food and materials system or CO2 concentrations in the atmosphere affecting our weather system. There is hope however, coming back to India we are seeing innovative companies like Dehaat step in, the company supports 350,000 farmers in managing their crops more sustainably.

If you’d like to learn more about ‘value’ and the new models emerging around this new paradigm check out ‘The Value of Everything’ by Mariana Mazzucato and ‘Doughnut Economics’ by Kate Raworth.

We’ll be discussing in later articles the various mechanisms that are starting to be used by governments to govern this transition as well as the voluntary actions taking place by companies to counteract these environmental and social effects. You can subscribe to them all here.