Economics of Sustainability
IS Thought Leadership by Ben Mason
, Economist at Frontier Economics
Talking the Language of Decision Makers
To a lot of people economics is expressed in dollars and cents. This is undoubtedly important as the recent ISCA study into return on investment for pursuing an ISCA IS Rating illustrated. However, when communicating sustainability initiatives to decisions makers - be it at board level, for treasuries or other funders - it is as important to talk in their language. Making economics a key focus of the narrative and logic underpinning a funding application or business case can make the difference between an initiative that gets traction and another that falls away.
Narrative Not Jargon
It is important to be clear that when I point towards the importance of an economic narrative that is not to say you should use simply jargon for the sake of it. While sprinkling buzzwords such as jobs, multipliers and even stimulus into a funding application may help, embedding an economic narrative goes deeper than this. Economics is about making the most of finite resources (including but not limited to labour, materials, land and money). More than this, it's about making tradeoffs, for example if you use land for a water treatment plant then that land can’t be used as park. This is where the narrative comes into it. Recognising tradeoffs and justifying why, on balance, a sustainability initiative is best for a funder who is talking their language.
Economics is about making the most of finite resources (including but not limited to labour, materials, land and money)
The Economic Narrative Playbook
It may seem daunting for sustainability professionals to use economics language. However, there's a handful of concepts which can go a long way to achieving this. These include:
- If there's a financial rationale for a sustainability initiative, then make it clear. Without wishing to confuse finance and economics (finance is about money whereas as previously stated economics is about tradeoffs more broadly), financial rationales are crucial. If your sustainability initiative has a lower whole-of-life cost than the next best alternative, then you should shout this from the rooftop!
- Externalities could help justify your sustainability initiative. A common reason that a sustainability initiative should be progressed is externalities. An externality is where there is an impact which isn't included in the price paid by a consumer. Emissions are the classic example of an externality. Noise and vibration are other examples. Being clear on the externalities associated with your proposed initiative compared to a base case can help crystallise the value proposition.
- Resilience can be used as an economic concept. The ability to withstand shocks and stresses tends to focus on climate change and other environmental factors. That's fine but a decision maker will be much more interested to hear how resilience protects the value of their infrastructure asset over the long term. For example, if an infrastructure project is being designed to withstand sea level change over the next 50 years with a high level of certainty, then there are costs associated with the absence of this feature (perhaps the asset would have a shorter life or a higher risk of failure).
- Adaptive management can be a valuable tool - Infrastructure investment is too often viewed as a one-shot game: either you build an asset or you don't. It doesn't have to be this way. An adaptive management approach to infrastructure investment can reduce risk and spread cost over time. A phased infrastructure investment with a number of decision points, potentially based on a key indicator (for example demand), allows for easier decision making. Seeking to include this in funding proposals, or alternatively making clear why such an approach isn't appropriate, can help your case.
There's plenty more to economics than the points discussed above and as an economist, I'd strongly advise the rigour of cost-benefit analysis where possible. Nevertheless, talking in the language of decision makers isn't rocket science, and adding an economic narrative to a good sustainability initiative can certainly help in securing funding.
Learn more on ISCA's Return On Investment Study
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