Marakon Commentary

The Convergence of Financial and Societal Value, and What It Means

September 13, 2021
Pipes Oil and Gas

In this Marakon Commentary, Charlie Johnson and Christine Delivanis discuss how until very recently, the market and society more generally were less aware of the broader positive and negative externalities businesses can create as a result of their activities. In addition to a lack of general awareness, the lack of a pricing mechanism enabling the “internalization” of these externalities prevented their measure from being priced into market value.

Specific measures and mechanisms like a carbon price are today being explored as ways to enable a more accurate and quantified picture of the societal costs of specific business activities, beginning with greenhouse gas emissions in particular. However, the market is already beginning to price this perspective into market value of certain assets, in particular in sectors with an increasingly clear and visible narrative connected to the creation of “externalities”, long before the specific pricing or taxation mechanisms are fully in place.

This sets up a clear but difficult choice for business leaders in those sectors – ignore the market signal and deal with potential consequences including fewer potential buyers of your assets, rising cost of capital, less demand for your product OR shift your business model to an equally uncertain future shape with exposure in markets with significantly improved externality profiles.

While this choice is difficult, it is fundamental to most strategy work being conducted in today’s sustainability-focused macro environment.